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Legal Complications Of Introducing Ai In It Services With Particular Reference To Intellectual Property And Liability And The Way Forward
Legal Complications Of Introducing Ai In It Services With Particular Reference To Intellectual Property And Liability And The Way Forward

Legal Complications Of Introducing Ai In It Services With Particular Reference To Intellectual Property And Liability And The Way Forward
It is pertinent that developers of AI and legal professionals working for IT companies need to be provided a platform for collaboration in order to understand the potential challenges and solutions to these challenges
INTRODUCTION
The advent of Artificial Intelligence (“AI”) has had a significant impact on various aspects of our society, culture, economy and business operations. The impact of AI on industries such as healthcare, education and finance has been keenly felt as AI has delivered and promises further augmentation of productivity and enabling personnel to work on new innovations rather than be bogged down by day-to-day operations of a company.
The aforesaid impact of AI is now leaving its imprint on the Information Technology Services industry (“IT”), as companies in India are integrating AI into their offerings. These companies are making contractual commitments to enhance operational efficiency, promising faster service delivery, reduced costs, and improved overall performance by integration of AI with IT services.
However, the integration of AI comes with its own issues, both in terms of implementing such a complex technology and addressing the legal issues that arise from its usage in providing IT services. In this article, we will analyse a few of these legal concerns in detail, in order to identify and understand the potential solutions, that could be adopted for addressing these legal concerns.
Legal Concerns
1. Intellectual Property And Ownership
Intellectual Property Rights (“IPR”) are exclusive legal protections granted to an inventor, creator, innovator over their creations for a set period of time. These rights allow the owners to control the use of their creations and prevent unauthorized use by others. The main categories of IPR are Copyright, Patents, Trademarks and Designs. In India, the three main types of IPR are governed by the following laws i.e., The Copyright Act, 1957, The Trademarks Act, 1999, Patents Act, 1970 and the Designs Act, 2000 (collectively referred to as the “IP Laws”).
While, India has done a commendable job in addressing the requirements for IPR protection by introducing and updating the IP Laws from time to time, the aforesaid laws are not yet equipped to address the issues posed by incorporation of AI in our business activities due to the following reasons:
I. AI-Generated Inventions/Innovations – AI systems are increasingly being used to create inventions, innovate work models and develop new services. Such utilization of AI leads to difficulty in determining who owns the rights to such AI-generated work—whether it is the AI itself, the developer, or the user and it raises complex IPR issues. This arises due to the fact that traditional IP laws were designed for human creators, not machines. This uncertainty in ownership can lead to various disputes about affixing liability and ensuring the appropriate owners of IPR are empowered by law to receive the benefits of said innovation, invention or creation.
II. Patent Law – In India, the Patents Act, 1970 governs the grant of patents as a form of IPR protection. However, the patentability of AI faces a hindrance in India due to Section 3(k) of the Patents Act, 1970, as it excludes patenting of algorithms, computer programs and business programs, hence any innovation that may be made to AI by humans via an algorithm or any computer program or the innovation AI might conceive by inventing new processes or devices, will lead to such innovations being excluded from patent protection in India.
However, such inventions may be patented outside India as the United States of America provides patents to algorithms and has taken a stance of protecting IPR claims in respect of AI as evidenced by decisions of the American Courts upholding AI patents in the cases of Qualcomm v. Apple1 and Image Processing Technologies LLC v. Samsung Electronics Co.2 wherein patents of Qualcomm and Image Processing Technologies LLC which incorporated AI elements along with their products and goods were upheld. Even the recognition of AI under the AI Act, 20243 by the European Union is a positive step towards global acknowledgment and action towards development of laws regulating and governing AI.
III. Third Party Intellectual Property Rights – AI models often process and interpret open-source knowledge to execute tasks based on the algorithm and language learning models developed by the creator. However, this process could result in the AI inadvertently incorporating proprietary knowledge from third-parties, which the AI uses to executes its task(s). Using third party’s IPR to develop a product or perform a service without proper authorization amounts to infringement of that third party’s IPR, which could lead to direct claims against the company utilizing the AI in such manner. Additionally, clients or recipients of the AI services may also as IT service contracts typically include clauses prohibiting the use of third-party IPR without prior consent. Therefore, IT companies must protect their AI models from such infringements by ensuring transparency and establishing proper contractual arrangements when third-party rights are involved.
2. LIABILITY
While we have briefly discussed how AI may attract liability in the Intellectual Property Rights section above, we will delve deeper into the topic of Liability in this section to understand the legal ramifications of integrating AI with our services. This section will try to analyse issues with determining the liability of the party and other issues that may arise due to breach of contractual terms or breach of any statutory laws, guidelines, regulations, and rules.
I. Contractual Liability – A standard contract for providing IT or any other services typically includes clauses that obligate the service provider to deliver services in accordance with the terms and conditions outlined in the agreement. Below is an indicative, non-exhaustive list of obligations that the service provider must adhere to as per the contract:
- Data Privacy and Protection;
- Compliance with applicable laws;
- No utilization of third party rights/material without appropriate authorizations;
- To ensure that there is no negligence or misrepresentation of capacity to provide services in the agreement; and
- Adherence to providing services with a certain level of quality.
It can be inferred that adherence to the aforementioned obligations requires coordinated efforts across various wings of business operations within the bounds of terms and conditions of the contract. Due to which, IT companies have implemented checks and balances to ensure that no errors occur, attempting to prevent any breach of contractual obligations.
However, ensuring the same checks and balances to be adhered to while utilizing AI may pose a more daunting challenge as AI systems become more autonomous which could lead to actions not authorized by the human developer or the IT company as a whole. In such instances, it becomes a hassle for both the IT company utilizing the AI to provide services and the person who received the erroneous services to affix liability as questions such as “whether it’s the developer, user, or AI itself—becomes increasingly difficult. For example, if an AI system causes harm or damages (such as in autonomous vehicles or an autonomous software code developer), who is responsible?” will arise and needs to be dealt with in court prior to any question of damages is dealt with thus leading to delayed relief (if any) being provided.
From IT companies’ perspective, introduction of AI may not be the most productive path forward as it may lead to situations where they could be held liable for negligence. This could arise due to multiple reasons such as failing to ensure that their AI systems operate as intended owing to neglecting proper testing, oversight, or making inadequate attempts to prevent biases in the AI system.
II. Intellectual Property Liability – As briefly discussed in Section 1 (Intellectual Property and Ownership), IP Laws grant IPR to creators of innovative products, designs and other goods as per the terms and conditions set out in the aforesaid IP Laws. One of the cornerstones of IP Laws is that it offers exclusive ownership to the holder of the said intellectual property and any breach of such right knowingly or unknowingly can give rise to a suit claiming damages by the owner against the infringer.
In cases where AI is used without any restrictions or constraints may lead to utilization of material by the AI that may be protected by IP Laws and other intellectual property laws around the world for breach of the IPR holders’ right. Such breach may lead to exemplary damages that have to be borne by the infringer. Thus, addressing the potential intellectual property rights impact that utilizing AI may have in contracts is of paramount importance and why is that so will be discussed briefly below.
Way Forward
As a starting step, IT companies may address the following strategies to address the grave nature of risks laid down above in this paper:
I. Robust Contractual Framework – It is pertinent to address even the minute details of the functioning of an AI system including but not limited to features of the AI system, the functions that it will carry out and the outcomes expected by the IT company as per its understanding of the technology during implementation. This will help in expressly listing out what the IT company is expecting to achieve out of implementing this AI technology and will further help in disclaiming liability and any indemnity obligation for any acts of the AI that falls outside the ambit of the details mentioned in the contract.
II. Third Party Agreements – IT companies should ensure third party agreements are entered into with potential information hubs or collaborators from whom AI developers reasonably expect the system may draw upon protected information to develop solutions, products or designs. These agreements help mitigate, and nearly eliminate the risk of any claim for breach of third-party IPR. Additionally, IT companies may opt to take on Intellectual Property Rights’ insurance to protect themselves from any such claim. Such proactive measures could protect IT companies from any unforeseen losses by having to realise adverse claims.
The rapid development and deployment of AI technologies presents a range of legal issues that companies must carefully navigate. As AI technology continues to advance, legal frameworks will need to adapt, requiring companies and lawyers to remain flexible and proactive in addressing these challenges. Further, developers of AI and legal professionals working for IT companies need to be provided a platform for collaboration in order to understand the potential challenges and solutions to these challenges.
Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.
2. Image Processing Techs. v. Samsung Elecs. Co., CIVIL ACTION NO. 2:20-CV-00050-JRG-RSP (E.D. Tex. Jun. 18, 2020).
3. AI Act, Regulation (EU) 2024/1689 laying down harmonised rules on artificial intelligence.