AI representations and warranties in M&A: what buyers ask and how sellers answer

The short answer: AI reps are negotiated, the facts behind them are not

There is no standard AI representation. What appears in a purchase agreement depends on how the target uses AI, whether it builds its own models and how much leverage the buyer has. Most AI reps sit beside the intellectual property, privacy and data security reps and cover four things: the AI tools the company uses, its rights to any data used to train or evaluate models, its compliance with its own privacy and contract promises, and any licenses that let others train on its data.

The seller answers each one through the disclosure schedule. A seller that has licensed operational records for AI training through SourceX, under an executed agreement with a defined scope and agreed redaction rules, has a short, documented exception to list rather than a gap to explain.

What do AI representations and warranties usually cover?

Drafting varies from deal to deal, but buyer's counsel tends to reach for the same categories.

A seller with no AI product still meets the first, third and fourth rows. The outbound license row is where a data licensing deal shows up.

What the underlying law says

No statute requires AI representations; they are contract terms. Each one, though, tracks a legal duty the buyer wants the seller to stand behind.

• Privacy and contract promises. In January 2024 FTC staff wrote that commitments not to use customer data for undisclosed purposes, such as training or updating models, are enforceable whether made in privacy policies, terms of service, promotional materials or marketplaces (FTC staff post on privacy and confidentiality commitments). A rep that the company honored its notices is only as safe as the notices themselves.
• Ownership of records. The Copyright Office's Circular 30 on works made for hire explains that a work prepared by an employee within the scope of employment belongs to the employer, while commissioned work counts as made for hire only in listed categories under a signed written agreement. Documents staff wrote generally belong to the company; contractor material may need a written assignment.
• California personal information. The CCPA statute requires notice at collection of the categories of personal information, the purposes and whether it is sold or shared, and a written agreement limiting use when a business sells or shares it (Cal. Civ. Code 1798.100 et seq.). Records offered for licensing should be scoped to avoid or remove personal information, and the scope document should say how.

This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting.

How a documented data license answers the reps

Several features of a SourceX license map directly onto the reps:

• The company licenses its records rather than selling them, so the ownership rep stays accurate.
• Deals are typically exclusive for AI training for an agreed term, so the buyer inherits a restriction it needs to see.
• Payment is one-time, so there is no recurring revenue stream to represent.
• Redaction and de-identification rules are settled with the company before work starts, and delivery happens only under a signed agreement with the company's go-ahead.

The companion guide on listing a data license on the disclosure schedule covers the schedule wording, and the list of AI due diligence questions buyers ask sellers shows how the same facts surface in the request list. For software targets, the SaaS sale guide separates licensable engineering and support records from material that stays out.

The paper trail that makes AI reps easy to give

Assemble these before the data room opens. Every item is a document about the license; none of it is the licensed data.

• Executed license agreement and any amendments
• A one-page scope summary: systems, date ranges, record types and exclusions
• The redaction and de-identification specification agreed before work began
• The company's written authorization for delivery, and the delivery record
• Proof of the one-time payment
• A rights memo separating employee-created, contractor-created and customer-derived material
• Privacy notices and customer contract templates in force when the records were created
• The data inventory prepared for the license

If the client is earlier in the process, the records section of the M&A seller intake questionnaire gathers most of this as metadata only.

Drafting points for buyer and seller counsel

1. Define the terms first. The definitions of AI technology, training data and company data drive the reach of every rep, and loose definitions create accidental breaches.
2. Carve out disclosed licenses. A flat statement that no third party may use company data for AI training should be made subject to the schedule.
3. Qualify what cannot be known. Knowledge qualifiers fit staff use of public AI tools before the company adopted a policy.
4. Ask for summaries, not data. Buyer's counsel can rely on the agreement and scope summary; nobody needs the licensed records in the data room.
5. Settle survival and recourse. Decide whether training-data reps are general or fundamental, and how any indemnity or insurance policy treats them.

A note for attorneys who refer clients

Counsel who introduce a client to SourceX and would receive a partner reward should check their own state's version of the rules on fees, conflicts and payments for recommendations. The ABA Model Rules index lists Rules 1.5, 1.8, 5.4 and 7.2, and each state adopts its own text.

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. The reward is payable only after the buyer pays and SourceX receives its fee, it is never deducted from what the client receives, and no reward is guaranteed.

Next step

When a sell-side client has years of operating records, have the owner run the company fit checker and compare the business with the who qualifies baseline before the reps are drafted. Advisors and counsel who expect to make introductions can register as a partner, and the referral program page for M&A advisors sets out how the partner side works.