2 posts tagged with "ai-contracts"

Most enterprise LLM contracts get negotiated backwards. Legal spends three weeks on the limitation-of-liability section — which will almost certainly never be invoked — while the clause that determines whether your product survives next year gets waved through in the boilerplate: the vendor's right to deprecate the model you built on, with notice defined as "commercially reasonable efforts to inform you."

Ask anyone who had production traffic on a model that got a retirement date. The migration wasn't a legal event; it was an engineering fire drill — re-running eval suites, re-tuning prompts that silently behaved differently, and explaining to customers why the assistant's tone changed overnight. No indemnity clause covers that. But a deprecation-notice clause, negotiated up front, converts the fire drill into a scheduled project.

This is a checklist of the clauses that actually move risk for an AI buyer, roughly ordered by how often they bite — and, just as important, a calibration of which levers vendors will genuinely move on versus the ones where you're burning negotiation capital for nothing.

A customer's general counsel sends you a one-line email: "When the model invents a fact in our compliance workflow next week, whose insurance is paying?" You forward it to your VP of Engineering, who forwards it to Legal, who forwards it back to you. By the time the chain closes, three people have separately assumed that someone else read the model provider's terms carefully. None of them did. The contracts don't actually connect — and you are the layer in the middle that finds out first.

This is the AI indemnification gap. It exists because every enterprise AI product sits in a three-link liability chain — end customer, your product, model provider — where each link silently assumes the layer underneath is carrying the weight. The model provider's terms cap damages at roughly the last twelve months of fees and explicitly exclude output accuracy. Your MSA inherits those exclusions through a flow-down clause your customer's lawyer didn't read carefully. Your customer's contract with their downstream user — the actual end-of-chain victim when an output goes wrong — names your product as the responsible party with no clear upstream recourse.

The first claim discovers the gap. Until then, everyone in the chain is operating on a hopeful shrug.