Bankruptcy

As AI vendors become integral to business operations, their potential bankruptcy creates complex challenges under a Bankruptcy Code that has yet to fully adapt to AI technology. The first of a two-part series, this article focuses on intellectual property considerations: specifically, how companies that license AI tools or models can protect their continued access when a vendor enters bankruptcy. Among the key risks is a debtor’s ability to reject executory contracts, which could strip away the ongoing services that make a licensed AI tool usable, even where the bare license itself survives. Proactive contractual measures, including escrow arrangements and source code and deployment rights, can mitigate these risks before a vendor crisis occurs.

The second of a two-part series, this article examines consumer privacy risks and strategic implications that arise when an AI vendor files for bankruptcy. Key issues include how trained models, fine-tuned weights, and training data derived from sensitive customer-provided data may be treated as bankruptcy estate assets that can be sold to third parties, how those model artifacts can enable reconstruction or extraction of personally identifiable data even without a sale of the raw data, and whether courts will classify AI vendors as “critical vendors” or “utilities” — designations that carry significant consequences for service continuity and restructuring negotiations. Companies should address these risks proactively through contract terms and vendor risk management protocols before a crisis occurs.