Navigating the AI Regulatory Frontier: Key Takeaways for Legal Teams

"Generative AI, with its ability to create new content, represents a significant inflection point in the development of artificial intelligence." This observation by Matt Ferraro, Senior Counsel for Cybersecurity and Emerging Technology to the Secretary of Homeland Security, set the stage for an insightful webinar on 'Navigating US AI Regulation and Government Policy for In-House Counsel.'

You can watch a recording of the webinar here.

The webinar, featuring Ferraro and Alexandra Seymour, Staff Director of the House Homeland Security Cybersecurity and Infrastructure Protection Subcommittee, delved into the US government's evolving approach to AI regulation and the opportunities it presents for businesses. As Daniel Lewis, US CEO of LegalOn Technologies, and the webinar's moderator, emphasized:

"Through my work at LegalOn, I hear almost every day about how GCs are at the forefront in navigating the opportunities and legal issues related to this exciting new technology, both in their legal departments and more broadly across the business." 

The unique nature of generative AI lies in its ability to create new content, the vast amount of data and compute power required, and its broad applications. This has triggered a swift regulatory response due to both excitement and concerns surrounding the technology. As a result, in-house legal teams find themselves at the forefront of navigating an increasingly complex landscape. 

The webinar audience, consisting primarily of in-house legal professionals, demonstrated a keen interest in AI and its implications for their work. 74% of attendees focus on contract review and negotiation, 41% on privacy and security, and 34% on intellectual property. 

We conducted a live webinar poll and found that AI is no longer a fringe technology in the legal profession. More than half of the audience reported either currently using or actively considering the use of AI in their legal practice. This adoption rate underscores the growing recognition of AI's value in enhancing efficiency, accuracy, and cost-effectiveness. Furthermore, an additional 36% of attendees expressed openness to exploring AI's potential, signaling a growing embrace of AI among legal teams. Therefore as legal teams grapple with the implications of AI for their businesses, and also adopt generative AI into their own work, it is critical to understand the regulatory debates around the technology.

The Unique Nature of Generative AI and Its Regulatory Implications 

Generative AI has been a very public and groundbreaking development in artificial intelligence, because of its ability to create new content. As Ferraro explained, generative AI can produce new text, video, and imagery based on human inputs, utilizing a type of neural network known as a transformer. The transformer algorithm is central to generative AI, and is a highly valuable form of intellectual property as it is the culmination of years of research, development, and fine-tuning by AI companies and researchers. This raises questions about data ownership, bias, and representation in the training data used by these models, and as Ferraro pointed out, there is an "open debate whether or not those algorithms are the crown jewels that need to be protected or belong to humanity."

It is this debate that’s central to understanding the regulatory response to generative AI. On one side, AI companies argue that their algorithms should be protected as proprietary intellectual property, given the substantial investments they have made in developing these technologies. On the other hand, experts and policymakers believe that the transformative potential of generative AI necessitates regulation. 

Legal professionals share these concerns. According to the webinar poll, businesses identified data privacy (60%), cybersecurity (49%), intellectual property (46%), and fraud/disinformation/deepfakes (37%) as the most pressing issues related to generative AI.

Where is Generative AI Regulated?

Given the ongoing debate around AI regulation and the different domains of the federal and state governments in the US, AI regulation is nascent and multifaceted, involving various levels of government and regulatory approaches:

• Federal legislation: Currently, there is no comprehensive federal AI legislation. Any forthcoming laws are likely to be in narrow contexts, such as the National Defense Authorization Act (NDAA).
• Federal regulation under existing authorities: The Executive Order on Safe, Secure, and Trustworthy AI issued in October 2023, directs federal agencies to consider AI-related rulemaking, while the SEC and FTC have issued pronouncements on AI washing and false advertising.
• State legislation: States like California are enacting specific privacy legislation incorporating AI, such as the California Privacy Rights Act. Other state laws focus on issues like election-related deepfakes and algorithmic discrimination, along with establishing AI task forces.
• State regulation under existing authorities: Eleven states have issued executive orders directing agencies to issue guidance on AI regulation.
• International regulation: The European AI Act, which has passed the European Parliament, takes a risk-based approach to AI regulation.

The US approach to AI regulation stands out for its emphasis on promoting innovation while ensuring responsible development and deployment. As Ferraro noted, the executive order reflects "a real need to align the federal government" and address "a lot of potential risks that are related to federal equities."

For businesses and legal teams, navigating this evolving regulatory landscape is crucial. As Lewis noted, in-house counsel "need to be preparing themselves for more state-by-state and court-by-court compliance as it relates to AI." This involves staying informed about regulations, developing compliance policies, and identifying key risk areas and opportunities.

By proactively engaging with policymakers, prioritizing responsible AI practices, and developing comprehensive AI governance strategies, legal teams can help their organizations harness the power of generative AI while mitigating its risks. As the technology continues to advance, the role of in-house counsel in shaping the future of AI governance and ensuring a balance between innovation and responsibility will become increasingly critical.

Legal teams occupy a key vantage point in this process, as they must stay informed of the evolving regulations, develop AI policies that ensure compliance, and identify key risk areas and opportunities for their organizations. Lewis underscored the significance of this role, noting that: 

“In-house teams need to be preparing themselves for more state-by-state and court-by-court compliance as it relates to AI." – Daniel Lewis

Opportunities for Legal Teams and Businesses

1. Leveraging AI for efficiency and value: The advent of purpose-built AI tools can help legal teams increase efficiency, cut costs, and provide more value to their organizations. AI-powered tools can assist with tasks such as contract review, legal research, and risk assessment, enabling legal teams to work smarter and more strategically. By proactively adopting AI technologies, legal teams can position themselves and their organizations to automate routine tasks and focus on strategic legal matters.
2. Engaging with policymakers: As the government works to develop AI regulations, businesses have the chance to actively engage with policymakers and industry groups to shape the future of AI governance. By providing insights and expertise, legal and policy teams can help ensure that regulations strike the right balance between promoting innovation and mitigating risks. Seymour highlighted the importance of this engagement, saying, "Businesses have the chance to actively engage with policymakers and industry groups to shape the future of AI governance."
3. Building trust through responsible AI practices: As public concerns around AI grow, businesses that prioritize responsible AI development and deployment can build trust with customers, investors, and regulators. Legal teams play a critical role in developing and implementing AI governance frameworks that address issues such as data privacy, algorithmic bias, and transparency. Ferraro stressed this, stating, "Even in circumstances where it's not per se illegal, I think that there's going to be a lot of reputational pressure, pressure on companies from a reputational standpoint to make sure that their products aren't discriminating."

Conclusion

Generative AI's rapid development and society-shaping potential have prompted a fast-moving regulatory response that presents both challenges and opportunities for legal teams and businesses. By staying informed about the evolving regulatory landscape, leveraging AI for efficiency and value, and prioritizing responsible AI practices, legal teams can help their organizations navigate this complex terrain and thrive in the age of AI. As Seymour concluded, "It's a transformative class of technologies that are going to have a lot of impacts on the way you do your work and the way we think about work. So, we want to make sure that we're developing and using them in the right ways." 

The role of in-house counsel will become increasingly crucial in shaping the future of AI governance and driving business success, making it essential for legal teams to take a proactive approach to AI governance. Legal teams can also use responsible AI software purpose-built for tasks such as contract review. To learn more, book a meeting with a member of our team here.