The New Rules of AI: A Global Legal Overview

THE NEW RULES OF AIA GLOBAL LEGAL OVERVIEWDecember 2025www.morganlewis.com© 2025 Morgan, Lewis & Bockius LLP, a Pennsylvania limited liability partnershipREPORT© 2025 Morgan Lewis 2 www.morganlewis.comNAVIGATING THE AI LEGAL LANDSCAPE: TRENDS, CHALLENGES, ANDSOLUTIONSFOREWORDThe rapid advancement of artificial intelligence technologies has prompted a global response in the formof evolving legal frameworks aimed at regulating their use and impact. Entering 2026, jurisdictionsworldwide continue to grapple with the complexities of AI regulation, striving to balance innovation withthe need for oversight.As AI continues to transform industries, businesses must navigate a complex regulatory environmentwhile balancing innovation with compliance. In this report we highlight current legal frameworks andoffer strategic insights for companies seeking to leverage AI responsibly. By understanding the regulatorylandscape and implementing robust compliance measures, organizations can harness the potential of AIwhile safeguarding against legal and ethical pitfalls.European AI Regulatory FrameworksGlobally, the European Commission has taken the lead in regulating AI through the following laws: AI Regulatory: AI Act Personal Data Privacy and Protection: EU General Data Protection Regulation (GDPR) Intellectual Property: Copyright Directive, etc. Data Sharing and Cloud Services: Data Act Cybersecurity Act: Network and Information Systems Directive Online Platforms: Digital Services Act Antitrust: Digital Markets Act And much moreThe EU AI Act has entered into force as the world’s first comprehensive AI-focused law. It is intended toapply to companies with a physical presence in the European Economic Area (EEA) and notably tocompanies without a physical presence in the EEA in certain circumstances. The act regulates two typesof AI: foundational models (general-purpose AI models, or GPAI models) and applications built on GPAImodels (AI systems):© 2025 Morgan Lewis 3 www.morganlewis.com© 2025 Morgan Lewis 4 www.morganlewis.comThe AI Act imposes a tiered set of obligations based on the risk associated with different GPAI modelsand AI systems, ranging from minimal-risk to high-risk and prohibited categories:Importantly, the European Commission on November 19, 2025 published its “digital omnibus” legislativeproposals, which seek to amend multiple major EU digital regulatory laws, notably the AI Act and theGDPR. These proposals, if enacted into law, are intended to ease AI-related compliance obligations,including by (for example): Deferring the date on which the AI Act’s rules relating to “high-risk” AI systems come into effect Allowing providers of GPAI models additional time to update documentation and processes Narrowing the scope of what information is considered “personal data” under the GDPR Making it easier to train GPAI models on personal data that is subject to the GDPRThese proposals, which are welcome news for companies active in the EU, will be considered in moredetail early in 2026, and there is no guarantee that these will be enacted into law.The United Kingdom, which has for several years adopted (relative to the EU) a compliance-lite approachto AI regulation, published its AI Opportunities Action Plan. The plan seeks to position the nation as aglobal leader in AI technology, leveraging both private and public sector solutions to enhance publicservices and drive economic growth. The plan emphasizes the creation of data centers and technologyhubs, with a focus on AI safety and regulation that aligns with pro-growth ambitions.US AI Regulatory FrameworksThe United States has taken a bold step with the release of “America’s AI Action Plan,” which outlines astrategic framework for securing the nation’s dominance in AI through innovation, infrastructuredevelopment, and international diplomacy. The plan marks a significant shift toward a deregulatedenvironment, encouraging private sector-led innovation while emphasizing the importance of AI systemsbeing free from ideological bias. The plan also highlights the need for rapid AI skill development and theestablishment of regulatory sandboxes to accelerate AI deployment in critical sectors.State-level initiatives in the United States, such as California’s AI transparency law and Texas’sResponsible AI Governance Act, reflect a growing recognition of the need for tailored AI regulations thataddress specific risks while fostering innovation. These efforts are complemented by the Federal TradeCommission’s Operation AI Comply, which aims to address deceptive AI practices and ensure consumer© 2025 Morgan Lewis 5 www.morganlewis.comprotection. The US Securities and Exchange Commission’s focus on cybersecurity and AI underscores theimportance of regulatory vigilance in safeguarding against potential risks.The White House’s December 2025 executive order marks a major shift toward a unified national policyframework for AI, with broad implications for technology companies, state governments, and regulatedindustries. It aims to establish a minimally burdensome national standard for AI policy, limiting state-levelregulatory divergence.Asian AI Regulatory FrameworksIn Asia, Singapore’s Infocomm Media Development Authority launched the Model AI GovernanceFramework for Generative AI to address concerns and facilitate innovation in generative AI (GenAI). Indiais actively shaping its AI regulatory landscape with initiatives and guidelines for responsible AIdevelopment and deployment, but lacks specific AI laws. India is also considering AI-related laws to serveas a companion to its Digital Personal Data Protection Act 2023.TABLE OF CONTENTSEU and UK Regulatory Updates ................................................................................... 6US Regulatory Updates ............................................................................................... 7Asia Regulatory Updates ...........................................................................................10AI Fundamentals .......................................................................................................11Industry Focus ..........................................................................................................14Healthcare .............................................................................................................14Life Sciences ..........................................................................................................16Energy ....................................................................................................................16Financial Services ..................................................................................................17Insurance ...............................................................................................................17Retail .....................................................................................................................17© 2025 Morgan Lewis 6 www.morganlewis.comEU AND UK REGULATORY UPDATESEU AI Act’s First Compliance Deadline Takes EffectAs of February 2, 2025, Chapters I and II of the EU AI Act have entered into force. This includes Article5, which prohibits some AI systems for which use may intrude upon an individual’s privacy. These includecertain AI systems relating to emotion recognition in the workplace, subliminal manipulation, andpredictive policing. Separately, EU AI Act obligations related to AI literacy have also gone into effect.“While this recent update describes a relatively discrete set of EU AI Act prohibitions, it is a small stepforward in what is likely to be a strenuous year for AI compliance.” - Vishnu Shankar, Doneld G. Shelkey For more information: And So It Begins: An EU AI Act Update, Tech & Sourcing @ Morgan LewisThe Future of AI in the United KingdomIn January 2025, UK Prime Minister Sir Keir Starmer announced the UK AI Opportunities Action Plan. Theplan outlines the UK’s intentions to become a world leader in AI technology for the benefit of privatebusinesses and their customers as well as for all UK residents via AI-enabled public services.“If the AI Opportunities Action Plan is successful, the UK is set to become a global AI hub, attractingsignificant global investors and talent. This would provide a boost for private companies to continueleveraging AI to improve their products and services to benefit both the companies and their customersand assist in revolutionizing public services with the use of AI for the benefit of all UK residents.” - MikePierides, Oliver Bell For more information: The Future of Artificial Intelligence in the United Kingdom: AIOpportunities Action Plan, Tech & Sourcing @ Morgan LewisEU AI Act: Key Takeaways for Business and Legal LeadersThe EU AI Act, the world’s first comprehensive AI and machine learning-focused law, went into effect onAugust 1, 2024. It has a sweeping impact on many businesses—including those operating outside of theEU—that currently design, develop, integrate, or use AI systems or models or plan to do so in the future.“[We] are well suited to help companies navigate AI Act and related AI compliance, enforcement, andlitigation matters. Our team stands ready to assist companies designing, developing, or using AInavigating this evolving and complex legal landscape.” - Vishnu Shankar, Izzet Sinan, Christina Renner,Dion M. Bregman For more information: The EU AI Act Is Here: 10 Key Takeaways for Business and Legal Leaders,Morgan Lewis LawFlash10 Key Steps for EU AI Act ComplianceThe EU AI Act impacts many businesses—including those operating outside of the EU—that design,develop, or use AI systems or models. As with the EU/UK General Data Protection Regulation, violationsof the act may result in significant regulatory fines (including direct liability for group parent companies)and private litigation (including collective litigation). Consider these steps to point you in the direction ofcompliance and consult experienced counsel for more tailored analysis and advice. - Vishnu Shankar,Izzet Sinan, Christina Renner For more information: EU AI Act Compliance: 10 Key Steps for Providers and Deployers of AISystems, Morgan Lewis Insight© 2025 Morgan Lewis 7 www.morganlewis.comUS REGULATORY UPDATESExecutive Order Sets Uniform National Standards for Artificial IntelligenceThe White House’s December 2025 executive order marks a major shift, seeking to preempt state AI lawsand move toward a unified national policy framework for AI, with broad implications for technologycompanies, state governments, and regulated industries. The below LawFlash examines the keyprovisions, background, and practical impact of the order with respect to businesses and in-housecounsel navigating the rapidly evolving AI regulatory landscape.“The December 2025 order represents a deliberate step by the administration toward establishing a morecoherent and harmonized federal approach to AI oversight, even though comprehensive federallegislation is still absent. At the same time, the order may raise more questions than it resolves. Whilemany details remain to be determined through administrative rulemaking and legislative action, the ordersets priorities for innovation, competitive leadership, and regulatory efficiency in AI.” - Amy M.Magnano, Dion M. Bregman, Nicholas M. Gess, Michael J. Madderra, Roshni Edalur For more information: White House Issues Executive Order to Establish Uniform National AIStandards, Morgan Lewis LawFlashUSPTO’s Automated Search Pilot ProgramThe USPTO has announced the launch of its Automated Search Pilot Program, an initiative designed toevaluate the use of AI tools to enhance patent prior art searches. The program will test the use of an AIpowered search tool to identify potential prior art before a patent application is examined.“The USPTO will use data and feedback from this pilot program to assess the effectiveness, scalability,and usefulness of the automated search process for insights into the future integration of AI tools intothe broader patent examination process.” - Manita Rawat, Michael S. Ryan, Joaquin Hernandez For more information: USPTO Announces Automated Search Pilot Program, Morgan LewisLawFlashUSPTO Issues Memorandum Reminding Examiners of Subject Matter Eligibility EvaluationDeputy Commissioner for Patents Charles Kim issued a memorandum to three technology centersreminding examiners how subject matter eligibility should be evaluated under 35 USC § 101. Thesetechnology centers often handle inventions directed to AI and machine learning, and claims for thoseinventions are frequently rejected as lacking patent eligibility.“The memo reinforces the importance of drafting a specification that supports AI/ML claims thatdemonstrates how the claims do not simply invoke computers or other machinery merely as a tool toperform an existing process, are not directed to automating an abstract idea, and do not simply applygeneric machine learning to new data environments.” - Manita Rawat, Dion M. Bregman, Conor S.Ball, Benjamin H. Pezzner, Joaquin Hernandez, Tairan Wang, Ph.D., Ka-Lo Yeh, Ph.D. For more information: USPTO Issues Memorandum Reminding Examiners Regarding SubjectMatter Eligibility Evaluation, Morgan Lewis LawFlashCalifornia Judicial Council Adopts Rule Governing State’s GenAI UseFollowing the year-long work of its Artificial Intelligence Task Force, California’s Judicial Council adoptedRule 10.430 addressing the use of GenAI by the state’s judicial branch. California is the largest, and oneof the first, court systems in the United States to adopt such a framework. The below LawFlash covers© 2025 Morgan Lewis 8 www.morganlewis.comthe content and scope of the rule as well as its accompanying guidelines and offers advice on how to usethe court’s approach as a guide for what to anticipate in this area and how best to prepare.“Given California’s status as the nation’s largest court system, this new judicial standard not only impactsa massive number of court personnel, practitioners, and litigants, but will likely contribute to an emergingnational standard.” - Jeffrey Niemczura For more information: California Courts Adopt Rule Governing the State’s Generative AI Use,Morgan Lewis LawFlashWhite House Releases ‘Winning the Race: America’s AI Action Plan’In July 2025, the White House released “Winning the Race: America’s AI Action Plan,” encompassingmore than 90 federal policy actions and outlining the administration’s comprehensive and aggressiveapproach to securing US “dominance in artificial intelligence.” The plan is a significant departure from theprevious administration’s safety-first, risk-based regulatory posture in favor of a deregulated andindustry-partnered environment. The plan is structured around three main pillars: innovation,infrastructure, and international diplomacy and security.“Companies operating in AI, data infrastructure, and critical sectors should closely monitor theimplementation details of this action plan and, if it materializes as suggested, anticipate both increasedfederal support and heightened scrutiny, particularly regarding export controls and compliance with newfederal procurement ‘neutrality’ and ‘objectivity’ standards.” - Zachary W. Shine, Dion M. Bregman For more information: US Administration Rolls Out ‘America’s AI Action Plan’, Morgan LewisLawFlash See related: ‘America’s AI Action Plan’ Encourages Reforms for Rapid Data Center Buildout, DataCenter BytesTexas Responsible Artificial Intelligence Governance Act Takes Effect January 1, 2026Governor Greg Abbott recently signed into law the Texas Responsible Artificial Intelligence GovernanceAct (TRAIGA), which will take effect on January 1, 2026. Texas joins California, Colorado, and Utah asone of the frontrunners in enacting comprehensive legislation governing the responsible use of AI acrosssectors. The below LawFlash covers provisions of note from TRAIGA and suggestions for how coveredentities can prepare in advance of January 1 to ensure their AI use complies with the act.“Before TRAIGA goes into effect, individuals, companies and state agencies can take several steps toevaluate whether they are covered under the Act and set forth a plan to comply.” - Jennifer MottWilliams, Bansri Mehta McCarthy For more information: Texas Joins the Emerging Landscape of State-Level AI Governance,Morgan Lewis LawFlashNew York Passes Responsible AI Safety and Education ActNew York state lawmakers passed the Responsible AI Safety and Education Act (RAISE Act) in June 2025with the aim of safeguarding against AI-driven disaster scenarios by focusing on the largest AI modeldevelopers; the bill now heads to the governor’s desk for final approval. The RAISE Act is one of thelatest legislative movements at the state level seeking to regulate AI, a movement that may continue togain momentum after a 10-year moratorium on AI regulation was removed from the One Big BeautifulBill Act.© 2025 Morgan Lewis 9 www.morganlewis.com“From a practical perspective, requirements such as recordation of information on testing of any frontierAI model may push smaller startups and research organizations out of the market to the extent theresources necessary to maintain such information present additional and costly overhead.” - Cooper J.Attig, A. Benjamin Klaber For more information: New York Seeks to RAISE the Bar on AI Regulation, Tech & Sourcing @Morgan LewisSEC’s Continued Focus on Cybersecurity and AIThis article discusses how recent enforcement actions could indicate that the SEC is likely going toprioritize scrutiny in the areas of cybersecurity and AI, reminding companies and financial institutions tothink ahead about how this may affect their business.“Public companies and financial institutions should consider their regulatory risks when it comes tocybersecurity and AI, and work to reasonably address the implications for their particular business on anongoing basis.” - Carolyn M. Welshhans, Kelly L. Gibson For more information: Getting Ahead of the SEC’s Continued Focus on Cyber, AI, Law360FTC Announces Operation AI ComplyIn September 2024, the Federal Trade Commission announced Operation AI Comply, targeting what theagency has characterized as the use of AI “to supercharge deceptive or unfair conduct that harmsconsumers.”“The FTC’s Operation AI Comply marks an escalation in addressing deceptive AI practices, as well as abroader effort by the FTC to proactively root out business models and incentive structures it perceives asposing competitive concerns. Businesses operating in the AI space must navigate this evolving regulatorylandscape carefully. Compliance with consumer protection laws is essential to avoid enforcement actionsand to contribute to a fair and open AI market. By fostering transparency, fairness, and responsibleinnovation, companies can help ensure that AI technologies deliver widespread benefits.” - Alice S.Hrdy, Caitlin Zeytoonian For more information: FTC Moves to Expand AI Deployment Oversight with ‘Operation AIComply’, Morgan Lewis LawFlashCalifornia Governor Vetoes AI Safety Bill, Approves Law on GenAI TransparencyAlso in September 2024, Governor Gavin Newsom vetoed a bill imposing new AI safety regulations whileapproving a law mandating transparency in GenAI. This update explores the implications for developersand the future of AI regulation in California.“California’s recent legislative activity shows that one of the world’s most important technology centers ispaying close attention to both the use and potential misuse of AI. The state is willing to require publicdisclosures regarding the use of GenAI and to regulate specific, targeted risks, such as electionmisinformation and deepfakes. However, whether more stringent AI safety regulation will be imposed atthe development stage may depend on federal action from Congress.” - Leigha M. Beckman, Minna LoNaranjo, Dion M. Bregman, Andrew J. Gray IV For more information: California Governor Vetoes AI Safety Bill SB 1047, Signs AB 2013 RequiringGenerative AI Transparency, Morgan Lewis LawFlash© 2025 Morgan Lewis 10 www.morganlewis.comIllinois Signs New Law Addressing Employer Use of AIDespite the rapid rise in the use of AI in the workplace, legislation regulating employers’ use of AIremains sparse. Until recently, few states had passed laws governing an employer’s requirements whenusing AI to make employment decisions, but in August 2024 Illinois joined these ranks when GovernorJ.B. Pritzker signed a new law into effect specifically addressing employer use of AI.“Employers with employees in Illinois that use AI tools in their employment decision-making processesshould monitor for new communications, rules, regulations, and guidelines related to the noticerequirements in HB 3773 that will be promulgated by the Illinois Department of Human Rights betweennow and the effective date of January 1, 2026. Employers should also take the opportunity to reviewtheir use of AI in employment, including services provided by third-party vendors, to ensure compliancewith the new provision and existing nondiscrimination requirements.” - Stephanie L. Sweitzer, ZacharyW. Shine For more information: Illinois Passes New Law to Address AI in the Workplace, Morgan LewisLawFlashASIA REGULATORY UPDATESCurrent State of AI in Investment Management in AsiaAI has become one of the most transformative forces in modern finance, reshaping how investment firmsoperate, analyze data, and interact with clients. AI is no longer a futuristic concept but rather a practicaltool driving efficiency, innovation, and competitive advantage. However, its rapid adoption also bringspotential risks and regulatory challenges, particularly in Asia where markets are embracing AI at differentspeeds. This Insight explores the current state of AI in investment management in Asia, its keyapplications, emerging threats, and the evolving regulatory landscape.“Firms must balance technological adoption with robust governance and ensure AI is deployedresponsibly and securely.” - Mike Pierides, Robert Mailer, Vishnu Shankar For more information: AI in Investment Management: Opportunities, Pitfalls, and RegulatoryDevelopments in Asia, Morgan Lewis InsightSingapore Launches Model AI Governance Framework for GenAIIn May 2024, Singapore’s Infocomm Media Development Authority (IMDA) launched the Model AIGovernance Framework for Generative AI. The framework, developed by the IMDA and its wholly ownedand not-for-profit subsidiary the AI Verify Foundation, aims to establish a systematic and balancedapproach to addressing GenAI concerns while continuing to facilitate innovation.“The Generative AI Framework is expected to be further developed through, among other things, theimplementation of additional guidelines and resources.” - Kristian Lee For more information: Singapore Expands Its AI Governance Approach to Include Generative AI,Morgan Lewis LawFlashAI Regulation Landscape in IndiaWhile India continues to shape its AI regulatory landscape with initiatives and guidelines for responsibleAI development and deployment, it lacks specific AI laws. NITI Aayog, India’s policy think tank, hasreleased strategies and principles focusing on ethical AI use, while the Ministry of Electronics andInformation Technology has initiated AI innovation programs and skill development.© 2025 Morgan Lewis 11 www.morganlewis.comIndia’s participation in the Global Partnership on Artificial Intelligence and collaboration with internationalstandards bodies such as the Bureau of Indian Standards aligns its efforts with global best practices. Thegovernment’s pro-innovation stance encourages AI advancement while considering ethical risks, andinternational companies are advised to navigate the evolving regulatory environment with strategic legalentry routes into the Indian AI market. - Rahul Kapoor For more information: India: AI Regulation - Current State and Future Perspectives, OneTrustDataGuidanceAI FUNDAMENTALSUnderstanding Patent Protection for AI TechnologyAI is transforming industries and redefining how innovation is created, deployed, and protected. Ascompanies accelerate development of generative models and machine learning systems, questionsaround patent eligibility, inventorship, and enforcement have taken center stage. Regulators, courts, andthe USPTO must now determine how traditional patent frameworks apply to technologies that evolveautonomously, process massive datasets, and in some cases generate their own outputs.“Applicants must clearly document human inventorship, disclose technical detail sufficient forenablement, and show tangible technical improvements, while litigants must adapt infringement anddiscovery strategies to fit these dynamic and oftentimes opaque technologies.” - Manita Rawat, Karon N.Fowler For more information: AI Patent Protection and Litigation: Key Takeaways for Innovators andCompanies, Morgan Lewis InsightPreservation of GenAI Prompts and OutputsGenAI tools, which create text and media based on the data they were trained on, have raised legalconcerns around data privacy, data security, and privilege considerations. In discovery, GenAI promptsand outputs may be considered unique information that must be preserved for litigation. Organizationsmust consider how to preserve this information and whether and how to incorporate changes into theirstandard ESI agreements.“Legal hold policies and notices must address the new data types created by AI tools to ensureemployees understand the need for preservation.” - Tara S. Lawler, Matthew J. Hamilton, JeffreyNiemczura For more information: It’s Time To Address Preservation of Generative AI Prompts and Outputs,ReutersAI and Algorithmic PricingThe rapid development of AI technology has led antitrust enforcers to begin actively scrutinizing potentialanticompetitive practices related to the use of algorithmic pricing tools, particularly given that these toolsmay involve systems considered to be AI.“As regulatory, legislative and litigation developments continue to evolve in 2025, companies leveragingalgorithmic pricing, particularly those involving AI, should stay alert to emerging legal risks and shiftingenforcement priorities.” - Joshua M. Goodman, Minna Lo Naranjo, Amir Ali For more information: Addressing Antitrust Scrutiny Over AI-Powered Pricing Tools, Law360© 2025 Morgan Lewis 12 www.morganlewis.com2025 Outsourcing and Technology Transactions ConsiderationsThe landscape for outsourcing, technology, and AI transactions continues to undergo significanttransformations as businesses navigate technological advancements, regulatory changes, and dataprivacy concerns. With AI and cloud technologies continuing to grow in prominence, organizations musthave a clear understanding of the applicable use cases and adapt to evolving contracting models,ensuring they secure valuable innovations while mitigating emerging risks.“To succeed, businesses must embrace thoughtful and well-structured technology transactions andoutsourcing agreements that account for these new challenges. By doing so, they can harness the powerof AI and cloud technologies while managing risks, ensuring compliance, and safeguarding their longterm success.” - Marina G. Aronchik, Doneld G. Shelkey, Mike Pierides For more information: Outsourcing and Technology Transaction Outlook for 2025, Morgan LewisInsightStrategies for Success in Integration of AI into OutsourcingIn today’s dynamic business landscape, outsourcing has become an indispensable tool for organizationsseeking to streamline operations, cut costs, and access specialized expertise. Yet, as technology advancesat an exponential pace, the integration of AI into outsourcing arrangements introduces a new dimensionof complexity and opportunity. From predictive analytics to virtual assistants, GenAI applications arereshaping traditional outsourcing models, promising unprecedented opportunities but also raising novellegal challenges.“The exploration of GenAI solutions has revealed both promise and peril within the legal landscape, withthe consensus being that customers and providers of outsourcing services desire finding ways toimplement GenAI in a compliant manner that enables the benefits while providing the appropriate level oftransparency, privacy, and intellectual property protection. Business and legal teams will be tackling thislofty goal in the next year as the GenAI landscape continues to evolve.” - Barbara M. Melby, Michael R.Pfeuffer For more information: Unlocking AI and Outsourcing: Strategies for Success, Morgan LewisReportExploring Contractual Issues in AI TransactionsIt’s no surprise that AI is dominating the news cycle. One would be hard pressed to find another trendthat has so quickly woven itself into the fabric of legal documents. As we continue to observe serviceagreement riders, diligence requests, and representations and warranties specifically related to AIappearing in all manner of transactions, we are consequently likely to see more and more AI-relatedissues and regulation as time goes by.“AI products are increasingly coming to market, and in a widening array of use cases. Contract terms inmost transactional areas are being specifically developed to address the issues that crop up. Directlyrelated regulation is also being created, which will continue to make this an evolving area for theforeseeable future.” - Mike Pierides, Doneld G. Shelkey For more information: Exploring Contractual Issues in AI Transactions, Morgan Lewis InsightKey Considerations When Evaluating an AI VendorIn this blog post, we discuss some of the key questions to ask vendors that may be using AI in theprovision of their services. Some of the considerations discussed—especially as they relate to an AImodel’s output—may not be relevant for nongenerative AI, which are AI systems that do not involve the© 2025 Morgan Lewis 13 www.morganlewis.comgeneration of new content or data, but rather are systems for analyzing, processing, and makingdecisions based on existing data.“Selecting an AI vendor requires a thorough assessment of the AI solution and the vendor’s practices inconjunction with a company’s business goals.” - Rahul Kapoor For more information: Key Considerations When Evaluating an AI Vendor, Tech & Sourcing @Morgan LewisKey AI and Other Considerations for Emerging CompaniesWhen focusing on getting a company off the ground and ensuring success for those involved—founders,employees, investors—there are certain key considerations regarding AI that would be wise to keep inmind.“By keeping up with emerging trends and strategically integrating AI technologies into their businessoperations and understanding the applicable laws and regulatory requirements, new companies can gaina competitive edge and take full advantage of the opportunities offered by AI-driven innovation.” - BrianP. Slough, Michael S. Ryan, Zachary W. Shine For more information: Key Takeaways: AI and Other Considerations for Emerging Companies,Morgan Lewis InsightKey Infrastructure Components Critical to Continued Growth of AI and Cloud ComputingAI is top of mind for all businesses looking to grow. Economic researchers point to AI as a key factor toboost the economy and believe that AI could result in billions, if not trillions, of dollars in technologyrelated spending. However, this potential growth will not be possible in isolation; it requires massiveamounts of supporting infrastructure. - Vito Petretti For more information: Infrastructure of the Future: The Impact of AI and the Cloud, Tech &Sourcing @ Morgan LewisContent of an AI Usage PolicyOne of the commonly advertised features of AI is that it is beneficial for automation and increasingproductivity. When a company considers improving its productivity and employing an AI tool, it willtypically go through a contracting process with the service provider, including to assess the terms of useand associated risks for the business. But what happens if an employee presses on and starts using an AItool that was not vetted by the company?“The short answer is that the company may be exposed to risks that it has not contemplated, such asbreach of confidentiality or privilege, the company’s IP or cybersecurity being compromised, orcontamination of the company’s data by AI ‘hallucination,’ among many other outcomes.” - Doneld G.Shelkey For more information: AI in the Workplace: It May Be Time to Update Your Employee Handbook,Tech & Sourcing @ Morgan LewisThe New Legal Landscape Facing US Employers and Use of AIAI is quickly transforming the employment landscape, automating tasks, streamlining processes, andenhancing decision-making. At the same time, the technology raises concerns about potential biases,accuracy, and increasingly complex legal compliance.© 2025 Morgan Lewis 14 www.morganlewis.com“Employers are turning to AI to make time-consuming tasks more efficient, using the technology tostreamline the recruiting process, find ways to eliminate human bias, and advance diversity. However,employers should be aware that using AI is not without risk.” - Michael D. Schlemmer, Zachary W. Shine For more information: AI in the Workplace: The New Legal Landscape Facing US Employers,Morgan Lewis InsightStrategies for Intelligent ManagementEvaluating what intelligent management of AI means for an organization requires analysis of variousintersecting factors. First, stakeholders must determine what counts as AI. That determination will helpreveal what policies should be created as well as how to shape their goals, purpose, and scope. Whilerisk mitigation in the world of AI is paramount, to fully maximize AI’s potential organizations mustembrace the reality that constant technological change will demand flexible implementation, vigilantmonitoring, and a commitment to regular updating.“An AI policy is only as effective as its implementation and updates. Attention to the user is vital becausesuch policies will not be effective unless they are user friendly. To aid end users, provide user educationand training. Don’t rush a rollout. Be careful and intentional throughout implementation, which can be alengthy phase. Institute a process for assessing the constant evolution of both technological change andrelevant regulations. And remember to keep a close eye on the use of third-party tools.” - Jennifer MottWilliams, Bansri Mehta McCarthy For more information: Optimizing AI: Strategies for Intelligent Management, Morgan LewisInsightINDUSTRY FOCUSHealthcareUse of AI in Group Health PlansThe use of AI in the administration of group health plans is nothing new: AI has been used for a numberof years to analyze data, improve risk assessment, identify fraud, and streamline claims administration.AI can automatically review and approve or deny claims based on medical codes, reducing manualprocessing time with the goal of improving efficiency and accuracy in claims adjudication. In some cases,plan sponsors are crafting AI tools that provide plan participants with personalized healthcarerecommendations available at enrollment, identifying, for example, which of the plan sponsor’s benefitoptions is the best choice for the plan participant and any dependents.“AI is poised to revolutionize the way group health plans are administered. By embracing AI’s potentialwhile also carefully managing the associated risks, plan fiduciaries can unlock significant benefits for bothplan participants and administrators. The key is to approach AI implementation strategically, with a focuson compliance, data privacy, and ongoing oversight. As AI technology continues to evolve, stayinginformed on and adapting to the changing landscape will be critical for success in the ever-evolving worldof group health plan administration.” - Saghi Fattahian, Lindsay M. Goodman For more information: Fiduciary Considerations Raised By the Use of AI in Group Health Plans,ML BeneBits© 2025 Morgan Lewis 15 www.morganlewis.comPotential Opportunities and Risks Associated With the Growth of AI in HealthcareThe risks associated with the growth of AI in the healthcare and life sciences industries, as well as recentfederal and state activity and enforcement actions, emphasize the importance of understanding andimplementing a robust AI compliance program.“Adopting a structured approach that includes governance, training, oversight, and regular monitoringcan help healthcare and life sciences organizations harness the benefits of AI while minimizing legal andregulatory exposure.” - B. Scott McBride, Sydney Menack For more information: AI in Healthcare: Opportunities, Enforcement Risks and False Claims, andthe Need for AI-Specific Compliance, Morgan Lewis LawFlashFDA Announced Launch of GenAI Tool ElsaIn June 2025, FDA announced the launch of Elsa, a GenAI tool designed to “help employees—fromscientific reviewers to investigators—work more efficiently.” Per FDA, the tool “modernizes agencyfunctions and leverages AI capabilities to better serve the American people.” While Elsa may addefficiencies to FDA’s review processes, it also raises a number of questions for regulated industry.“FDA emphasizes that AI will augment, not replace, human experts; reviewers remain responsible fordirecting the AI assistant and verifying its outputs. Going forward, however, sponsors should account forFDA’s use of AI during product reviews. By anticipating these changes, manufacturers can adapt theirsubmission strategies.” - Jacqueline R. Berman, Ariel Z. Seeley For more information: FDA’s AI-Assisted Review: The Next Stage of Regulated ProductEvaluation, As PrescribedHealth Tech Investment Act Introduced in April 2025As AI transforms medicine, some of the most promising healthcare innovations are at risk of exclusion byMedicare’s outdated and complex reimbursement structures. The Health Tech Investment Act aims toaddress this by establishing a dedicated pathway for Medicare to reimburse algorithm-based healthcareservices, which the legislation currently defines as a service delivered through FDA-authorized, AIenabled medical devices that provide clinical outputs or conclusions for use by a healthcare practitioner.If enacted, the legislation would mark a major shift in how Medicare supports and pays for digitalinnovation in healthcare.“The HITA, if enacted, would modernize Medicare’s reimbursement model to not only recognize the valueof AI and algorithm-based services as mainstream tools for delivering timely, effective care but also helpensure that technological innovations reach patients. If enacted, the legislation could accelerate theadoption of life-changing technologies while ensuring they remain accessible, clinically valuable, andresponsibly funded.” - Ariel Z. Seeley For more information: How the Health Tech Investment Act Could Reshape MedicareReimbursement for Algorithm-Based Services, Morgan Lewis LawFlashState Bills for Healthcare Providers and Payors Seeking to Integrate AI ToolsAs the regulation of AI tools in healthcare settings rapidly evolves, state medical boards and relatedagencies are at the forefront of development and enforcement. While some states have taken proactivesteps to implement comprehensive frameworks to address ethical use, data privacy, and safetystandards, others are focusing on fostering innovation and reducing regulatory burdens on healthcareproviders.© 2025 Morgan Lewis 16 www.morganlewis.com“As states continue to refine their regulatory frameworks regarding AI in clinical settings, the balancebetween innovation and patient protection is likely to remain a critical focus for legislators.” - Jacob J.Harper, Rachel L. Lamparelli For more information: (AI)n’t Done Yet: States Continue to Craft Rules to Manage AI Tools inHealthcare, Morgan Lewis LawFlashNew Requirements for California Healthcare Providers That Use GenAI ToolsThe Artificial Intelligence in Healthcare Services Bill, signed into law by Governor Newsom, imposes newrequirements on California healthcare providers that use GenAI tools to generate patientcommunications. The law introduces new guardrails for California healthcare providers that deploy GenAIto reach their patients and is part of a broader effort by California to regulate the rapidly growing GenAIsector.“Developers that service the California healthcare industry may need to update or modify their GenAItools to meet the new disclaimer and instruction requirements for AI-generated patient communications.Healthcare providers in California using or considering using GenAI tools should perform sufficientdiligence to ensure compliance with these new requirements.” - Michele L. Buenafe, Jacob J.Harper, Nicholas Pfeiffer, Andrew J. Gray IV For more information: California Law Requiring Disclaimers by Healthcare Providers Using GenAIWill Affect Providers and GenAI Developers, Morgan Lewis LawFlashLife SciencesAI Changing the Pharmaceutical and Biotech IndustriesIn this article we examine how AI is rapidly changing the pharmaceutical and biotech industries,particularly in areas such as drug discovery, personalized medicine, and pharmacovigilance, and highlightthe challenges AI poses for current patent laws and applicable data protection regulations. - TimPowell, Vishnu Shankar, Benjamin Rowlatt For more information: As AI Shakes Up Pharma and Biotech, Can Patent Law Keep Up?, LifeSciences Intellectual Property ReviewEnergyAI and Data Centers Drive Record High Energy DemandGrowing interest in GenAI has triggered a race to develop the technology, driving demand for highdensity data centers and significantly increasing predicted electricity consumption. Research from the USEnergy Information Administration and Goldman Sachs indicates that domestic and global record-highenergy demand is quickly approaching.“As we move toward an energy-intensive future driven by AI and data centers, the need for strategicinvestments in infrastructure will become crucial in mitigating the risks of potential shortages.” - JaneAccomando, Erin McClelland For more information: Artificial Intelligence and Data Centers Predicted to Drive Record HighEnergy Demand, Data Center BytesEnergy and Commerce Departments Sign Pact to Evaluate AI SafetyThe US Department of Energy and Department of Commerce (DOC) announced in October 2024 amemorandum of understanding signed earlier in the year to collaborate on safety research, testing, and© 2025 Morgan Lewis 17 www.morganlewis.comstandards for AI. The National Institute of Standards and Technology, a federal agency within the DOCand a leader in standards development across a range of industries, will represent the DOC under thememorandum of understanding.“Similar coordination efforts among federal agencies are likely to continue as the White House andregulators advance a whole-of-government approach to address the responsible use of AI.” - J. DanielSkees, Arjun Prasad Ramadevanahalli, Lea M. Giotto For more information: Energy and Commerce Departments Sign Pact to Evaluate AI Safety,Power & PipesThe Intersection of Energy and AIAI not only provides new technological advantages to the energy industry, but also the industry is itselfresponsible for providing the vast—and growing—amount of energy consumption driven by thecomputers powering much of AI.“From enhancing grid resilience and optimizing energy procurement to addressing cybersecurity threatsand regulatory complexities, the rapid integration of AI into the energy sector brings both opportunitiesfor innovation and challenges that require careful navigation. As AI technologies continue to develop,stakeholders must collaborate to ensure sustainable and secure energy solutions that can support thegrowing demands of this transformative technology. The future of AI and energy lies in balancingtechnological advancement with regulatory oversight, environmental responsibility, and infrastructuredevelopment.” - Jane Accomando, Neeraj Arora, Andrew J. Gray IV, Mark A. Lazaroff, Alex Polonsky, J.Daniel Skees, Arjun Prasad Ramadevanahalli For more information: The Intersection of Energy and Artificial Intelligence: Key Issues andFuture Challenges, Morgan Lewis InsightFinancial ServicesRegulatory Landscape for Global Financial ServicesRegulators expect that financial entities will have in place appropriate controls, policies and procedures,and surveillance and monitoring to comply with existing regimes, including ensuring prudent operationalrisk management. In a similar vein, US regulators will not hold off on raising issues in examinations andinvestigations while their AI-specific policy approaches are evolving. Financial entities should look toleverage what they already have in place based on existing prudential requirements to document andeffectively manage risks arising from their use of AI.“Starting with governance and risk management, it is critical that AI systems incorporate measures toensure data security and integrity, auditability, and mechanisms to address data provenance (e.g.,through proper tagging of data). This is to ensure that, among other things, risks of training onincomplete, outdated, or unverified sources, as well as risks of distortion and hallucinations, can bemanaged.” - Steven W. Stone, Mike Pierides For more information: Global Financial Services: The Sector’s Current AI Regulatory Landscape,Morgan Lewis InsightInsuranceKey Insurance Coverage Considerations for Complex RisksThe burgeoning AI industry has sparked a surge in data center projects across the United States, a trendlikely to be further accelerated by measures announced by the US administration as part of its AI Action© 2025 Morgan Lewis 18 www.morganlewis.comPlan. But these complex facilities come with equally complex risks, raising several key insurance coverageconsiderations for policyholders in the data center industry.“Modern data centers raise a broad range of important insurance coverage issues. Given the increasinglycomplex risks associated with data center projects—including massive development, construction,management, and operational costs and related exposures—policyholders in the AI industry shouldcarefully review and negotiate their insurance policies to ensure that coverage aligns with those risks.” -Garrett S. Nemeroff, Sergio F. Oehninger For more information: The AI Data Center Boom: Key Insurance Coverage Considerations forComplex Risks, Morgan Lewis InsightRetailKey Issues in Commercial Contract Negotiations in the Retail IndustryThe intersection of technology and commerce has given rise to a myriad of trends that are reshaping theway companies approach commercial contracts. From the retail industry to the broader market, theintegration of AI and digital transformation has become a focal point in negotiations. As businessestraverse through the complexities of IP rights, service levels, liability, data collection and usage, andprivacy regulations, understanding the implications of these trends is crucial for successful contractnegotiation.“The convergence of AI, digital transformation, and market trends is restructuring the landscape ofcommercial contracts, including ownership, service levels, liability, and data privacy. Understandingmarket trends, complying with data privacy laws, addressing AI use, and negotiating robust contractterms are essential for success in the modern retail industry. By prioritizing these key considerations,retailers can effectively manage risks, foster trust with partners, and drive sustainable growth in the everevolving retail ecosystem.” - Doneld G. Shelkey, Eric J. Pennesi, Kristin M. Hadgis For more information: Key Issues in Commercial Contract Negotiations in the Retail Industry,Morgan Lewis InsightUse of Agentic AI in the Ecommerce SpaceAI tools designed to perform a specific autonomous function with limited human interaction (commonlyreferred to as agentic AI) are changing the operation of myriad business processes, accelerating the rateat which organizations can handle data workflows and complex decision-making. As AI agents transforminto full-fledged virtual assistants, organizations are finding new ways to drive value by redesigning theirenterprise’s digital landscape to accommodate and augment agentic AI. However, consumers andcustomers have increasingly been employing agentic AI to interact with companies of all sizes,highlighting that use of agentic AI may no longer be a one-way road from businesses to customers.“Any retailer seeking to implement agentic AI in these ecommerce applications would likely weighpotential barriers to adoption, including those that are typical for other GenAI use cases: financialconsiderations, data privacy requirements, and internal approval and ongoing governance controls, aswell as those that are more pronounced for agentic AI tools, such as the difficulty in implementing, orpotential omission of, the ‘human in the loop’ as oversight in the decision-making processes.” - Cooper J.Attig, Eric J. Pennesi For more information: Agentic AI: An Agent of Change in the Ecommerce Space, Tech & Sourcing@ Morgan Lewis© 2025 Morgan Lewis 19 www.morganlewis.comCONTACTSIf you have any general inquiries, please contact our AI Client Solutions team:Dion M. Bregman +1.650.843.7519 [email protected] Egan +1.617.341.7733 [email protected] B. Herrington +1.312.324.1445 [email protected] Shankar +44.20.3201.5558 [email protected]+32.2.507.7500Doneld G. Shelkey +1.617.341.7599 [email protected] USMorgan Lewis is recognized for exceptional client service, legal innovation, and commitment to itscommunities. Our global depth reaches across North America, Asia, Europe, and the Middle East with thecollaboration of more than 2,200 lawyers and specialists who provide elite legal services across industrysectors for multinational corporations to startups around the world. For more information about us,please visit www.morganlewis.com.© 2025 Morgan LewisMorgan, Lewis & Bockius LLP, a Pennsylvania limited liability partnership. Morgan Lewis Stamford LLC is a Singapore law corporationaffiliated with Morgan, Lewis & Bockius LLP. Morgan, Lewis & Bockius UK LLP is a limited liability partnership registered in England andWales under number OC378797 and is a law firm authorised and regulated by the Solicitors Regulation Authority. The SRA authorisationnumber is 615176. Our Beijing and Shanghai offices operate as representative offices of Morgan, Lewis & Bockius LLP. In Hong Kong,Morgan, Lewis & Bockius is a separate Hong Kong general partnership registered with The Law Society of Hong Kong. In Riyadh, theKingdom of Saudi Arabia, Morgan, Lewis & Bockius LLP is registered as a foreign company branch with commercial registration number7051326226 and is authorised and regulated by the Ministry of Justice under the Ministry of Justice license number 460122000035.This material is provided for your convenience and does not constitute legal advice or create an attorney-client relationship. Prior resultsdo not guarantee similar outcomes. 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