Integrating AI Into Your Services? Here’s What to Include in Your Customer Contracts

Seemingly overnight, AI has moved from novelty to necessity for many service-based businesses. Whether it's used to generate marketing content, analyze customer data, automate support, or create visual assets, AI is reshaping how services are delivered. But as businesses adopt AI tools, many are overlooking a crucial piece of the puzzle: updating their customer service contracts to reflect the use of this technology.

While, currently, no federal law or regulation requires that you must disclose your use of AI in a service relationship, emerging laws, industry standards, and recent regulatory guidance suggest that it’s no longer optional. Businesses that fail to disclose AI usage or clearly allocate responsibility in their contracts may face legal risk, regulatory scrutiny, or damage to client relationships.  Here, we’ll take a look at some of the key AI-related provisions you should be considering putting in your service agreements.

Why AI Clauses Are Now a Best Practice

From a legal standpoint, the need to address AI in your contracts comes from three primary sources:

• Growing regulatory attention: Laws like the EU AI Act and Colorado’s SB24-205 are introducing new transparency requirements.
• Emerging FTC guidance: The Federal Trade Commission has warned businesses against deceptive uses of AI and has signaled enforcement against companies that misrepresent or misuse AI tools.
• Contractual ambiguity: When service agreements don't mention AI, you leave open questions about responsibility, IP rights, data use, and service quality.

Even if your business isn’t required yet to disclose AI use under law, it’s fast becoming a best practice to manage client expectations and reduce legal exposure.

Six Key Contract Clauses to Include When Using AI in Services

1. Disclosure of AI Use

If your services involve AI tools—even if only as a component—you should say so directly in the contract. This ensures the client knows what kind of service they’re receiving and reduces the risk of future claims around misrepresentation or reliance.

Sample Clause:

“AI-Assisted Service Acknowledgment. Client acknowledges that aspects of the Services may be performed, generated, or supported using artificial intelligence systems, including tools for data analysis, content generation, image production, or customer interaction. Service Provider remains responsible for the overall performance of the Services.”

This aligns with regulatory expectations under both the EU AI Act and Colorado’s AI law, which emphasize human transparency and accountability.

2. Limitations on AI Output and Accuracy

AI systems are probabilistic—not deterministic. That means they sometimes generate unexpected or inaccurate outputs, especially in complex or creative tasks.

Sample Clause:

“Limitations of AI Output. Client understands that AI-generated content or outputs may be subject to error, bias, or limitations and are provided ‘as is’ without warranties. Service Provider does not guarantee the accuracy or reliability of outputs generated by AI systems and disclaims any liability for actions taken in reliance on such outputs.”

This is especially important when clients are using your services to make strategic, legal, financial, or compliance-related decisions.

3. Intellectual Property Ownership – Navigating a Changing (and potentially dangerous) Landscape

Perhaps the most unsettled area in AI contract drafting is intellectual property ownership. In 2023, the U.S. Copyright Office issued a significant decision reaffirmed by a federal court in Thaler v. Perlmutter, No. 23-5233, 2025 U.S. App. LEXIS 6294 (D.C. Cir. Mar. 18, 2025): works generated solely by AI, without meaningful human authorship, are not eligible for copyright protection under the Copyright Act.  Notably, in Thaler, Dr. Stephen Thaler applied for the copyright listing [the artificial intelligence generator] as the sole author of the work. The Court found that the Act’s reference to “author” means a human being.

This means if your service generates written content, graphics, designs, or other creative output through AI, and there is no human authorship involved, the resulting work may be uncopyrightable. That can be a major problem for both you and your clients—especially if they believe they are purchasing exclusive, enforceable rights to the material.

This is why it is crucial to clarify:

• Who (if anyone) owns the output;
• Whether a human plays a material creative role in producing it;
• And whether any rights are assigned or retained.

Sample Clause:

“Intellectual Property Rights in AI-Generated Content. The Parties acknowledge that certain outputs generated through the Services may be created using AI technologies. To the extent such outputs include sufficient human authorship by Service Provider personnel, they shall be deemed “works made for hire” and, upon full payment, shall be owned by Client. If any AI-generated outputs do not qualify for copyright protection under applicable law, Client shall nonetheless have a non-exclusive, royalty-free, perpetual license to use such outputs for its internal business purposes. Service Provider retains all rights in proprietary tools, prompts, and frameworks used in connection with AI content generation.”

This language addresses three key concerns: first, it acknowledges the legal uncertainty; second, it attempts to provide fallback licensing rights; and third, it separates ownership of tools and infrastructure from deliverables.

Attorneys advising clients should take special care in drafting these clauses when the value of the deliverables depends on enforceable IP rights—such as in branding, design, software, or content development.

4. Client Data Use and Protection

Many AI tools require data inputs, and if those inputs include customer data, personally identifiable information (PII), or sensitive business information, your contract needs to clearly define:

• What data will be used;
• Whether the AI system trains on it;
• How it will be stored and protected.

Sample Clause:

“Client Data and AI Use. Client data may be processed by AI tools solely for the purpose of delivering the Services and shall not be used to train general-purpose AI models or retained beyond the duration of the engagement. Service Provider shall implement commercially reasonable safeguards to protect Client data and comply with applicable data protection laws, including the CCPA and GDPR where applicable.”

With the rise of data privacy laws and AI-specific regulations, failing to clarify this point can lead to both contract breaches and regulatory fines.

5. Human Oversight Requirement

Many clients expect some level of human involvement, especially if they are paying for professional expertise. Including a clause that confirms human review or final approval can help bridge the trust gap between automation and accountability.

Sample Clause:

“Human Oversight. Service Provider shall ensure that all final deliverables provided to Client are reviewed or approved by qualified personnel prior to delivery, regardless of whether AI systems were involved in generating preliminary outputs.”

This language is particularly helpful in regulated industries or where professional judgment is implied.

6. Flexibility to Update Tools

AI systems are evolving quickly. You don’t want to be contractually locked into a single tool or model.

Sample Clause:

“Technology Substitution. Service Provider reserves the right to modify, upgrade, or replace any technology, including AI tools, used in the delivery of the Services, provided such changes do not materially reduce the quality or scope of the Services.”

This gives you operational flexibility while assuring the client that the overall service will remain consistent.

Final Thoughts: Don’t Wait for the Law to Catch Up

AI isn’t just a technical tool—it’s a legal and business risk. Businesses that incorporate AI into their services without updating their contracts are exposing themselves to ambiguity in ownership, data practices, and performance expectations.

While U.S. law around AI is still evolving, regulators, courts, and international bodies are setting a clear direction: transparency, fairness, and accountability will be the guiding principles of AI use in commerce.

If you’re an entrepreneur, consultant, agency, or service provider using AI in any meaningful way, now is the time to revisit your customer agreements. And if you're advising clients as counsel, these provisions should become part of your standard risk assessment and contract review process.