As artificial intelligence (AI) becomes more embedded in UK business operations, it’s vital for businesses to understand the legal landscape surrounding its use. From contracts and intellectual property to data protection and liability, this article breaks down the key legal issues you need to be aware of—without the jargon.

What Are the Main Legal Areas AI Affects?

AI intersects with several areas of UK law. The most important include:

  • Data protection law
  • Contract law
  • Intellectual property rights (IPR)
  • Agency law
  • Tort law (e.g. negligence and product liability)

Let’s explore each in turn.

Common Myths About AI in Law

Many people mistakenly think of AI systems as if they’re people. This leads to confusion. Three key legal misconceptions include:

  1. The “I, Robot” Fallacy: AI is not human. It’s just software and data, not a thinking machine.
  2. The Agency Fallacy: AI cannot act as an “agent” in legal terms because it isn’t a legal person.
  3. The Entity Fallacy: AI doesn’t have its own legal identity—it must operate through a company or another legal body.

Under UK law, only individuals or recognised organisations can have legal rights and responsibilities.

How Is AI Regulated in the UK and EU?

UK Approach

The UK currently avoids creating sweeping new AI laws. Instead, regulators issue guidance. However, new laws are expected soon, especially for powerful “frontier” AI systems. The Information Commissioner’s Office (ICO), Competition and Markets Authority (CMA), and other regulators are playing an increasing role.

EU Approach: The EU AI Act

The EU AI Act, in force since August 2024, sets out broad rules for placing AI systems on the EU market. Its main aim is to prevent risks before they happen (ex ante rules). While it doesn’t create specific new rights for individuals harmed by AI, existing EU laws—like GDPR—still apply.

Data Protection and AI

AI often uses personal data to learn and make decisions. This triggers legal obligations under:

  • The UK GDPR
  • The Data Protection Act 2018
  • The Data (Use and Access) Act 2025

Important issues include:

  • Lawful basis for processing data
  • Roles of controller vs. processor
  • Profiling and automated decision-making
  • Use of anonymisation or pseudonymisation

The ICO has published detailed guidance to help organisations using AI stay compliant.

Intellectual Property and AI

AI raises big questions around IP law, especially as it can create content and inventions. Key issues include:

  • Copyright: Who owns content created by AI? Generally, the person who set up the system—not the AI—owns it.
  • Infringement: Using copyrighted materials to train AI may breach rights unless properly licensed, so be very careful where AI is actually accessing the data from (Getty Images v Stability AI (maker of Stable Diffusion))
  • Patents: UK law says inventors must be human. AI cannot be named as an inventor.

Trade secrets are also becoming important as companies look to protect data and algorithms.

Contracts Involving AI

Most AI-related contracts are still similar to software agreements, but with extra attention needed for:

  • Smart contracts using blockchain technology
  • Allocation of risk for AI performance
  • Ownership of outputs (data, inventions, copyright)

Smart contracts may raise new legal questions—especially when automated terms break due to upstream issues.

AI and Tort Law: Who’s Liable When Things Go Wrong?

If AI causes harm, who is responsible?

  • Negligence: Professionals may be held to a new standard if AI becomes the norm in their field.
  • Product liability: Especially relevant for robots, self-driving cars, or drones.
  • Nuisance or escape: If a robot causes property damage, similar rules to escaped animals might apply (Rylands v Fletcher).

Statutory law (like the Automated and Electric Vehicles Act 2018) is also evolving to reflect these issues.

International Developments and Global AI Safety

AI regulation is also a hot topic globally. Key milestones include:

  • Bletchley Declaration (UK, 2023) and AI Seoul Summit (2024)—focused on AI safety.
  • Council of Europe Framework Convention on AI—a binding treaty signed by the UK, EU, US, Japan, and Canada.
  • Hiroshima AI Code of Conduct (G7)—a voluntary framework for ethical AI.

Organisations like the OECD and UN are driving cooperation and transparency in AI development.

Final Thoughts: Stay Ahead of AI Legal Risks

Whether you’re adopting AI tools, developing your own system, or using third-party services, understanding the legal landscape is crucial. Make sure your contracts, policies and data practices are AI-ready.

Need help with AI-related contracts or data protection documents? Get in touch—we specialise in creating practical, tailored legal solutions.

Published by Fergus Thompson