What is an AI Model Licensing Agreement ?

The AI revolution is here, and businesses everywhere are scrambling to integrate powerful AI models into their operations. Whether you’re licensing GPT-4, Claude, stable diffusion models, or custom-trained AI systems, you need rock-solid legal protection.

This comprehensive AI Model Licensing Agreement template covers everything from usage rights and data privacy to liability protection and compliance requirements. It’s designed for the modern AI landscape where companies like OpenAI, Anthropic, Google, and countless others are providing AI-as-a-Service solutions.

Key areas covered:

  • Commercial vs non-commercial usage rights
  • Data handling and privacy compliance
  • Intellectual property protection
  • Performance guarantees and limitations
  • Termination and breach conditions
  • GDPR, CCPA, and AI regulation compliance

AI MODEL LICENSING AGREEMENT

Effective Date: [DATE]

Parties:

  • Licensor: [COMPANY NAME] (“Provider”)
  • Licensee: [COMPANY NAME] (“User”)

1. DEFINITIONS

“AI Model” means the artificial intelligence system, including but not limited to machine learning models, neural networks, large language models, computer vision models, and associated algorithms provided by Licensor.

“API” means the application programming interface through which Licensee accesses the AI Model.

“Input Data” means any data, content, or information submitted by Licensee to the AI Model.

“Output Data” means any results, predictions, content, or information generated by the AI Model in response to Input Data.

“Confidential Information” includes model architecture, training methodologies, performance metrics, and proprietary algorithms.

2. GRANT OF LICENSE

2.1 License Scope Licensor grants Licensee a [non-exclusive/exclusive], [transferable/non-transferable], [worldwide/limited territory] license to use the AI Model subject to the terms of this Agreement.

2.2 Permitted Uses Licensee may use the AI Model for:

  • Commercial applications and services
  • Internal business operations
  • Research and development
  • Integration into Licensee’s products/services
  • Resale or sublicensing (if applicable)

2.3 Prohibited Uses Licensee shall NOT use the AI Model for:

  • Illegal activities or content generation
  • Harassment, discrimination, or harmful content
  • Reverse engineering or model extraction
  • Training competing AI models
  • Violating third-party rights
  • Adult content or services (unless specifically permitted)
  • High-risk applications without prior written consent

3. TECHNICAL SPECIFICATIONS & ACCESS

3.1 API Access

  • Rate Limits: [X] requests per minute/hour/day
  • Uptime SLA: [X]% monthly uptime guarantee
  • Response Time: Average response time of [X] seconds
  • Authentication: API key-based access with [security protocols]

3.2 Model Specifications

  • Model Version: [Version number and release date]
  • Input Limitations: Maximum [X] tokens/characters per request
  • Output Limitations: Maximum [X] tokens/characters per response
  • Supported Formats: [Text, image, audio, etc.]
  • Languages Supported: [List of languages]

4. DATA HANDLING & PRIVACY

4.1 Input Data Ownership Licensee retains all rights to Input Data. Licensor may temporarily process Input Data solely to provide the AI Model services.

4.2 Output Data Rights

  • Licensee owns Output Data generated from their Input Data
  • Licensor disclaims ownership of Output Data but retains rights to improve the AI Model
  • Output Data may not be unique and similar outputs may be generated for other users

4.3 Data Privacy & Security

  • Data Retention: Input Data retained for [X days/months] then deleted
  • Data Encryption: All data encrypted in transit and at rest
  • Compliance: GDPR, CCPA, HIPAA (if applicable) compliance maintained
  • Data Location: Data processed in [geographic regions]
  • Third-Party Access: No third-party access without explicit consent

4.4 Prohibited Data Types Licensee shall not input:

  • Personal identifying information (unless specifically permitted)
  • Confidential or proprietary information of third parties
  • Biometric data or health records (unless HIPAA-compliant)
  • Financial account information
  • Content violating applicable laws

5. INTELLECTUAL PROPERTY

5.1 Licensor’s IP All rights in the AI Model, including algorithms, training data, model weights, and documentation remain with Licensor.

5.2 Licensee’s IP Licensee retains all rights to their Input Data and applications built using the AI Model.

5.3 Improvements Any improvements, modifications, or derivatives of the AI Model developed during this Agreement belong to Licensor.

5.4 Feedback Licensee grants Licensor a perpetual, royalty-free license to use any feedback, suggestions, or improvements provided about the AI Model.

6. PAYMENT TERMS

6.1 Fees

  • Base Fee: $[X] per [month/year]
  • Usage Fees: $[X] per [API call/token/hour]
  • Overage Charges: $[X] for usage exceeding plan limits
  • Setup Fee: $[X] one-time fee (if applicable)

6.2 Payment Schedule

  • Fees invoiced [monthly/quarterly/annually]
  • Payment due within [X] days of invoice
  • Late payments subject to [X]% monthly interest charge
  • Automatic renewal unless terminated with [X] days notice

6.3 Fee Adjustments Licensor may adjust fees with [X] days written notice. Continued use constitutes acceptance of new fees.

7. PERFORMANCE & WARRANTIES

7.1 Performance Standards

  • Accuracy: AI Model performance within [X]% of documented benchmarks
  • Availability: [X]% uptime SLA with credits for downtime
  • Response Time: [X] second average response time
  • Support: [X] hours/day, [X] days/week technical support

7.2 Warranties Licensor warrants that:

  • AI Model will perform substantially as documented
  • Services will not infringe third-party IP rights
  • Compliance with applicable laws and regulations

7.3 Disclaimer EXCEPT AS EXPRESSLY SET FORTH HEREIN, THE AI MODEL IS PROVIDED “AS IS” WITHOUT WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED.

8. LIMITATIONS & LIABILITY

8.1 AI Model Limitations Licensee acknowledges that:

  • AI Model outputs may contain errors, biases, or inaccuracies
  • AI Model is not suitable for life-critical applications without additional safeguards
  • Model performance may vary based on input quality and use case
  • AI technology is rapidly evolving and current capabilities may become outdated

8.2 Liability Limitations

  • Cap: Total liability limited to [X months] of fees paid
  • Exclusions: No liability for indirect, consequential, or punitive damages
  • High-Risk Uses: Enhanced liability for unauthorized high-risk applications

8.3 Indemnification Each party indemnifies the other for claims arising from:

  • Breach of this Agreement
  • Negligent or wrongful acts
  • IP infringement claims (within scope of permitted use)

9. COMPLIANCE & REGULATION

9.1 AI Regulations Both parties shall comply with:

  • EU AI Act requirements (if applicable)
  • Algorithmic accountability laws
  • Sector-specific AI regulations
  • Export control and sanctions laws

9.2 Audit Rights Licensor may audit Licensee’s use of the AI Model with [X] days notice to ensure compliance.

9.3 Regulatory Changes If new regulations impact the AI Model, parties will negotiate appropriate modifications to this Agreement.

10. TERM & TERMINATION

10.1 Term This Agreement begins on the Effective Date and continues for [X years] unless terminated earlier.

10.2 Termination for Cause Either party may terminate immediately for:

  • Material breach not cured within [X] days
  • Insolvency or bankruptcy
  • Violation of prohibited uses

10.3 Effects of Termination Upon termination:

  • API access immediately revoked
  • Input Data deleted within [X] days
  • Licensee ceases all use of the AI Model
  • Accrued fees remain due and payable

11. CONFIDENTIALITY

Both parties agree to maintain confidentiality of:

  • Technical specifications and documentation
  • Performance metrics and benchmarks
  • Pricing and commercial terms
  • Business strategies and roadmaps

Confidentiality obligations survive termination for [X] years.

12. GENERAL PROVISIONS

12.1 Governing Law This Agreement is governed by the laws of [State/Country].

12.2 Dispute Resolution Disputes resolved through [arbitration/mediation/court jurisdiction].

12.3 Force Majeure Neither party liable for delays due to circumstances beyond reasonable control.

12.4 Assignment Agreement may not be assigned without prior written consent, except to affiliates or in connection with merger/acquisition.

12.5 Modifications Agreement may only be modified in writing signed by both parties.

12.6 Severability If any provision is unenforceable, the remainder of the Agreement remains in effect.

12.7 Entire Agreement This Agreement constitutes the entire agreement between the parties.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

LICENSOR: LICENSEE:

[Name] [Name] [Title] [Title] [Date] [Date]

Key Considerations for Your AI Licensing Agreement

Before you sign any AI licensing deal, make sure you understand:

Usage Rights vs. Restrictions Don’t get caught off guard by hidden limitations. Some providers restrict commercial use, require attribution, or limit the types of applications you can build.

Data Privacy & Ownership Who owns the data you put in? What happens to it? Can the AI company use your inputs to train future models? These questions matter more than you think.

Liability & Risk Management AI systems can make mistakes, sometimes costly ones. Make sure you understand who’s responsible when things go wrong.

Compliance Requirements The regulatory landscape for AI is changing fast. Your agreement should address current laws and provide flexibility for future regulations.

Performance Guarantees API uptime, response speeds, and accuracy metrics should be clearly defined with remedies for underperformance.

Need a Custom AI Licensing Agreement?

Every AI implementation is different. Your agreement should reflect your specific use case, risk tolerance, and business goals.

Ready to protect your AI investment with a custom licensing agreement?

Contact My Legal Pal Today – Our experienced technology lawyers specialize in AI contracts and can draft a custom agreement tailored to your specific needs. Don’t leave your AI strategy to generic templates.

Get started with a consultation: We’ll review your AI use case and create an agreement that protects your interests while enabling innovation.

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