5 Legal Risks Every Business Using AI Needs to Know

5 Top Legal Risks of Artificial Intelligence in Business

Understanding the real risks of artificial intelligence impacting your business starts with recognizing where things can go wrong.

1. Security Risks of AI: AI Can Violate Data Privacy Laws Without Warning

You don’t need to code the AI yourself to be responsible for its output. Many AI tools scrape, store, and process user data in ways that can violate privacy laws. Businesses using AI-powered apps, plugins, or customer service tools may unknowingly collect personal information in ways that run afoul of laws like:

• The California Consumer Privacy Act (CCPA)

• The Illinois Biometric Information Privacy Act (BIPA)

• The General Data Protection Regulation (GDPR) for businesses with European customers

• The Children’s Online Privacy Protection Act (COPPA) for any service used by kids under 13

Security risks of AI also emerge when data collected by AI systems isn’t securely stored, shared, or encrypted. A breach caused by a faulty AI tool can trigger mandatory disclosures, regulatory penalties, and lawsuits. You're still on the hook if you haven’t configured your systems to comply with consent and disclosure laws.

2. Risks of Generative AI: Generative AI May Infringe on Copyrights or Trademarks

Tools like ChatGPT, DALLE, Midjourney, and others are trained on vast datasets, often mined from the internet. Their outputs can unintentionally mirror protected works. This kind of accidental duplication is one of the most overlooked but growing risks of generative AI.

Courts haven’t agreed on whether AI-generated outputs are original or derivative, but that hasn’t stopped lawsuits. Recent claims have targeted:

• AI-generated marketing copy that closely resembles published brand messaging

• Visuals and logos created by AI tools that resemble existing trademarks

• Code snippets from AI tools that include open-source or proprietary code without proper licensing

AI isn’t a shield. It’s a tool. If your team publishes or sells something that AI helped produce, and it violates intellectual property law, your business carries the liability.

3. AI Predetermination: AI Bias Could Trigger Discrimination Claims

Some AI systems don’t just automate tasks. Instead, they make decisions. If those decisions impact people, they may expose your business to liability under civil rights and employment laws. For example, AI systems used in hiring, lending, housing, or medical services have all been found to produce biased results. In some cases, that bias results in violations of laws such as:

• Title VII of the Civil Rights Act

• The Fair Housing Act

• The Equal Credit Opportunity Act

• Americans with Disabilities Act

As a rule of thumb, regularly audit your AI systems for biased outcomes, especially in areas that impact people’s access to jobs, housing, or healthcare. Train your models on diverse, vetted data and implement human review at critical decision points to reduce unintentional discrimination. Remember, bias in AI can be difficult to detect until harm occurs.

4. AI Liability: You May Be Liable for What AI Says or Does

If your chatbot gives medical advice, your automated assistant makes misleading promises, or your AI-generated email campaign violates marketing laws, regulators may treat it no differently than if you did it yourself. This is where the legal doctrine of vicarious liability comes into play. If your AI acts on your business’s behalf and causes harm, courts may hold you liable, especially if you failed to supervise its outputs.

Common scenarios include:

• Chatbots making false or deceptive claims about your services

• AI-generated customer responses that violate industry regulations

• Email or SMS campaigns that breach spam or consent laws

Some states, such as California and New York, have already begun crafting legislation that assigns responsibility for harm caused by autonomous systems back to the businesses that use them.

5. Failing to Understand the Risks and Benefits of Artificial Intelligence Before Using It

Every entrepreneur wants to stay ahead. But staying ahead doesn’t mean running blind. You must understand both the risks and benefits of artificial intelligence before integrating it across your operations.

AI can cut costs, speed up workflows, and unlock new insights. But if your business relies on AI systems without understanding their limits, you may be:

• Making decisions based on flawed or incomplete data

• Delegating sensitive tasks to tools that aren’t legally compliant

• Missing red flags that would be obvious to a human reviewer

You can’t afford to treat AI like a black box or a magic bullet. You must evaluate its functionality, monitor its outputs, and have clear internal policies about how your team uses and audits these systems. Your customers don’t care if a bot made the mistake. They expect accountability. The law does too.

Bizee Helps You Stay Ahead Without Slipping Up

At Bizee, we’ve helped over a million entrepreneurs form, scale, and protect their businesses. We understand the pressures you face and can help you think beyond compliance. Our support includes tailored resources, real-world business formation tips, and guidance that doesn’t drown you in legalese. Because we’re not just a platform. We’re in it with you. AI can give you a competitive edge, but only if you use it wisely. Let’s build a business that’s not just smart, but protected.

Disclaimer

Bizee and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting professional.

Resources:

• GDPR.edu, What is GDPR, the EU’s New Data Protection Law? link.

• Federal Trade Commission, Children’s Online Privacy Protection Rule (COPPA), link.

• U.S. Equal Employment Opportunity Commission, Title VII of the Civil Rights Act of 1964, link.

• U.S. Department of Justice, The Fair Housing Act, link.

• U.S Department of Justice, The Equal Credit Opportunity Act, link.

• ADA.gov, Americans with Disabilities Act of 1990, link.

• Journal of Innovation & Knowledge, Redefining boundaries in innovation and knowledge domains: Investigating the impact of generative artificial intelligence on copyright and intellectual property rights (October - December 2024), link.

• United States Copyright Office, Copyright and Artificial Intelligence. Part 3: Generative AI Training (May 2025), link.

• Federal Trade Commission, FTC Announces Crackdown on Deceptive AI Claims and Schemes (September 2024), link.

• Cornell Law Institute, Vicarious Liability, link.