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Frequently Asked Questions

Is AI a concern in M&A and venture capital (VC) financings?

AI can raise a variety of concerns in M&A and VC financings, including: 

  • Governance and Risk Management:  
    • Has the target company established processes, personnel and technologies for assessing the ethical, legal and contractual compliance of AI systems and overseeing their development and use?  
    • Does the target have all proper authorizations, licenses, consents and other rights in the data it uses to train its AI models?  
    • What are the target’s key third-party AI dependencies and how are the tools being used internally or in the company’s products and services?  
    • What obligations are imposed by the target’s internal- and external-facing policies concerning AI, and is it abiding by them?  
    • What internal mechanisms are in place to understand, communicate and manage the company’s position on acceptable AI use and development? 
  • Intellectual Property:  
    • Has the target company implemented controls to restrict and protect data that is considered a trade secret or subject to confidentiality obligations with AI technologies?  
    • Does the target’s overarching IP strategy align with the lack of protections that may be afforded through the use of generative AI technologies?  
    • Do the target company’s vendor agreements protect the confidentiality of the target’s data or does it grant any rights to the vendor to own or use the data?  
  • Liability:  
    • Has the target company appropriately allocated rights and risks between customers and suppliers of AI tools?  
    • Does the target understand and control for potential liabilities arising from AI development and deployment, especially regarding consumer harms, privacy violations, security compromises, hallucinations, and ethical and bias issues?  
    • Has the target received or given indemnifications to third parties (including customers and providers of AI tools)?  
    • Does the target company develop, deploy or otherwise use AI tools that result in automated decision-making or are a substantial factor in impacting a consumer’s legal rights (e.g., employment, insurance, financial products), and has it implemented all legally required controls for such technologies? 
  • AI Claims:  
    • Are the target company’s marketing claims regarding its AI capabilities exaggerated or accurate?  
    • Has the target company ensured the accuracy of its SEC disclosures or any other public filings about AI benefits? 

Please review this article (https://www.orrick.com/en/Insights/2023/09/AI-in-MA-10-Things-to-Consider-in-Acquisitions) for more information on AI considerations in M&A transactions. 

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