AI-Related Contract Breaches: Understanding the Legal Implications

As the use of artificial intelligence (AI) in business, commercial, and industrial applications becomes more common, AI-related contract disputes are becoming more frequent as well. These disputes raise complex—and, in many cases, novel—legal issues, and resolving them requires an informed and strategic approach. If your company is dealing with an AI-related contract breach, consult an experienced Miami contract dispute attorney who can help you decide what to do next.

The use of artificial intelligence (AI) in business, commercial, and industrial applications has exploded in just the past couple of years. Today, companies of all sizes use AI in all aspects of their operations—from communicating with prospects and customers to developing and delivering products and services.

This means that AI-related contract disputes are also becoming increasingly common.

These disputes can raise a host of legal issues. These include traditional issues related to performance, breach, and default, as well as issues specific to the AI realm. As a result, resolving these disputes often requires an AI-specific approach, and making informed, strategic decisions starts with understanding the legal implications involved.

What Happens When a Company Breaches a Contract Involving an AI Application or Platform?

In many respects, this is the most straightforward scenario. When a company breaches a contract involving an AI application, standard contract principles will typically apply. Some examples of common reasons for disputes in this scenario include:

• A customer exceeds its license for an AI application
• A customer stops paying for its license after integrating an AI platform into its operations
• A customer experiences a cybersecurity breach as the result of using an AI platform
• A vendor fails to deliver on promises related to its AI platform
• A vendor improperly uses a customer’s data accessed through its AI platform

While these are all AI-related issues that can lead to contentious (and costly) disputes, they do not necessarily involve any AI-specific issues. As a result, when these issues arise, the first step is to review the relevant terms of the parties’ contract, and then the parties must assess their respective rights under the contract and applicable law.

What Happens When a Contract Breach is Caused By AI?

The more complex scenario involves a contract breach caused by AI. AI-induced contract breaches can (and do) occur in a variety of different ways. Here are just a handful of examples:

• A customer support chatbot provides bad (or dangerous) advice
• An AI-based inventory management program miscalculates market data, prices, or dates
• A generative AI platform uses proprietary content or data without the owner’s consent in violation of the developer’s representations and warranties
• A predictive AI platform fails to meet the developer’s reliability standards
• An AI platform otherwise fails to comply with the developer’s representations, warranties, or SLAs

Again, this is just a small sampling of numerous possible scenarios. In each of these scenarios, the developer is not directly responsible for the contract breach, but instead is responsible for the technology that caused the breach at issue.

If AI causes a contract breach, is the developer responsible? The answer is not clear-cut. While a well-drafted contract from the customer’s perspective will include broad protections that apply in this scenario, legitimate questions remain about whether (and to what extent) a developer is liable for the uncontrolled outputs of its AI platform. 

Ultimately, both parties will benefit from contractual certainty—and, when negotiating contracts for AI-based products and services, they should devote adequate time and resources to ensuring their agreement is as comprehensive as possible. But if it is too late to take a proactive approach, the parties will have no choice but to try to resolve their dispute in light of the limited contractual guidance and common law authority available.

FAQs: Resolving Commercial Contract Disputes Involving AI

Are developers liable when their AI platforms make mistakes?

In the commercial context, whether developers can be held liable when their AI platforms make mistakes rests largely (though not exclusively) on the terms of the parties’ agreement. With this in mind, when negotiating AI-related contracts, both parties should pay close attention to the agreement’s representations, warranties, and liability provisions; and, in the event of a dispute, reviewing the relevant terms of the parties’ agreement will typically be a key first step.

Are developers responsible when AI platforms infringe on third parties’ intellectual property (IP) rights?

This is another question without a clear answer; here too, the outcome will often (though not always) depend on the terms of the parties’ agreement. If an AI platform infringes on a third party’s IP rights independently, the developer is more likely to be liable (though contractual protections could limit its liability). Conversely, if a licensee’s prompts are primarily responsible for infringing AI-generated content, the developer is less likely to be liable in this scenario.

Do flaws in AI platforms give rise to product liability claims?

While flaws in AI platforms can give rise to product liability claims in the consumer context, AI-related claims are more likely to be contract-based in the commercial context. That said, these are complex cases, and assessing the parties’ respective claims and defenses will require a thorough examination of the specific circumstances.

How Gonzalez Law Offices, P.A. Can Help

Our law firm represents clients in AI-related contract disputes in South Florida. If your company faces a contract dispute involving an AI platform, we can help you make informed, strategic decisions about how best to proceed.

Schedule a Call with an Experienced Miami Contract Dispute Attorney Today

To speak with an experienced Miami contract dispute attorney at Gonzalez Law Offices, P.A., contact us today. Call us at 305-676-6677 or tell us how we can reach you online to arrange a confidential consultation.