Adopting AI: Legal hurdles that start-ups should be aware of

By Aparna Gaur, Leader, Technology and IP Practice, Nishith Desai Associates

New-age start-ups are rapidly adopting AI technology to stay ahead of the curve. When used within the contours of predetermined guardrails, AI technology can provide a competitive advantage to companies. However, businesses must be aware of the myriad of legal challenges that may arise if AI usage is not controlled. Some of the legal challenges that could arise are discussed below.

1. Intellectual Property Challenges:
Unauthorised use of a third party’s work (images, videos, text) amounts to infringement of their intellectual property rights. Currently, courts in various jurisdictions are considering the implications of the use of third-party intellectual property for training generative AI tools. Using and storing third-party works for training Gen AI tools may be considered an infringement.

Even the output generated by a Gen AI tool that has been trained using third party works may infringement third-party intellectual property rights. This would depend on various factors laid down over time by Indian courts including the similarity between the outcome and the third party works.

Another important aspect is the question of ownership of the output generated by a Gen AI tool. Businesses may want to use AI for internal use, for instance, for writing code for software, creating marketing material, and so on. Currently, the copyright law in India is unclear on who owns the output of a work created using Gen AI. Debates are ongoing on whether the ownership vests with the owner of the GEN AI tool, the person who has provided the input to generate the output, or the Gen AI tool itself. In such a scenario, a start-up using Gen AI tools to develop intellectual property will not be able to claim ownership in such works and therefore, will not be able to prevent third parties from using their works.

2. Privacy Implications:
Once the Digital Personal Data Protection Act, 2023 (DPDPA) comes into force, an individual’s data can be used only with their consent if such data is not publicly available. The law provides limited instances where use can be done without consent. Processing of the personal data of an individual without their permission can result in heavy penalties under the DPDPA. An increasingly common use of AI is analysing likes and dislikes of a user to provide personalised experiences. If the data about the likes and dislikes of a person qualifies as “personal data”, explicit consent of the user is required to analyse such data. With deepfakes, if non-public images/videos of a person are used to create deep fakes, consent under the DPDPA will be required.

3. Publicity Rights:
Celebrities in India enjoy the right to publicity, which is the right to choose how their likeness, i.e. their name, images, videos, voice, and other aspects of their personality are used. Use of pre-existing celebrity images/videos and editing them using Gen AI tools or to create deepfakes is not only an issue from an IP infringement perspective but it may give the celebrity the right to prevent such use and claim damages based on unauthorised exploitation of their personality rights.

In addition to the right to prevent such use and seek damages, if deep fakes are created to impersonate someone, such a person may have a right to initiate criminal proceedings under the Information Technology Act, 2000 for impersonation.

4. Consumer Protection and Misleading Practices:
Startups leveraging deepfake technology in their products or services must be mindful of potential consumer protection issues. Misleading consumers through deceptive deepfake content could lead to regulatory scrutiny and legal action. As per the Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements, 2022 issued under the Consumer Protection Act, 2019 as well, any endorsement in an advertisement must reflect the genuine, reasonably current opinion of the celebrity making such representation. Therefore, using deepfake technology to create advertisements depicting celebrities without such celebrities knowing the product can result in issues under the Consumer Protection Act, 2019 as well. Ensuring transparency and clear communication about the use of deepfakes becomes essential to avoid accusations of unfair or deceptive practices.

Conclusion
While AI holds transformative potential for startups across various sectors, the legal challenges associated with its adoption are intricate and multifaceted. To thrive in this dynamic landscape, startups must proactively train employees and adopt policies to avoid misuse and legal issues.