AI and Franchising
Artificial intelligence (AI) is a powerful combination of computing power, linguistics, science, and software that replicates and replaces human learning and intelligence. As AI systems like OpenAI’s ChatGPT go mainstream, it’s undeniable that AI will transform entrepreneurship, franchising, and business including, how businesses are created, how businesses operate, competitive advantages, training, automation, and customer engagement.
We know the the initial value of AI will start with increased efficiencies and improved profit margins but, how will it end? What will be the impact of AI on established businesses and franchise brands? What level of control will AI service providers possess over business owners? Who will own the content and data produced by AI? What are the legal implications of creating content and other business assets using AI?
So many questions, and right now AI and the legal implications of AI are evolving. Four important legal and business issues that entrepreneurs, franchisors, and business owners should be evaluating when using AI and evaluating the impact of AI in the marketplace, include:
- AI Driven Marketplace Dilution of Intellectual Property Assets
- Liability Obligations and Insurance
- Confidentiality – whether or not your data become public domain?
- Indemnification – Who’s responsible for the use, misuse, and errors in the AI generated content. Chat GPT’s terms of service state that you, as a user, are agreeing to indemnify ChatGPT from liabilities created by your use of their AI generated content.
- Legal Terms – Important legal terms that cover a broad spectrum of legal obligations that include how disputes are resolved.
2. Intellectual Property Ownership and IP Marketplace Dilution
Every business is built around intellectual property assets. While these intellectual property assets include easily identifiable and protectable assets that include trademarks, trade dress, copyrighted content, and patents, they also include information, content, and data that is less protectable and more prone to AI marketplace dilution. AI dilution occurs when a competitor uses AI to create, without infringing on any currently recognized intellectual property right, data, content, and marketing copy that nullifies the earned advantages of a competitor that invested human capital and time in producing original content and generating original data.
Service based businesses that do not sell any physically discernable products and that are not operated from a physical retail location may be more susceptible to AI driven IP marketplace dilution. This is because service based businesses are more reliant on data, content, and systems that can be more easily replicated by AI. Consider the long-established service provider that has used its extensive history of operations, time and dollars to maintain detailed pricing data, customer service training and care systems, training systems, and unique content and copy on its website, digital marketing, and customer communications. Now consider a new competitor that uses AI to generate and create close alternatives to all of those intellectual property assets and systems. Although the new competitor will not possess the depth of the lived and earned experiences of the service business originator, customers – at least when selecting a service provider – may not know the difference.
Business owners must consider that when you use AI to create intellectual property, eventually, the data and information that you share will, in one form or another, improve the learning and knowledge base of AI systems that may be accessed by your competitors. Eventually, AI will undermine the unique differentiators of competing businesses and turn unique brands into generic service providers. To a different degree, this threat also exists for retail based businesses.
3. Liability Obligations and Insurance
AI will automate many businesses processes and systems ranging from customer service to human resources to legal counsel and, even, healthcare. So what happens when an AI automated system gives the wrong information or creates a commercially recognized liability? The answer is that you, as the business owner using the AI, will be responsible and your terms of service with the AI service provider will probably disclaim liability. When using AI consider potential liability issues and as this industry progresses, consider liability insurance policies, coverage, and endorsements that will, eventually, be created around AI.
Government regulation creates many issues and roadblocks for business efficiency and innovation. However, considering the power of AI, government regulation in the form of safeguards and regulations as to what an AI service provider may and may not mandate is, in our opinion, necessary. However, the problem with well-intentioned government regulation (assuming that politicians acted competently and for the interests of their constituents) is that AI is moving much quicker than any competent government agency. Regulation will come after the problem arises and, predictably may be too little and too late.
As a business owner you need to know that when you use and rely on AI, AI service providers will have significant control or influence over your business and that the rules that will govern your AI relationship will be dictated in the terms of service imposed on you.
For the record, this article was prepared using human intelligence and the assistance of AI.