Summarizing Two Drafts of a Contract or Internal Rule in a Comparison Table: Checking Differences With Generative AI

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

In contract negotiations, the task of accurately grasping "what changed between the version before and after revision" or "how the counterparty's proposal differs from our own draft" comes up frequently. When a counterparty sends back a revised version during negotiation of a service agreement, failing to read the changes correctly creates a risk of unknowingly accepting provisions that are unfavorable to your company.

However, placing two contract documents side by side and checking the differences visually is prone to oversights and takes a great deal of time. Asking generative AI (text generation services such as ChatGPT, Claude or Gemini) to draft a comparison table provides a starting point for examining the differences provision by provision.

To use a comparison table in practice, it is important to put it into a form that shows not only superficial differences in wording but also which rights and obligations have changed, which party is affected and which parts of the original text should be rechecked. Have generative AI extract candidate differences, and have a person check the original text before and after the change and the tracked changes, also using tools such as Word's compare function. Because the results change if the base version being compared is different, start by confirming the target files.

A Comparison Table for Getting Started on Reading a Contract

Comparing two contract documents and identifying every difference is a task in which oversights easily occur when done only by hand. If you instruct generative AI to create a comparison table, it outputs a table organized by provision, so you can quickly prepare a draft for discussion.

For example, if you have it compare an NDA (nondisclosure agreement) presented by the counterparty with your company's standard form and create a comparison table by issue, such as "definition of confidential information," "prohibition of use for other purposes," "survival period" and "damages," you get an idea of which provisions need to be negotiated. Once the differences from the standard form are clear, it is easier to find where obligations have increased or where protection is lacking. However, whether the terms of the template are also suitable for this particular transaction is considered separately.

The Items to Compare and the Premises for Evaluation

When having AI create a comparison table, it is important not simply to instruct it to "compare," but to specify in advance the column items that serve as the axes for evaluating the comparison. If you do not specify viewpoints, the table may be filled with slight differences in phrasing while the substantive legal issues are buried. Viewpoints that are easy to specify in practice include the following.

• Favorable or unfavorable to our company
• The size of the risk (high, medium, low)
• Whether there is room for negotiation (must revise / would like to revise if possible / acceptable)
• The relevant article number

Comparison tables like this can be used in a wide range of situations, not only contract negotiations. Beyond comparing your company's standard form with the counterparty's proposal, they are useful for comparing terms presented by two competing business partners in the same matter, checking the impact on users before and after revising terms of use or a privacy policy, and organizing the pros and cons of multiple revision proposals under internal consideration. In every case, the table is the starting point for discussion, and the final judgment is made by a person based on the original text.

A Comparison Example From the Client's Position

When actually having a comparison table created, state your company's position (whether you are the client or the service provider, the disclosing party or the receiving party) at the beginning. This is because, if the position differs, the evaluation of the same change to a provision as favorable or unfavorable can be the exact opposite.

The following is an instruction for comparing from the client's position. It specifies that points that cannot be evaluated should be left as "needs confirmation."

Compare Draft A and Draft B below and summarize them in a table. Our company's position is "client (the party ordering the services)." Please use the columns "Viewpoint," "Draft A," "Draft B" and "Impact on our company (favorable / unfavorable / needs consideration)." The viewpoints I would like you to compare are as follows.

- Scope and cap of damages
- Ease of cancellation and early termination
- Ownership of intellectual property rights (rights in the deliverables)
- Scope and survival period of confidentiality
- Whether subcontracting (outsourcing to a subcontractor) is permitted

For items with no difference, write "substantively the same." If other provisions of the contract are needed for a judgment, state "needs confirmation" explicitly. Draft A and Draft B are pasted below. [Draft A] ... [Draft B] ...

The following table is an example where the client wants to claim damages from the service provider and also wants to acquire the copyright in the deliverables. Even for the same "capped," the evaluation changes depending on whose liability is being limited.

| Viewpoint | Draft A | Draft B | Impact on our company |
| Cap on the service provider's liability to us for damages | No cap | Capped at the contract amount | Unfavorable (Draft B) |
| Our right to terminate for convenience | Permitted with 30 days' notice | No termination for convenience | Unfavorable (Draft B) |
| Copyright in deliverables (assuming we want it to belong to us) | Belongs to us | Belongs to the service provider | Unfavorable (Draft B) |

For items marked unfavorable in the table, check the provisions of the original text on which the evaluation was based. For items marked favorable or showing no difference, also make sure nothing has been misread.

Regarding the cap on the service provider's liability to us for damages, capping it at the contract amount in Draft B is evaluated as unfavorable from the position of a client seeking full compensation for its losses. However, the substantive evaluation can change depending on any cap on the liability your company bears, a mutual cap agreement or the presence of exceptions.

In addition, the fact that termination for convenience by our company is not permitted in Draft B narrows the flexibility of early termination, but that statement alone does not necessarily deny the statutory right to terminate on the grounds of the counterparty's default. Also check the other termination provisions and the applicable law.

As for the copyright in the deliverables, assuming you want the rights to belong to your company, Draft B, under which they belong to the service provider, is unfavorable; but if a sufficient license suited to the purpose of the outsourced work is secured, it may be acceptable in practice. Do not take the table's evaluation at face value; verify it against the premises and the overall picture.

Further, when the counterparty returns a document with tracked changes during negotiations, an instruction to extract only the changes is effective.

Compare the "before revision" and "after revision" contract provisions below and summarize only the points that changed in a table. Please use the columns "Article number," "Before revision," "After revision" and "Meaning of the change (favorable or unfavorable to our company)."

- Focus on changes that alter rights and obligations, not minor differences in phrasing
- Pick up deleted provisions and added provisions without omission
- For items where it is difficult to judge whether they are favorable or unfavorable, state "needs confirmation" explicitly

The before-revision and after-revision text are pasted below. Do not swap their order. [Before revision] ... [After revision] ...

Checking for Omissions Against the Original Text and Tracked Changes

Comparison by generative AI is useful, but there is no guarantee that it will detect every difference perfectly. In a case such as "notice no later than 30 days in advance" being changed to "notice within 30 days," the two may be mistakenly judged to have no difference because they look similar. Changes in expressions such as numbers, periods, "or more" and "or less," and "may" and "may not" can easily reverse the legal effect, so check the original text with the utmost care.

Changes to defined terms, cross-references between provisions and revisions to schedules also have effects that go beyond whether individual provisions match. Even when also using tools such as Word's document comparison function, it is important not to accept changes mechanically, but to keep the original file and accurately compare the distinction between insertions and deletions and the intent of any comments.

Before inputting a draft contract received from outside, confirm in advance that this complies with internal rules on the protection of confidential and personal information, and that inputting that information is permitted in a usage environment approved by the company.