Negotiating AI Contracts: Data, Training & Liability

By Laith Sarhan

Artificial Intelligence is rapidly becoming foundational to the way enterprises deliver services. From optimizing operations to creating entirely new customer experiences, the potential is immense. As you integrate AI services into your ecosystem, a critical, often underestimated, challenge emerges: contracting.

The agreements governing your AI partnerships are far more than legal formalities; they are strategic instruments that can significantly impact your innovation trajectory, risk exposure, and the long-term value derived from your data assets. Standard Service Agreements (SSAs) or boilerplate templates need deep changes to capture the unique complexities of AI.

At Sarhan Law, we work at the intersection of technology, privacy, and commercial law. We see firsthand how crucial sophisticated AI contract negotiation and drafting are in 2025. Based on the evolving landscape, here are key strategic considerations every forward-thinking leader must address:

Your Data is Your Strategic Asset

In the AI era, data isn't just input; it's the fuel for insight and potentially the core of your competitive advantage. Your AI contracts must establish unambiguous data sovereignty from the outset.

• Explicit Ownership: Best practice dictates clearly stating that all data provided by you (input) and generated specifically for you by the AI (output) remains your "sole and exclusive property." Don't settle for vague language.
• Granular Definitions: Sophisticated agreements now differentiate between Customer Data, Personal Data, and Training Data, applying specific rules to each. This precision prevents accidental oversharing or misuse, particularly of sensitive personal information. Resist provider attempts to claim broad rights beyond service delivery, especially concerning raw output data.

Navigating the Model Training Tightrope

This is the crux of modern AI contracting – the "training data clause." Can the AI provider use your data to train or improve their underlying models? Allowing this can inadvertently leak sensitive patterns, enhance a tool used by competitors, or create complex compliance headaches. This isn't just a permission slip; it's a strategic decision with long-term consequences. The market offers a spectrum:

• Full Prohibition: The default safe harbour – contractually forbidding any use of your data for model training.
• Explicit Opt-In: Requiring your specific, written consent per use case before any training occurs, giving you maximum control.
• Aggregated/Anonymized Use: Permitting training only on data demonstrably stripped of identifying features and aggregated. This requires rigorous technical validation and clear contractual safeguards.
• Limited Purpose Use: Allowing training solely to improve the service for you, strictly prohibiting use for broader model enhancement.

Consider adding model deletion requirements upon contract termination and audit rights to verify adherence – crucial mechanisms for maintaining control.

Embedding Trust & Compliance

AI systems operate within a complex web of privacy regulations (like PIPEDA, GDPR) and societal expectations of fairness. Your contracts must proactively address these:

• Fortifying Privacy: Explicitly restrict or prohibit the use of personal data for model training due to compliance risks and the technical difficulty of "forgetting" data.
• Mandating Fairness: Include provisions requiring the AI provider to implement bias detection and mitigation measures. This isn't just ethical; it protects your brand reputation and reduces legal liability arising from discriminatory AI outputs.

De-Risking the Black Box: Clear Liability and Accountability

When AI systems falter – generating incorrect information, infringing IP, or contributing to a data breach – ambiguity over responsibility is costly. Strategic contracts establish clear lines:

• Explicit Provider Liability: Define the provider's accountability for data breaches originating from their service, AI-generated errors, infringement claims related to the AI's output, and regulatory fines tied to the service's function.
• Indemnification: Secure appropriate indemnification clauses covering these AI-specific risks.
• Monitoring & Explainability: Where feasible, include rights for ongoing monitoring and requirements for the provider to offer transparency or explainability regarding AI-driven decisions impacting your business.

Architecting for Resilience: Termination and Data Governance

Your AI partnerships will evolve. Clear exit protocols are essential for business continuity and preventing lock-in:

• Defined Data Disposition: Mandate secure return or certified destruction of all your data upon termination, with clear timelines.
• Model Management Clarity: Address what happens to AI models trained (even partially) on your data. While complex, especially for aggregated use, aim for decommissioning where your proprietary data was central to the training.

The Strategic Imperative: Specialized Counsel for Specialized Technology

Navigating the nuances of AI contracting – especially data rights, training permissions, and liability allocation – requires more than general legal knowledge. It demands a deep understanding of the technology, the evolving legal landscape, and the strategic implications for your business.

Trying to adapt old templates or relying solely on provider paper creates unnecessary risk and can undermine the very value you seek from AI.

How Sarhan Law Can Help:

Whether you are a CIO integrating enterprise AI solutions or a Startup CEO building AI into your core offering, getting the contractual foundation right is paramount. Sarhan Law specializes in precisely this intersection. We help clients:

• Negotiate complex AI service agreements with major providers, ensuring your rights and assets are protected.
• Draft robust, future-proof standard AI service agreements for AI-first companies.
• Advise on data privacy and ethical AI considerations within your commercial relationships.

Don't leave your AI strategy vulnerable at the contractual level. Let's discuss how we can help you architect agreements that enable innovation while safeguarding your interests. Contact Sarhan Law today for a consultation on your AI contracting needs.