On Indemnities

The Copyright Shield has us thinking about indemnities

One of the announcements at OpenAI’s Dev Day was the adoption of The Copyright Shield. Its support extends to enterprise customers and essentially means that copyright claims asserted on the basis that OpenAI’s models used protected materials in creating outputs will now be handled (bankrolled) by OpenAI - rather than the end user of its model.

In taking this step, Open AI joins some other leading AI companies in giving some form of indemnity. Adobe Firefly’s terms suggest that an indemnity is available for some uses and some aspects of its product. Meanwhile other AI companies are taking the opposite approach - being to transfer rights and responsibility for the output to the end user (eg: Cohere).

Against this backdrop, the courts are getting involved. The github copilot litigation alleges that github (owned by Microsoft) is a software pirate, on the basis that it trained its model on code created and stored in its repositories, by coders who signed up to an open-source license. That litigation is underway. Whilst artists are carefully watching this and other generative AI cases like it (including claims made against Stability AI, Midjourney and DeviantArt), litigators worldwide are considering how best to frame claims under existing legal constructs and regulatory lawyers are considering what sort of legal systems we might want to adopt to establish clearer liability boundaries. Meanwhile, the team at The Center for Humane Technology propose approach to AI liability that is premised on the idea that the responsibility for creating these AI systems, is matched with liability for its (mis)use.

Law firms across the world are sharing insights to keep readers abreast of developments in the regulatory landscape, the cases testing current legal systems and thoughts on what to look for when reviewing and negotiating indemnities in different fields, from software licenses to M&A terms (which you can find using the AI filter on our website).

To recap on what an indemnity does, how it differs from a standard breach of contract claim and the strings that come along with using them, we’ve made a few notes below.

• on the difference between a claim for breach of contract, and a claim on an indemnity: the claim for breach, if successful, could result in an award of damages. The indemnity produces a debt owing by the indemnifier, if the conditions for that claim are met. King & Wood Mallesons explains.

• take care when making claims: indemnities usually come with strings attached. These can take the form of limited periods in which claims can be made, to the type of loss that might be recovered. They can also specify strict conditions for letting the indemnifier be involved, or take over the conduct of the claim. Jones Day explains.

• AI authorship: Whilst the US court has decided that AI itself is not eligible for copyright protection (Skadden explains), an open question is to what extent does a human need to be involved, in order to qualify for content produced with generative AI assistance, to benefit from copyright protection (Kramer Levin explains).

• lessons learned: indemnities displace the natural order of liability allocation. Courts are careful to apply them narrowly, on the expectation that a contract will clearly identify which risks should be indemnified and on what terms. Often, one of those terms is a liability cap - which would specify an upper limit to the amount that can be recovered by the claimant. A couple of recent court decisions offer lessons in defective drafting. Proskauer Rose explains.

• where are you?: while these insights might be generally useful to flag issues and share some tips, local law may have something to say about this kind of liability. The meaning of words used can make a difference. The words defend, indemnify and hold-harmless are fairly commonly used in these provisions, but carry different meanings and conditions in different legal jurisdictions. In the context of the US, Akin Gump explains.

• commercial expectations: some legal disciplines (such as tax, which Slaughter & May explains and IP, which Taylor Wessing explains) and some industries (such as construction, which Piper Alderman explains) have their own methods and market expectations for what indemnities will cover, and how they should be applied in order to get to a result.

When it comes to indemnities, the legal effectiveness of the terms are only one piece of the pie. The commercial value of an indemnity, is the indemnifier’s ability to pay. Whilst Open AI’s terms appear to retain a disclaimer of responsibility (that could have been positively covered by giving a warranty that its models do not misuse copyright protected material), the indemnity serves to suggest that OpenAI would prefer to either pay off claimants (to keep the positivity PR running full steam ahead), or discourage would be claimants from pursuing infringement claims (assuming OpenAI is possibly a defendant with a greater capacity to defend claims should they be made). If AI platforms control these claims (as indemnifiers often do), they will also have coordinated leverage over how they are handled, at least in the first instance.

Check out these and other insights on the subject of indemnification from across the world, on our website.

Important notice: These comments might provide background and context for considering indemnities. This is not legal advice and is general information only.