Intellectual property (IP) is a company’s most valuable asset.

IP consists of the legal rights and protections assigned to creations of the mind, such as inventions, designs, and proprietary software. When it comes to AI, this could include algorithms, data models, and other technical solutions developed for specific use cases.

When we outsource internal AI development to external companies or teams, protecting this intellectual property becomes very critical. Outsourcing is a great scaling solution, and we get access to top global talent, cost reduction, and flexibility. But it also introduces risks, particularly regarding IP theft, unauthorized use of proprietary information, and loss of control over sensitive data.

In this article, we’ll explore why AI intellectual property protection is particularly essential when outsourcing AI development and provide critical legal and technical safeguards to help protect your valuable IP.

Why IP Protection Is Important When Outsourcing AI Development

Without proper safeguards, AI outsourcing can leave intellectual property in a vulnerable state:

  1. Loss of Ownership: Without proper contractual protections, outsourced companies may claim ownership over AI systems, algorithms, or code developed for your project.
  2. Unauthorized Use of AI: External teams may reuse your proprietary AI models or technologies in other projects without your permission.
  3. Data Security Risks: AI development often relies on data, and sharing this data with external teams increases the risk of leakage or unauthorized access.
  4. Potential for IP Theft: Without stringent safeguards, your competitors or other parties may gain access to your AI technologies and use them without proper authorization.

Protecting your IP is not just about legal compliance; it’s about ensuring that your innovations and proprietary technologies remain secure and within your control.

Legal safeguards have to be put in place before outsourcing AI development. Here are some of the key legal measures to ensure your IP remains protected:

1. Well-Defined Contracts

Your outsourcing agreement/contract should explicitly outline ownership of the AI technology being developed. This includes:

  • Defining IP ownership: Clarify that all IP rights to any AI-related work produced during the collaboration will belong to your company.
  • Scope of work: Specify the exact work being done by the outsourced team to avoid confusion over who owns which part of the final AI product.
  • Work-for-hire clauses: Include these clauses to ensure that the work produced by the external team is considered “work for hire,” meaning the hiring company (you) will own the IP.

2. Non-Disclosure Agreements (NDAs)

NDAs help protect confidential information by legally preventing the outsourced team from disclosing or using your intellectual property without permission. Key clauses to include in your NDA:

  • Confidentiality: Ensure that the external team cannot share or use your IP or data outside of the project scope.
  • Non-compete clauses: Prevent the outsourced team from working with competitors using similar technologies for a specified period.
  • Time limits: Specify how long the NDA will remain in effect after the project ends.

3. IP Ownership Clauses

It’s essential to have IP ownership clauses in your outsourcing contract that define the following:

  • Who owns the rights to the final product or technology developed?
  • How existing technologies, such as pre-existing AI models, will be handled.
  • If joint development occurs, clear terms should specify who owns which parts of the new IP.

4. Indemnity Clauses

Indemnity clauses protect your company from potential legal liabilities, such as if the outsourced team infringes on third-party IP during the development process. Including these clauses helps transfer the financial and legal responsibility to the external team in case of an IP infringement.

Technical Safeguards for AI Intellectual Property Protection

Beyond legal safeguards, technical measures are equally important in protecting your AI intellectual property when outsourcing development. Here are some key technical practices to keep your AI assets secure:

1. Data Encryption

One of the most effective ways to protect sensitive data is through encryption. All data, both at rest and in transit, should be encrypted to prevent unauthorized access. This includes encryption for source code, datasets, and models shared with the external team.

2. Access Control

Implement strict access control measures to ensure that only authorized personnel from the outsourcing team can access your proprietary AI models, code, or data. Use multi-factor authentication (MFA) and role-based access controls to limit access to sensitive information.

3. Secure Development Environments

Provide the outsourced team with a secure development environment where they can work on your AI projects without compromising security. Use virtual private networks (VPNs), isolated servers, or cloud environments with restricted access to ensure that your IP stays secure throughout the development process.

4. Auditing and Monitoring

Set up regular audits and monitoring of the outsourced team’s work to ensure compliance with your IP protection protocols. This helps track who accesses your data and when, and provides a record of any suspicious activities.

5. Version Control and Documentation

Maintain clear and thorough documentation of every step of the AI development process. Use version control systems to track changes to the source code and models, so that you have a clear record of all work done by the outsourced team. This documentation can serve as proof of your IP ownership in case of a dispute.

Other Important Considerations

When outsourcing AI development, the type of outsourcing (onshore, nearshore, or offshore) can also impact how you approach IP protection. Each of these models presents different challenges:

  • Onshore Outsourcing: Hiring developers within your country offers better control over legal frameworks and IP enforcement.
  • Nearshore Outsourcing: Working with nearby countries can offer similar legal environments and easier communication, making it slightly less risky.
  • Offshore Outsourcing: Hiring from distant countries can be cost-effective but requires extra diligence due to different legal jurisdictions and enforcement challenges.

Understand these differences before planning your outsourcing strategy.

Conclusion: Best Practices for Protecting AI Intellectual Property

Legal safeguards such as well-defined contracts, NDAs, and IP ownership clauses, combined with technical safeguards like data encryption and secure development environments help to keep your proprietary AI technologies safe. While outsourcing has numerous benefits, the risks of losing control over your intellectual property are real. Taking proactive steps to safeguard your IP will ensure that your innovations remain yours, even as you leverage external talent to bring your AI projects to life:

  • Choose reputable partners: Only work with providers who have a proven track record and strong security protocols.
  • Conduct due diligence: Research the legal frameworks in the outsourced team’s country, particularly regarding IP rights.
  • Use secure communication channels: All communication regarding your AI project should be conducted through secure, encrypted platforms.
  • Create backups: Regularly back up your AI models, code, and datasets to have control over the latest versions.