Volvo's New Terms Signal New Artificial Intelligence Compliance Obligations for Automotive Suppliers
Volvo has revised its supplier Terms and Conditions (New Terms) to address, among other things, the use of generative artificial intelligence (AI) in both products and product development activities. The New Terms define “Generative AI” as “an artificial intelligence system or model designed to generate new output, including text, images, audio, video, software code or other data, based on patterns learned from training on large datasets using machine learning techniques, in response to input provided to the system, including, but not limited to, by natural language prompts.”
The New Terms prohibit suppliers from incorporating AI functionality into products without Volvo's prior written approval and require suppliers to disclose the intended use, functionality, and associated risks. They permit suppliers to use generative AI internally for design, development, manufacturing, testing, and quality assurance activities, provided that the AI does not become part of the delivered product and that all existing contractual obligations continue to be met.
The New Terms also obligate suppliers to contractually flow down the AI obligations to every level of the supply chain, potentially making the Tier 1 supplier responsible for the breaches of a Tier X supplier. This can be challenging from both a contracting and compliance perspective.
Volvo is not alone in expressly addressing use of generative AI, whether through revised general terms, incorporated polices, or other methods. These provisions raise important questions for automotive suppliers. First, what type of risk assessment will original equipment manufacturers (OEMs) require before approving products that utilize generative AI? And even if not required by an OEM, what risk assessments are prudent? Suppliers may need governance and documentation processes similar to cybersecurity or data privacy assessments to evaluate and communicate AI-related risks.
While the New Terms do not expressly address the relationship between the AI terms and intellectual property ownership, confidentiality, and cybersecurity obligations, those obligations are intrinsically related, Thus, any AI risk and policy assessments should also address whether the supplier has appropriate controls governing the use of proprietary information, confidential data, intellectual property, and AI-generated outputs.
Volvo’s New Terms thus illustrate the need for suppliers to review not only their AI practices, but also proprietary and confidential information and intellectual property practices and assess whether additional policies, risk assessments, and compliance procedures are needed to address evolving customer requirements.
How Butzel Can Help
Butzel's Automotive, Intellectual Property, and Technology attorneys regularly advise manufacturers and suppliers regarding AI governance, intellectual property protection, technology contracting, cybersecurity, and emerging compliance requirements affecting the automotive industry.
Please feel free to contact the authors of this Client Alert or your Butzel attorney for more information.
Gregg L. Ozga
313.225.5352
ozga@butzel.com
Sheldon H. Klein
248.258.1414
klein@butzel.com
