AI is Reshaping the Landscape of Legal Contract Drafting

Introduction

Over the next three weeks, we will explore how AI tools can assist in drafting legal documents. This week, we will dive into how AI can assist legal professionals in drafting legal contracts and agreements.

Legal contract drafting refers to the composing of a legal agreement between multiple parties. In many cases, legally binding contracts strive to outline the terms of the agreement while protecting the rights of all parties involved and are crucial to resolving legal issues.

The nature of law requires precision and meticulous attention to detail, and drafting legal contracts and agreements can be a time-consuming task for legal professionals. The process is a cornerstone to many lawyers and paralegals, and they often are immersed in mass amounts of information, spending hours of mindful and precise crafting language and analysis. With the assistance of generative AI, lawyers and paralegals can now draft legal contacts and agreements with high accuracy at unprecedented speed and efficiency.

Drafting Stage

AI can provide relevant guidelines and instructions and help with initial drafts, which lawyers and paralegals can build on. AI support can ensure precision and consistency in the formatting and legal terminology while saving valuable time for professionals that can be allocated elsewhere. One can request AI tools to provide a template that best fits the contract, and generative AI will provide a rough yet robust template that legal professionals can develop with their legal expertise, streamlining the overall drafting process.

As always, it is helpful to provide sufficient details to the AI model to direct it toward accurate and relevant responses better. Some key details one may include are the parties involved, the purpose of the contract/agreement, contract type, key terms and conditions, contract duration, jurisdiction, and many more.

Let’s put this to use. Here is an example prompt and response generated by Chat GPT:

Prompt:

“I need support with drafting a software licensing agreement. Given the following details, please generate an initial draft for me.

1. Parties involved: The licensor is [Company Name], a software development company based in [Location], and the licensee is [Client Name], a technology services provider located in [Location].

2. Purpose of the agreement: The agreement is for the licensing of [Software Name], a proprietary software developed by [Company Name], to [Client Name] for use in their internal operations.

3. Key terms and conditions: The contract should include provisions related to the scope of the license, payment terms, maintenance and support, intellectual property rights, confidentiality, termination, and any other relevant terms.

4. Contract duration: The initial term of the agreement should be [Duration] years, with options for renewal.

5. Governing law and jurisdiction: The contract should be governed by the laws of [Jurisdiction] and any disputes should be resolved in [Preferred Jurisdiction].

6. Additional instructions: Please ensure that the contract language is clear and concise, using standard legal terminology and formatting.”

Response:

“[Company Name]

[Address]

[City, State, ZIP]

[Country]

("Licensor")

and

[Client Name]

[Address]

[City, State, ZIP]

[Country]

("Licensee")

(collectively referred to as the "Parties")

SOFTWARE LICENSING AGREEMENT

BACKGROUND

This Software Licensing Agreement (the "Agreement") is entered into on this _____ day of __, 20 (the "Effective Date") by and between Licensor and Licensee.

DEFINITIONS

2.1 "Software" refers to the proprietary software developed by Licensor, known as [Software Name].

LICENSE GRANT

3.1 Scope of License: Subject to the terms and conditions of this Agreement, Licensor hereby grants Licensee a non-exclusive, non-transferable license to use the Software for its internal operations in accordance with the terms and conditions set forth herein.

3.2 License Restrictions: Licensee shall not:

(a) modify, adapt, or translate the Software;

(b) sublicense, lease, rent, or distribute the Software to any third party;

(c) reverse engineer, decompile, disassemble, or otherwise attempt to derive the source code of the Software;

(d) remove, alter, or obscure any copyright, trademark, or other proprietary rights notices contained in the Software.

PAYMENT TERMS

4.1 License Fee: Licensee shall pay Licensor the agreed-upon license fee, as specified in Exhibit A, attached hereto and incorporated by reference, within [number] days from the Effective Date.

4.2 Late Payment: In the event Licensee fails to make the payment within the specified time, Licensor may charge interest on the overdue amount at a rate of [rate] per month or the maximum allowable rate under applicable law, whichever is lower.

MAINTENANCE AND SUPPORT

5.1 Support Services: Licensor shall provide Licensee with maintenance and support services for the Software during the term of this Agreement. The details of the support services, including response times, service levels, and contact information, shall be set forth in Exhibit B.

INTELLECTUAL PROPERTY RIGHTS

6.1 Ownership: Licensee acknowledges and agrees that all intellectual property rights, including but not limited to copyrights, trademarks, and trade secrets, in the Software and any modifications or improvements thereto, shall remain the exclusive property of Licensor.

6.2 Feedback: Licensee may provide suggestions, ideas, or feedback to Licensor regarding the Software ("Feedback"). Licensee hereby grants Licensor a non-exclusive, royalty-free, worldwide, irrevocable license to use, reproduce, modify, adapt, publish, translate, distribute, and display the Feedback for any purpose.

CONFIDENTIALITY

7.1 Confidential Information: During the term of this Agreement, both Parties may have access to certain confidential information of the other Party. Each Party agrees to hold the other Party's confidential information in strict confidence and to use such information solely for the purpose of this Agreement.

7.2 Exceptions: The obligations of confidentiality shall not apply to information that:

(a) is or becomes publicly available through no fault of the receiving Party;

(b) was rightfully in the receiving Party's possession prior to disclosure;

(c) is disclosed to the receiving Party by a third party without any obligation of confidentiality; or

(d) is independently developed by the receiving Party without reference to the disclosing Party's confidential information.

TERM AND TERMINATION

8.1 Term: The initial term of this Agreement shall be [Duration] years, commencing on the Effective Date.

8.2 Renewal: Upon expiration of the initial term, this Agreement may be renewed for successive [Duration] year periods upon mutual agreement of the Parties.

8.3 Termination for Convenience: Either Party may terminate this Agreement for any reason upon [number] days' prior written notice to the other Party.

8.4 Termination for Breach: In the event of a material breach of this Agreement by either Party, the non-breaching Party may terminate this Agreement upon written notice to the breaching Party if such breach remains uncured for [number] days following written notice of the breach.

8.5 Effects of Termination: Upon termination of this Agreement, Licensee shall cease all use of the Software and promptly return or destroy all copies of the Software and any related materials in its possession or control.

GOVERNING LAW AND JURISDICTION

9.1 Governing Law: This Agreement shall be governed by and construed in accordance with the laws of [Jurisdiction].

9.2 Dispute Resolution: Any disputes arising out of or in connection with this Agreement shall be resolved through good faith negotiations. If the Parties are unable to resolve the dispute amicably, either Party may initiate legal proceedings, which shall be subject to the exclusive jurisdiction of the courts of [Preferred Jurisdiction].

ENTIRE AGREEMENT

This Agreement, including any attached exhibits, constitutes the entire agreement between the Parties regarding the subject matter hereof and supersedes all prior or contemporaneous agreements, understandings, and representations, whether oral or written.

IN WITNESS WHEREOF, the Parties have executed this Software Licensing Agreement as of the Effective Date.

[Company Name]

By: ______________________

Name: ____________________

Title: ___________________

[Client Name]

By: ______________________

Name: ____________________

Title: _____________________”

Revision Process

AI can also assist with contract reviews to point out logical inconsistencies or errors while providing suggestions for structure, tone, and coherence, enhancing the clarity and language of the contract.

One may simply ask the AI model:

“Review the attached contract and provide feedback on any inconsistencies or errors you identify. Additionally, provide suggestions regarding the document's overall structure, tone, and coherence. Your input will help ensure the contract is clear, accurate, and effectively conveys the intended message …”

Again, noting prominent details regarding the nature of the contract can better direct the model toward identifying weaknesses or areas for improvement.

This prompt has been linked to the LowTech AI website here.

Additional Tools

Currently, several AI software tools enable lawyers and paralegals to draft legal contracts efficiently. For instance, Lawrina’s “Loio” is an AI-driven software that investigates the contract's clauses and provides suggestions to improve and eliminate errors. The tool offers drafts of templates or guidelines and detailed analyses of key terms and potential errors. Future articles will analyze how to maximize the potential of these useful AI-powered tools.