LICENSING YOUR INTELLECTUAL PROPERTY TO PROTECT IT FROM AI INFRINGEMENT

Current challenges with intellectual property (IP) licensing infringement are largely driven by the explosive rise of generative Artificial Intelligence (AI). Whether your intellectual property is business software, streaming videos, music, or websites, the globalization of digital content and complex cross-border supply chains will subject it to adaptation and translation. The evolving development of IP licensing laws will allow you to bridge geographical divides to resonate with diverse and cross-border customers. These benefits come with factors that make drafting clear, enforceable licensing agreements significantly more difficult, because intellectual property law is constantly adapting to technological advancements and global market shifts.

Key Issues in IP Licensing Include

• Generative AI Training Data: The legality of using copyrighted materials to train AI large-language models remains a major battleground. Generative AI systems require vast amounts of text, images, and audio to learn how to produce realistic content. The dispute centers on whether companies are scraping publicly available data without obtaining proper authorization, or exercising their rights under the legal doctrine of fair use, which permits limited use of copyrighted material without permission under certain circumstances. The key legal question is whether AI-generated content constitutes “derivative work” under the Copyright Act.
• Vague Licensing Scope & Royalties: A common mistake in license agreements is poorly defining the scope of the license. It is difficult to collect royalties from foreign users of domestic software. Every detail should be clearly explained, including the IP being licensed, the current version and status of future updates, the country or territory where the license is valid, and the limitations of use. A comprehensive agreement will cover the entire financial picture, including how royalties will be calculated, whether payment terms will be based on net sales, gross revenue, or a per-unit fee, the frequency of payments, late charges, penalties and interest charges, the currency used, and licensing rights across different jurisdictions.
• Vague or Non-Existent Exit Strategies and Termination Clauses: A well-drafted agreement should include clear termination clauses that outline how and when the relationship can be dissolved, what constitutes a breach of contract, the licensee’s post-termination obligations such as ceasing all use of the IP, returning any confidential materials, and disposing of any remaining inventory, as well as how much notice is required to terminate the agreement.
• Digital Media & Non-Fungible Tokens (NFTs): The metaverse, virtual goods, and NFTs have severely challenged traditional IP frameworks. Courts are currently grappling with how to apply existing copyright and trademark laws to intangible, digital-only assets.

Successful license agreements are built on clarity to help you understand the common pitfalls of licensing negotiations and how to avoid them, foresight to focus on achieving your long-term business objectives, a solid legal foundation to protect your business interests, and flexibility to mandate periodic review of terms or establish a process for renegotiating specific elements and handling improvements or derivative works.

The Benefit of Licensing Agreements

A current solution to these legal challenges is licensing agreements between AI companies and content creators. This is how the digital music streaming industry solved the problem — streaming services adopted licensing models that compensated artists and record labels, creating a sustainable system for digital music distribution.

At Corporate Securities Legal LLP, we strive to help you understand how state-specific regulations may apply to your agreements, adding another layer of protection. Fair trade practices and consumer protection laws can also interfere with licensing in franchising or distribution deals. Contact us today to discover how our firm can assist you. We understand and can apply well-established contract law, which plays a key role in governing license agreements and resolving complex commercial disputes.