The spate of artificial intelligence developments could complicate the mergers and acquisitions landscape and spark M&A disputes in the months to come, according to a Berkeley Research Group report.
Roughly 37% of respondents expect AI to be among the areas within digital assets and services most prone to dispute activity this year, the report found.
“The recent explosive popularity of generative AI platforms like ChatGPT and the increasing adoption of AI tools across industries pose new questions for what AI can do, how it works, what it is worth and how it will be regulated — the very questions which can create disputes,” the report said.
Berkeley Research Group’s Mid-Year M&A Disputes Report for 2023 noted that regulations covering the use of AI are evolving. It also highlighted that AI tools often lack transparency about how they work.
As a result, the report said that “determining precisely which regulations are applicable and how compliance is achieved can generate disputes within the M&A due diligence process, particularly as new regulations come into force.”
The European Union has drafted a law known as the Artificial Intelligence Act to address the risks posed by AI. If finalized, the law could become a global standard, the Berkeley Research Group report said.
The group said the EU’s proposed AI law also “may exacerbate the differences between regions and further complicate cross-border transactions, heightening the potential for disputes.”
Additionally, the U.S. has a patchwork of state privacy laws governing data protection and usage, including a landmark law in California that has been amended. Enforcement of some new elements of the California Consumer Privacy Act (CCPA) were recently delayed by a state court judge.
“Tech regulations are changing all the time and any new law generates different interpretations of what it actually entails and what compliance involves,” said Amy Worley, BRG’s managing director and associate general counsel, in the report. “Even if companies try to enter into agreements with other parties to govern interpretation of these issues, courts can and have struck those down, creating chaos and disputes in the decision’s wake.”
When compared to last year’s results, digital assets and services was the only industry to see a meaningful rise in respondents who said they expected to see an increase in M&A disputes activity.
The two digital tech-related areas in which M&A professionals expect to see more dispute activity in 2023 than AI were cryptocurrency (49%) and blockchain (40%).
BRG’s report involved a survey of 162 M&A-focused lawyers, private equity professionals and corporate finance advisors around the world earlier this year.
