Legal points to review first in generative AI service terms and privacy rules

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When considering an AI service, check whether its terms fit the intended use. Terms of service, privacy disclosures, data processing addenda, and security documents help answer a practical question: what information the company may enter and how it may use the results.

Questions to take to the service terms

Reviewing supplier terms involves assessing five core areas: whether inputs train commercial models across specific tiers; whether transferring enterprise data constitutes impermissible third-party disclosure or permitted subcontracting under active client agreements; output ownership provisions and third-party infringement liability allocations; legal treatment of submitted personal information; and a process for a lawyer to check AI-generated legal comments before they are sent outside the company.

Input data handling and client confidentiality

Legal analysis begins with data retention schedules and processing mechanisms governed by applicable contractual terms and platform settings. Whether transmitting client records to external cloud systems constitutes prohibited third-party disclosure under nondisclosure agreements turns on negotiated definitions and concrete use of the service. Take particular care with M&A materials or unpublished business plans. Subscription tier names or training opt-out options alone do not establish regulatory compliance or satisfy contractual promises.

Output rights and personal data

Ownership of intellectual property, infringement liability, and third-party indemnity commitments differ across software providers. Because contractual ownership of generated output does not guarantee factual or legal accuracy, AI-generated legal comments for contract negotiations should be independently checked by a lawyer before reaching external counterparties. Workflows involving personal data, such as recruitment or customer inquiries, require determining whether data transfers represent permitted subcontracting or third-party transfers, including cross-border transfers under applicable data protection laws. Qualifying as a subcontracting arrangement does not automatically exempt an organization from statutory cross-border transfer obligations.