Source: The National Law Review

The National Law Review publishes an alert for sellers in mergers and acquisitions (M&A) transactions, warning of a novel and significant risk associated with the buyer's use of artificial intelligence during due diligence. The article, authored by legal experts, highlights a growing trend where buyers employ sophisticated AI tools to analyze the vast amounts of confidential information provided by the seller in a virtual data room. While this can expedite the diligence process, a critical issue arises: the buyer's AI model may not only analyze the data but also "learn" from it, incorporating the seller's sensitive trade secrets, business strategies, and proprietary information into its underlying model. This "training" can occur without the seller's knowledge or consent, leading to a permanent and irreversible transfer of valuable intellectual property.

The authors stress that traditional confidentiality agreements and data room protocols may not be sufficient to address this specific threat. They advise sellers to take proactive steps to protect themselves. This includes explicitly prohibiting the use of diligence materials for AI model training in the non-disclosure agreement (NDA). Sellers should also conduct due diligence on the buyer's AI tools, asking direct questions about whether and how the systems use data for training purposes. The article suggests negotiating for specific contractual representations and warranties from the buyer, stating that no information from the data room will be used to train, retrain, or otherwise enhance any AI algorithm. The piece serves as a crucial warning that as AI becomes more integrated into business processes, sellers must adapt their legal strategies to safeguard their most valuable assets during the M&A process.