Whilst delivering the first Edinburgh Fintech Law Lecture Lord Hodge, a Supreme Court justice, claimed the potential for artificial intelligence (AI) to give its host computer a separate legal personality that would allow it to own any intellectual property (IP) it creates is a very real possibility.
While he did admit the idea probably sounded “far-fetched”, he also said that as the legal personality of a ‘one-person’ company had been recognised by English law for over a century. In his opinion building on that precedent by giving computers a separate legal personality could be one way to side-step some of the issues that may affect our fintech industry’s adoption of AI.
Lord Hodge went on to say that if it is feasible, the computer recognised as a separate legal person may own the intellectual property it creates but asked if that IP should in turn be owned by a financial institution if that institution had been involved in the design of the algorithm. However, that financial institution would also need to assume final responsibility for any malfunction or adverse performance, a responsibility that would need to be legally supported:
“The law could confer separate legal personality on the machine by registration and require it or its owner to have compulsory insurance to cover its liability to third parties in delict (tort) or restitution.”
Lord Hodge also said that it wasn’t realistic to think the legislation would simply evolve organically through case law and if a “suitable legal regime” for fintech was to be achieved, it would have to be as a result of brand new legislation. A first step in that process could be the emergence of an advisory group on AI headed up by the Lord Chief Justice, Lord Burnett, but Lord Hodge thinks more is needed:
“A larger-scale collaboration involving the executive branch of government, focusing on AI and fintech and aiming to produce facilitating legislation is probably needed if the UK is to facilitate the development of fintech without harming the integrity of the markets or financial consumers.”
A large part of this change would be to update intellectual property rights to cope with anything new created as result of the fintech sector’s adoption of AI as the machines will have acted autonomously. Copyright is obviously one area that needs to be addressed but more importantly it will be vital to recognise who owns the patents filed to protect any innovation that offers a marketable opportunity.
But the legal conundrum isn’t limited to IP; the attribution of liability also presents a potential minefield for fintech businesses:
“Similar but more difficult questions will arise in relation to attribution of liability and causation in the context of transactions performed by fintech. Is liability for harm caused by the decisions of the machine to be imposed on the producer of the machine on a product liability model? How do you define what is an economic wrong resulting from the autonomous acts of machines?”
Contract law muddies the waters further.
Lord Hodge said he believes contracts created by the interaction of computers employing highly complex machine-learning capability could “generate transactions which would not fit easily into our contract law”. And if the fact the structure of the transaction was created by a machine allowed the financial instruction behind the transaction to walk away from it, chaos could well ensue.
While work has started on creating the first auditing framework for AI (with a view to having the final framework and associated guidance published by spring 2020) Lord Hodge’s presentation highlighted how essential it is for the legal profession to follow suit.
As litigators who work with a long list of fintech companies, we can’t help but think the potential combination of confusion over intellectual property rights, liability and contract law looks like a disaster waiting to happen if these concerns aren’t addressed quickly. If fintech is to progress as it should – and given it appears to be an area primed to make an enormous contribution to the UK’s economy in the immediate future that need is even more pointed – providing a suitable and enforceable legal environment will be crucial.
If you are a fintech business and would like to discuss any of the issues raised above or have fond yourself facing an intellectual property or contract dispute and want an experienced litigator’s opinion on what you need to do next, please call us today on 020 7792 5649 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it..
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