Navigating the legal and regulatory complexities of generative AI: A guide for business compliance

The meteoric rise of ChatGPT and other generative AI platforms has been nothing short of extraordinary. But beneath the promise of AI — productivity growth and innovation at a pace never seen before — lies a complex legal reality that companies, large and small, need to navigate to succeed in the current AI-driven era. 

The rise of AI and its legal implications 

AI has burst onto the business scene and continues to advance at a rate that outpaces the development of corresponding laws, opening up a flurry of new legal intricacies and leaving companies in uncharted territory to grapple with compliance challenges and ever-evolving regulations.  

In this state of heightened legal uncertainty around this transformative technology, businesses that understand and timely adapt to these evolving regulations will be able to navigate the AI legal maze and minimise risk with confidence to gain a competitive edge.  

The challenges of privacy, security, and intellectual property 

While unquestionably a powerful tool that can empower businesses, AI can also present a threat to data privacy and security and a potential high risk for Intellectual Property (IP) rights violations. Adding to the complexities of these legal implications is the evolving nature of the regulation around this new technology, but a wait-and-see approach for new regulation to emerge is hardly an option for companies in today's fast-paced business landscape. 

The power of AI algorithms lies in their ability to simulate human behaviour and predict outcomes. But to be able to do so, they need to be trained by ingesting massive sets of data so they can extract valuable insights from past human behaviour. If they are trained on datasets involving sensitive and personal data or elements subject to IP protection, companies that use these models are potentially exposed to significant legal risk. 

Privacy and data security concerns 

Because personal data has become a valuable commodity, governments around the world have introduced privacy laws to protect consumers from the use of sensitive information without their consent. In that sense, privacy-related AI regulation has already taken shape. But, as this revolutionary technology continues to stir debates and spur questions, policymakers are looking at ways to enhance existing privacy regulations to include the changing realities brought by generative AI models, a type of AI that has ushered in a new era.  

While past advancements in AI have developed gradually, allowing time for legislative adjustments to meet new challenges as they unfolded, the landscape has dramatically shifted with the advent of generative AI – a new technology empowering computers to create novel works like images, text, and music. The period between November 2022 and today, approximately a mere six months, has seen the explosive popularity of generative AI platforms, such as the text-generating ChatGPT and the image-generating Midjourney and DALL-E. The pace of change has accelerated significantly, shifting innovation into a new gear. 

Intellectual property implications 

Another area where generative AI presents itself as a paradigm-shifting phenomenon is its scope of impact.  

Over the course of just a few months, controversies arising from the use of generative AI have exploded across the full spectrum of intellectual property law, including areas such as copyright, patents, trademarks, and publicity rights.  

As powerful as they are, AI models are only as good as the data and training they use. Generative AI developers deploy procedures such as web-scraping to get hold of massive amounts of human-created work to train these models. Some of that material is copyrighted. Active litigation, including cases against titans such as Microsoft, GitHub, and OpenAI, will scrutinise this practice to decide whether it constitutes a violation of IP law. This lawsuit, which is still in its early stages, could reshape the AI copyright and is expected to be one of many legal battles that are yet to follow. 

Risks and regulations: The impact of AI platforms on the business landscape 

AI legal challenges — to which the modern legislature does not have a definitive response yet — arise from both sides of the AI models. On the input side, the use of protected IP for training generative AI models is still an unresolved controversy. On the output side, the ownership and copyright status of the works they produce, such as images, text, and other inventions, remains part of the legal debate that cuts deep into the core economic premise of IP law.  

When it comes to privacy, existing data privacy laws and policies already directly regulate many key data-related aspects of AI. Still, the rapid rise of generative AI platforms has prompted legislators to consider updates that could accommodate the drastic changes brought by this transformative technology. Even key industry players, including Google and OpenAI call for more regulation.  

In the EU, pan-European efforts are underway to develop the Artificial Intelligence Act (AIA) to supplement the existing GDPR. However, it is expected that AIA will not be adopted before 2024. Once in effect, it will introduce a risk-based approach to data protection and transparency in AI systems.  

In the US, while the Senate has established rules on AI and the White House recently published its Blueprint for an AI Bill of Rights, much of the data protection is still at the state level. Some states have taken the initiative to enact comprehensive state privacy laws, including California, Virginia, Connecticut, Colorado, and Utah, while others have introduced privacy bills to address issues such as protecting biometric identifiers and health data.  

SMEs' compliance hurdles 

As regulatory clarity lags behind technological advancements, companies will need to look to courts to understand the emerging legal practices around generative AI.  

Small businesses using generative AI should consider how the technology fits within the existing data privacy and security framework, such as GDPR. But, given the pan-European efforts to introduce AI-related laws, business leaders also need to think more than one step ahead and look beyond the current regulatory requirements. 

Until these legal uncertainties resolve, SMEs need to be highly appreciative of the risks around sensitive data and other information they share with generative AI platforms such as ChatGPT, as they may be used through the training process and resurface elsewhere. Recognizing these challenges, OpenAI introduced the ability to disable chat history, which means that these conversations will not be used to train their models. The company also announced the launch of ChatGPT Business for professionals and enterprises that need more control over their data.  

When it comes to IP, the world still appears to be in the Wild West days of generative AI, as the legal system has yet to catch up. Although generative AI could be a powerful tool that can help SMEs boost efficiency and productivity beyond what was possible only a few months ago, SMEs must tread cautiously. Given the direction of the thinking around the copyright of AI-generated content, SMEs need to be aware that they may have limited avenues for recourse if someone copies the work they created by using generative AI.  

How to navigate the legal complexities of AI 

Technology is no longer seen as a tool for transformation but as a necessity for survival. The latest 2023 HLB Technology Sector Outlook demonstrates that more than 70% of business leaders focus on accelerating the adoption of new technologies. They view technologies such as Cloud (73%), AI (57%), and machine learning (40%) as the most important for the sector over the next five years.  

HLB International has dedicated teams across different verticals to help companies stay abreast of the fast-evolving technological megatrends — of which generative AI is undoubtedly one. In this complex AI landscape, success belongs to businesses that grasp the legal implications that emerge with this transformative technology. Our Technology advisory services help companies stay on top of the latest tech trends, while HLB Emerging Technology experts help business leaders — from entrepreneurs to established organisations — keep up with the latest technology and industry insights and guide their businesses through the emerging growth company lifecycle. HLB Advisory is designed to harness the collective power of business consultants across the globe who combine both technical expertise in innovative thinking and strong relationship skills to help organisations grow locally, regionally, and internationally through a collaborative approach. 

Embrace AI with confidence 

Given the current uncertainty around generative AI systems due to the lack of established legal and jurisprudential guidance, it is too early to predict the direction of these developments and how they will affect business decisions. Still, sitting on the sidelines of technological megatrends is not viable in the current business landscape. 

Against this backdrop of unresolved legal tensions, it is best to take a cautious approach without assuming that generative AI outputs are safe to use. Joining forces with an expert partner can help businesses confidently navigate the regulatory maze to seize unparalleled opportunities and thrive in this fast-paced environment. 

Is your company on top of the intricate landscape of regulatory compliance of AI-powered tools? What measures has your business implemented to mitigate legal risks associated with AI adoption?  

Get in touch if you need a trusted advisor to help you navigate new legal complexities and ensure compliance in the new generative AI era.