AI Litigation

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Per Law 360, a service which updates attorneys on major trends in the law, the often-discussed issue of whether AI is stealing the intellectual property of others, as that property is appearing in publicly available sources, is the subject of growing and important litigation, with no clarity as to which direction the law will take.

There have been over thirty cases, all in one of Massachusetts, California, Delaware and New York.  They arise across the spectrum: some allege misuse of text, some the theft of images, some the theft of music.  Three cases have been decided; one held that a company infringed on the copyrights of Westlaw (a platform of information for attorneys) while two others found that it was fair use to use public information in training AI.  The discussion of fair use in these cases did not result in a common interpretation and, according to speculation reported in Law 360, it is expected that it will take three to five years to arrive at an understandable body of legal interpretation.  By then, some standard basis for contractual settlement of the issue as between parties may also develop.

Finally, there is an esoteric discussion as to whether this litigation really is measuring “the heart of what makes us human” as it asks a court “whether AI models can legally be used to create art that replaces human works.”  I venture to suggest that this artistically sensitive view of the issue is far less important to people who pay money to institute lawsuits than the possible economic return upon any successful legal claim.  But on one level, consider this: what is the difference between a person reading available literature and writing about the subject based on that reading, vs a machine doing exactly the same thing?

AI’s Promise and Risk–Part Two

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The AI Futures Project has issued two predictions for the possible future of AI and its impact on business, geopolitics and the future of human-kind.  One assumes a rapid escalation of bad utilization of AI, and the second assumes a more measured and thoughtful evolution. Each analysis is textured and purports to be based on a wide variety of considered scenarios.  The problem is that both scenarios end up with the likelihood of a world either at war or populated by machines and not homo sapiens.

It is important to note that such an analysis follows early similar and hysterical predictions.  I can only recommend a careful reading of the very lengthy report entitled AI 2027 which can be found  at https://ai-2027.com/.  This report is as fascinating as it is frightening.  I cannot in limited space do justice to the two paths identified as our future, so let me make brief comments below.  You just should download this article and I invite your sharing your reactions, which may constitute a subsequent post (smhonig@duanemorris.com).

*Superhuman AI is coming over the next decade with impact far exceeding that of the Industrial Revolution.  Key AI leaders predict this event within the next five years.

*Jobs will be lost. Governments will be required to invent jobs for a while, but there will be no ultimate need for jobs or indeed people.  Welfare state solutions will work for a while.

*Geopolitical concerns will come to dominate.  Major powers (only US and China) will see themselves imperiled.  AI will become militarized. Interim international accommodations will be made, with the US keeping its lead and feeding China just enough tech and chips to be quiescent but behind.

*Machines will be so advanced that they can invent and make new machines.  No need for people to design or build. Machines will be produced by machines for every purpose. No need for people at all.

*War could devastate the world.  But more likely the machines will finally realize that, indeed, there is indeed no need for people, just for ubiquitous robots.  Human effort to control AI will fail as AI will protect itself from, being adept at self-protection.

*An excellent chance that humans will disappear.  Machines will make more machines and travel over the universe, populating the universe with things of the earth– it is just that such things will not be living beings.

This may be just a literary exercise, your next blockbuster movie or the future of our future generations.  But the specificity of, support for, and clarity of process leading to, these various predicted futures is stunning.  I for one have hope that I will depart this mortal coil well before this future unwinds, and I wish the same for all my heirs whom I know personally; that just leaves my gene pool at risk that AI2027 is anywhere near accurate.

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AI’s Promise and Risk–Part One

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This first of two posts on artificial intelligence tracks a fragment of its promise, as reported in the  August 1 issue of Boston Business Journal. That article is entitled AI for Life.

Starting with Google Deep-Mind’s discovery that a protein’s structure could be deduced from its amino acid sequence, today companies of all sizes are using AI to speed the development of, and reduce the cost of, new drugs. The article notes that at this juncture most companies use AI at the start of the process to identify disease biology and to design new proteins or molecules for testing against that disease.  Combined with advancing automation technologies, industry has sped up average time to propose a preclinical drug to the 12-18 month range, as opposed to prior practice which required two to four years of effort.

Aside from wide AI use by many private companies, the Commonwealth has established facilities in Kendall Square to recruit early-stage biotech entrepreneurs who can utilize its available AI resources.

Finally, the article speculates that while early stage biotech investment has fallen from the 2022 level, biotech /AI driven deals “have started to recover,” noting however that overuse of the AI hook has begun to cause interest fatigue among some VCs.

The promise of this article, a microcosm of AI’s promise in one significant but discrete area, meets its counterpoint in a dire and exhaustive study of it societal and geopolitical risk for which see the next-following post (which is not your by-now-shopworn panicked screed but a serious and textured analysis by the AI Futures Project).

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Is Delaware Going Soft?

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Delaware, long the bastion of corporate America as it gave such great deference and protection to management vis-a-vis shareholder claims and rights, recently has been deciding some court cases with greater responsiveness to shareholder concerns.  A couple of weeks ago, the Delaware Supreme Court issued a convoluted opinion upholding a stockholder demand for the business records of Amazon.

To strip the case down to essentials: the shareholder sued for corporate records under the Delaware corporate law that requires a corporation to provide information “for a proper purpose” which includes uncovering mismanagement or wrong-doing. The shareholder must not only allege a proper purpose but also provide “some evidence” to support their suspicion.  This shareholder claimed illegal corproate efforts to create a monopoly, and the evidence adduced was this: a Wall Street Journal article, a Congressional report, a huge fine levied by the European Union, a consent degree against Amazon, and a pending FTC-17 State pending lawsuit where most claims survived motions to dismiss.

Although there was a lot of “smoke” there was not a single citation to a specific act on the part of Amazon.  To respond to such a broad request for information in response to such a wide demand could require a hoard of information concerning very many aspects of Amazon’s operations.  The lower courts dismissed the case as making an overbroad demand.

Reversing the judgment below, the Delaware Supreme Court first stated that the lower court started at the wrong place: first courts must identify the alleged wrongdoing, as the amount of disclosure to be permitted as relevant must reflect the scope of the alleged wrongful actions.  The Supreme Court then found in favor of the plaintiff: showing a credible basis for granting shareholder demands requires the “lowest possible burden of proof under Delaware law.”  It was specifically held that the aggregate of lawsuits and other other regulatory action, coupled with a fine of over a billion Euros paid by Amazon, created the requisite basis to infer wrongdoing.

This case may be hard to parse with the specific language of the Delaware statute (section 220 of the Delaware Corporation Law) which, as recently amended, requires a demand  to be made with “reasonable particularity.”  It seems that, as of today when in Delaware courts, enough smoke may be enough to believe that a fire reasonably can be inferred.

Expanded Retirement Investments: Crypto, Realty and Private Equity

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Yesterday by executive order the President expanded the assets permitted in your 401k retirement plan.  Prior regulation restricted retirement investments to, in effect, traditional securities and related investments, presumably on the assumption that they were safer, more transparent and less volatile than the investment classes just approved.

This development is not surprising; for the current Administration Crypto is like owning money, and volatility just part of life; indeed, given volatility of equities the past seven months, that latter perception appears correct.  And if a person has knowledge of Crypto, let’s say does not look confused when someone suggests they should obtain a liquid staking receipt token, why not?  There may be risk that some retirees will chase the Crypto  without understanding risks, but then again many folks invest in traditional securities without a true understanding of what they are doing there, either.

Private equity investment has proven lucrative for professional investors but, in it own way, is likely an even more risky asset than any other.  There is no track record or objective current valuation for making a PE investment, and new enterprise disclosures by companies in which investment is sought often leave much to be desired.  On the other hand, more liberal funding of new enterprises may give a boost to US entrepreneurship, and today that is needed as the rate of professional investment in start-ups is lagging midst various market uncertainties we need not repeat here.

One safeguard to investors in these newly permitted asset classes would be for such investments to be made through funds run by area professionals, such that no investor need rely on their own imperfect knowledge; such bundling is indeed specifically referenced in the executive order. The Department of Labor (interested in employee retirement safety) and the SEC are admonished to work on appropriate detailed regulation.

Finally, this action may ultimately drive revision to the current rules for making investments in private companies; the requirement of having some liquidity or sophistication now required to reach the level of accredited investor and to make many types of PE investments may have to be softened.

Note: Senator Liz Warren in scathing critique noted that this action provides PE billionaires with “their biggest wish; access to retirement savings.”  Duly noted.

AI/SEC

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Consistent with the Federal Administration’s “full speed ahead” approach in what seems to be a race with China to dominate AI technology, the SEC last Friday announced that the agency had created a task force to spearhead the use of AI in operations of the Commission itself.  Among expected advantages is enabling “cross-agency and cross-disciplinary collaboration….”

The announcement did not address the manner in which the SEC will examine the filings of AI companies, but a fair expectation will be that Republican control of the staff will engender more  positive views of AI and likely a decline in caveats as to business risks from AI utilization.  The clear discomfort of the Democrat-controlled Commission with AI (not to mention Crypto, an entirely different but equally suspect “new thing”) seems a thing of the past.

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Crypto on the Road

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The SEC is coming to Boston  on August 19 (tentative date) to discuss Crypto and get ideas from persons active in the field; they will visit a total of nine other cities, New York twice, as part of this initiative.  Per press release today (Release 2025-102), the SEC has announced it intends to hold roundtables with people who sign up to participate, presumably in order to  fashion appropriate regulations.  Given the support for Crypto by the Administration and thus the Commission, it is likely that the SEC will attempt to permit new directions in the field and provide guidelines to facilitate new initiatives.

If you want to get involved you will need to move quickly to express and interest, as the Boston visit is less than three weeks from today.  Sign-up is at https://www.sec.gov./about/crypto-task-force/crypto-task-force-road.

Receptivity to expansion of Crypto is made clear by the language of the SEC release: “…they are particularly interested in hearing from representatives of crypto-related projects that have 10 or fewer employees and are less than two years old.”  So strap on your seat-belts as we are in for a pretty interesting ride….

SEC Permits In-Kind Redemptions of Crypto ETPs

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The SEC is on a roll, facilitating new regulations to permit full trading of crypto assets and derivatives of crypto assets.

An ETP is an “exchange traded product,” a derivative that tracks changes in value of one or more underlying crypto assets.  Until now, SEC rules required that upon sale of such ETPs, settlement (payment) had to be in cash, eg dollars.  The result was that you had to cash out on an exchange.

New SEC rules now permit proceeds of the sale of crypto ETPs to be paid in in-kind assets (“in-kind creations and redemptions”).  Prior policy for cash only transaction reflected the conservative approach of the Democratic-controlled Commission which in turn reflected the then-Administration’s queasiness about crypto in general; it was bad enough crypto existed, but let’s not compound the sin by having the entire transaction avoid the use of real money entirely.  The current Administration of course is pro-crypto and its surrogate regulators are thusly aligned.

The SEC also is considering whether to approve the operation of a national exchange to trade a couple of large-cap crypto ETPs; this, part of an effort to treat crypto as any other securities class.  Volatility risk aside, seems to me that markets in crypto and its derivatives will be treated much like investment in securities generally, or perhaps in currencies issued by national governments; given the state of today’s world, who can say that crypto will be more volatile than common equities or currencies in the future.

Baseball Effrontery

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Although I had promised you an ongoing commentary on the changing landscape of the law concerning business matters in light of actions by the Federal administration, I feel compelled to interrupt on a matter of great importance: baseball.  You may have noted that the artwork on top of these posts includes a baseball scene and, early on, I did post from time to time on that subject–but not for years.

Last Friday night, the Sox played the LA  Dodgers and all the Los Angelenos wore hats with a letter “B” on them.  How dare they usurp the Brooklyn history of the Dodgers and try to transport that aura to the tacky fake area of California known as tinsel-town?  LA stole the team but they cannot steal history and move it across the continent to that high-way laden, fake-persona wasteland of smog, earthquakes and forest fires.

Those of us who grew up with the Dodgers, whose players almost all lived in Brooklyn, knew that the fabric of the team was part and parcel of the place and time.  When Walter O’Malley announced in the mid-50s he would move to the West Coast rather than be diddled by Robert Moses, we all knew that the end of an era was nigh, particularly those of us who cut school to walk to Ebbets Field and pay 25 cents for a bleacher seat (you needed 10 Elsie ice cream caps or wrappers to get that price).

When the Dodgers were in town, which was half of the 154 game schedule plus another bunch of days when they were playing the Giants, dinner out for our family meant going downtown Brooklyn where the team always ate so we could see them, cadge an autograph or just stand up and applaud.

So now these West Coast Creeps presume to wear a “B” which they do not deserve.  For shame!! I am sure you all are as upset as I am so let’s be pissed off together.

Those who know me well have heard the “classic Brooklyn joke” or have learned of it from other literary sources of distinction.  For those of you who have not:

QUESTION: You find yourself in a room with Hitler, Stalin and Walter O’Malley.  Unfortunately, your pistol has only two bullets.  What do you do?

OBVIOUS ANSWER:  You shoot O’Malley twice.  You want to be sure that the son of a bitch is really dead!

I have long ago lost my little book of Dodger player signatures, as well as my small jar of dirt from the Ebbets Field infield (taken during demolition to put up the ugliest apartment houses in the City).  But I have not misplaced my loyalty and need for accuracy as to facts and morality both– I am not sure after 68 years if any of the Brooklyn Dodgers players are still even alive to feel the outrage, but allow me to feel that outrage for them!

Crypto Rising

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Even putting aside Trump’s own venture into his own coins, however improper that may be, there is no doubt but that crypto is a rising asset class under the current administration.

Yesterday the House of Representatives passed three laws relating to crypto, two of which expand the reach of crypto assets.  Bipartisan support approved a bill regulating stable coins and another to regulate crypto markets. Critics, mostly Democrats but also a smattering of Republicans, have criticized the legislation as opening up crypto markets without adequate controls and without empowering state regulators with tools for policing.

A third law, interestingly, prohibits the Federal Government from establishing a governmental coin or digital dollar.  Democrats duly noted the anomaly of the president personally being able to profit under the new regulatory climate while prohibiting the government he leads from doing so; California Democratic Representative Maxine Waters described the legislation as a “billion-dollar handout to the president himself.”   Whether this is fair commentary or sour grapes I leave to you the reader.

In separate news, per Bitcoin Magazine July 10, my law firm Duane Morris advised one deal party in securing a $1 billion capital raise for its bitcoin treasury, half under a securities purchase agreement and half through a standby equity purchase agreement.  There is no doubt but that crypto is big business in today’s America.