Artificial Intelligence (AI) Considerations in Acquisition Agreements

By: Erin Hanson, Arlene Arin Hahn, Sahra Nizipli, and Jordan Hill, WHITE & CASE LLP 

THIS ARTICLE SUMMARIZES VARIOUS INTELLECTUAL PROPERTY AND TECHNOLOGY (IP/IT) PROVISIONS, including sample definitions and representations and warranties, for attorneys to consider when representing the acquirer of an artificial intelligence (AI) business.

For purposes of this article, an "AI business" is a business where AI, particularly generative AI (GenAI), comprises (or is a core component of) the business’s products or services or where AI powers (or is otherwise material to) the business’s products or services or its operations.

You should bear in mind that this article does not contain a definitive list of all possible AI considerations you may need to address when drafting an acquisition agreement, and that the IP/IT provisions of any acquisition agreement should be carefully drafted to suit the deal structure, nuances of the target business, and the client’s objectives, including with respect to competitiveness, timing, materiality, and risk tolerance. Practitioners should also note that, as of the date of publication of this article, a survey by the authors of more than 400 publicly available purchase agreements involving public and private target businesses in the software industry revealed that only 10 had AI-specific definitions and/or representations and warranties. The lack of AI-specific provisions in surveyed purchase agreements may be explained in part because traditional intellectual property and technology definitions and representations and warranties already cover this technology to varying degrees. As such, your role when reviewing and drafting a purchase agreement for an AI Business is not necessarily to add a myriad of new definitions and representations and warranties, though some may be warranted, but may instead be to augment existing provisions to ensure that they cover the specific nuances of these emerging technologies, especially GenAI. As the number of AI Businesses continues to multiply, and as the regulatory and liability landscape materializes, practitioners can expect that the number of purchase agreements with specialized definitions and/or representations and warranties will similarly increase.

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Additional Considerations

Practitioners may need to address AI technologies and AI products of a target business in representations and warranties aside from traditional IP/IT representations and warranties, too.

Other Related Representations and Warranties in the Purchase Agreement

While the focus of this article is IP/IT-related representations and warranties, other representations and warranties in a purchase agreement will also be relevant to AI Businesses, such as data privacy, products liability, litigation, and compliance with laws. For example, you should ensure that the compliance with representations and warranties includes all applicable laws, regulations, and industry standards, in all relevant jurisdictions, which may be very broad for an AI Business and range from new laws or regulation directly legislating AI technologies to existing laws and regulation including consumer protection, export controls and sanctions, and antitrust and securities laws. For instance, a U.S.-based AI Business that markets or provides its AI products within the EU may be subject to the jurisdiction of the prospective EU AI Act. Indeed, the extraterritoriality provisions of the EU AI Act are so aggressive that simply using the output of an AI product in the EU may be enough to cause the EU AI Act to apply to a U.S.-based AI Business, even if such use was not intended by the U.S.-based AI Business.¹

You should also consider whether specific uses of AI technologies by the AI Business import higher or additional risk (e.g., making decisions in hazardous, high-risk, or regulated environments such as employee hiring, crime detection and prevention, criminal sentencing, and creditworthiness) and whether the existing representations and warranties (or those discussed in this article) adequately address them or whether new provisions are required.

Disclosure Schedules

You should consider all disclosures made in the disclosure schedules to the acquisition agreement, including with respect to the IP/IT-related representations and warranties. Broad and/or vague disclosures with respect to the AI Business’s development or use of AI technologies, including GenAI, may effectively negate several of the negotiated representations and warranties. You should therefore consider requiring specific disclosures and qualifying the relevant representations and warranties with appropriate qualifiers. 

Erin Hanson is a partner in White & Case’s Technology Transactions Practice within the firm’s Global Mergers & Acquisitions Group and Global Intellectual Property Group. She is also co-head of White & Case’s Artificial Intelligence Taskforce.

Arlene Arin Hahn is a partner and the Global Head of the Technology Transactions Practice at White & Case LLP, within the firm’s Global M&A Group and Global IP Group. She is a transactional attorney who represents clients in a variety of intellectual property and technology matters ranging from standalone technology transactions to the IP aspects of private equity, M&A, and other corporate transactions.

Sahra Nizipli is a member of White & Case’s Technology Transactions Practice, within the firm’s Global M&A Practice Group and Global IP Group. Sahra focuses on transactional matters involving the development, acquisition, transfer, and licensing of intellectual property and information technology in a variety of sectors.

Jordan Hill is an associate in the Technology Transactions Practice, within White & Case’s Global M&A Group and Global IP Group. Jordan focuses on transactional matters involving the development, acquisition, transfer, and licensing of intellectual property and information technology in a variety of sectors.

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1. Cf. 2024 O.J. (L 1689) Art. 2(1)(c).