transfer regulations, such as the GDPR, especially where data was scraped in one jurisdiction for processing in another? ▪ Is the target at risk for claims of allegedly deceptive or unfair use or offering of AI (including with respect to any advertising for the offering), such as by the FTC for deceptive or unfair acts in violation of the FTC Act? Data-related risks can lead to: ▪ Delays in dealmaking to conduct “deep dive” diligence to identify data from problematic sources (“dirty data”) and to ascertain the ability to remove or segregate that data. ▪ A closing condition that dirty data or impacted algorithms be replaced. ▪ Indemnities and special escrows for the identified risks, including the estimated cost of retraining a model based on clean data if required by a third-party claim or regulatory enforcement. ▪ An upfront purchase price adjustment. ▪ Buying a target primarily for its AI systems but being unable to use the systems due to noncompliance with AI, IP, or privacy laws. Companies that use or develop AI offerings should ensure good data hygiene to minimize these risks, especially if they are considering a potential exit transaction. 2024 saw regulators focusing further on the collection and use of data in AI products, applying existing rules and developing new approaches. MoFo’s Artificial Intelligence Resource Center Client Alert FTC Rolls Out Targeted AI Enforcement Client Alert The FTC Brings Algorithmic Bias into Sharp Focus Client Alert EU AI Act – Landmark Law on Artificial Intelligence Approved by the European Parliament 2024 M&A Annual Review 5
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