Artificial intelligence tools are revolutionizing business operations, offering powerful capabilities in content generation, customer service, data analysis, and more. However, before integrating AI into your company’s workflow, it’s critical to scrutinize the terms and conditions of the tools you plan to use. Many businesses rush to adopt AI without fully understanding how these platforms handle privacy, security, and data sharing. Failing to review the fine print can expose your company to significant legal and operational risks.

Data Privacy and Compliance

When employees input proprietary or customer data into an AI tool, where does that information go? Some AI platforms retain user inputs for model training, while others promise not to store data—but these assurances can be vague or subject to change. Because businesses often have legal and contractual obligations to keep data private, they should carefully review AI providers’ terms to determine whether using AI tools complies with these obligations. Some clients or vendor contracts may explicitly prohibit sharing confidential data with third parties, including AI providers, making compliance a key concern.

Data privacy laws like the California Consumer Privacy Act (CCPA) and the Minnesota Consumer Data Privacy Act (MNCDPA)(effective July 31, 2025) impose requirements on businesses regarding the collection and processing of personal data. Similarly, companies may have obligations under federal laws like the Health Insurance Portability and Accountability Act (HIPAA) and the Gramm-Leach-Bliley Act (GLBA), which impose data protection requirements for healthcare and financial institutions, respectively. Employee data may also be subject to confidentiality protections under various employment and labor laws. Violating these obligations by exposing personal or sensitive business data to an AI tool could lead to significant regulatory penalties.

The Federal Trade Commission (FTC) has acted against companies that change their data usage policies without proper notification. The FTC has warned that quietly changing terms of service regarding data sharing could be deceptive and unlawful. Businesses must carefully monitor AI providers’ policies to ensure compliance with legal and contractual obligations.

Trade Secret Protections

Trade secrets encompass proprietary information such as formulas, patterns, compilations, programs, devices, methods, techniques, or processes that derive independent economic value from not being generally known or readily ascertainable by others. Both the Minnesota Uniform Trade Secrets Act (MUTSA) and the federal Defend Trade Secrets Act (DTSA) define a trade secret as information that:

• Derives independent economic value from not being generally known or readily ascertainable by proper means by others who can obtain economic value from its disclosure or use; and
• Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Failure to implement reasonable measures to protect the confidentiality of such information can result in the loss of trade secret status. Disclosure of trade secrets without proper safeguards, especially to third parties like AI tool providers, can jeopardize their protected status. If a company inadvertently discloses trade secrets by inputting proprietary information into an AI tool, it could not only lose trade secret protections but also face litigation under the DTSA or state trade secret laws. Courts have held that failure to take reasonable measures to maintain secrecy—such as restricting access or ensuring third-party providers do not store sensitive data—can be fatal to a trade secret claim. Businesses should take care to avoid the serious risk of exposing trade secrets in AI prompts without first conducting due diligence.

Reliability and False Advertising

AI-generated content may not always be accurate, and businesses that rely on AI tools to generate content without proper oversight could face liability for misleading or false claims. Many AI providers include disclaimers stating they make no guarantees about accuracy or compliance, leaving businesses to bear the legal and reputational fallout from AI-generated errors.

False advertising laws, such as Minnesota’s False Statement in Advertising Act (Minn. Stat. § 325F.67) and the Lanham Act (15 U.S.C. § 1125(a)), prohibit businesses from making deceptive claims to customers and the public. If an AI tool produces marketing content that is misleading, businesses can face fines, consumer lawsuits, or regulatory action. The FTC’s Truth in Advertising rules further emphasize that companies are responsible for ensuring the accuracy of their advertising, even when AI-generated.

Beyond marketing risks, businesses should also be cautious about relying on AI-generated content for regulatory compliance, contract negotiations, or financial disclosures. Inaccurate or misleading AI-generated content in these areas could lead to legal disputes, penalties, or contractual breaches. The disclaimers in AI tool terms often shift responsibility to the user, making it crucial to have human review before acting on AI-generated information.

Best Practices for Using AI Tools

• Review AI providers’ data policies: Ensure the provider’s data handling practices align with your company’s confidentiality and security requirements.
• Check contractual obligations: Some contracts may restrict data sharing with third parties, including AI tools. Review agreements with customers, employees, and vendors to avoid breaches.
• Secure sensitive data: Implement encryption, access controls, and regular audits to protect proprietary or personal data from unauthorized access.
• Require human review of AI-generated content: Whether for marketing, compliance, or decision-making, have a knowledgeable professional verify AI outputs before use.
• Update internal policies regularly: Ensure your company’s data usage and AI policies align with evolving legal and industry standards.

Certain industries need to be more careful with AI than others. Lawyers at Pruvent have represented several lawyers, law firms, health related companies, and software companies taking highly sensitive information. Before integrating AI into any business, don’t assume the tool is safe—conduct thorough due diligence. Read the terms and conditions, evaluate the privacy and security risks, and consult a lawyer to ensure the AI provider’s policies align with your business’s needs and compliance requirements. AI can be a powerful asset, but only if used wisely. Protect your business by understanding exactly what you’re agreeing to before relying on AI tools.