Burr & Forman's Francis Morency recently authored “AI Assets in Bankruptcy: How Licensing Agreements Might Limit the Value of AI Models,” published by the American Bankruptcy Institute Journal.

The article explores how the growing use of AI is creating new challenges in bankruptcy proceedings, particularly when determining the value and transferability of AI-related assets. Francis explains that, unlike traditional assets, AI systems often rely on interconnected components that may not be fully owned or freely transferable in bankruptcy. These components can include trained models, datasets, cloud infrastructure, software, and third-party licensing agreements that collectively support the functionality of AI systems.

Francis analyzes how Sections 541 and 365 of the U.S. Bankruptcy Code apply to AI-related assets and the challenges that arise when AI systems depend heavily on licensed or contract-restricted rights. While those assets may technically become part of a bankruptcy estate, companies may not have the unrestricted ability to transfer the data rights, infrastructure access, and licensing agreements necessary to maintain a functioning AI system.

Many AI companies rely on nonexclusive licenses, service agreements, and third-party data arrangements that may limit whether critical rights can be assigned in bankruptcy. Francis notes that without those underlying contractual rights, purchasers and creditors may find that an AI model’s practical and commercial value is substantially diminished.

The article also highlights the increasing importance of contract-focused diligence for creditors, investors, and restructuring professionals evaluating AI-driven businesses. Francis notes that the value of AI assets often depends not on a single piece of intellectual property, but on the continued interaction among data, models, infrastructure, and the contractual rights that support them.

As artificial intelligence continues to reshape industries and attract significant investment, Francis’s article underscores the need for bankruptcy courts, creditors, and businesses to rethink traditional approaches to valuing and transferring technology-driven assets.

Read the full article here.