Intellectual Property

Few businesses have created their own proprietary AI systems. AI systems are often built using a combination of third party elements; such as an open source algorithm and infrastructure (provided by IBM or AWS for example). Investors should obtain or conduct a mapping exercise of the various IP elements to the AI system (including in relation to its hosting and maintenance).

If the core elements to the AI system are provided by a third party, investors will want certainty that the third party AI provider will continue to provide these elements in the future and, if this may not be the case, consider the consequences of the third party failing to do so. Investors should also review any underlying third party terms to ensure the target complies with the same.

When investing in AI, IP considerations similar to those encountered by businesses in day-to-day use also arise.

When investing in, or acquiring, a provider of AI-based services or a specific AI-based software product, the due diligence will typically focus on:

• Ownership of any IP subsisting in the technology (specifically the algorithms and software that implements it; conducting an open source audit as appropriate) and in the AI output: Many of the considerations relevant to ownership of a target company’s IP are not unique to AI, but the IP issues identified in this guide merit specific attention in the case of AI acquisitions. Due diligence as to the origins of key datasets, and the chain of title and any restrictions applied to the use of AI output, is often particularly important;

• Third party risks: Large volumes of patents have already been filed in the field of AI, and it is very difficult (if not impossible) to carry out a ‘freedom to operate’ analysis to determine whether any patents belonging to third parties pose specific risks. Similarly, where the origins of datasets cannot be ascertained, or where the terms governing the use of such datasets are uncertain, there is the potential for third party claims; and

• The ability to protect and preserve the value of IP in AI: In some cases, it may be difficult to determine whether current or former customers, or third parties, are using AI processes or datasets that you or an acquisition target owns. If the enforcement of IP rights against third parties is uncertain, this may adversely affect the value of any proposed technology acquisition.