Martensen IP Offers Strategic Guidance on AI Subcontractor and Vendor Contracts, IP Portfolio Protection, and Frequently Asked Questions About AI and Intellectual Property

Does AI Output Automatically Become Your IP Asset? Martensen IP Provides Perspective.

Colorado Springs, CO, Sept. 24, 2026 (GLOBE NEWSWIRE) --

Artificial intelligence (AI) is everywhere today, and companies today are rushing to implement it into their business processes. That includes using tools like ChatGPT, Claude, and Microsoft Copilot for everything from drafting memos and product documentation to “brainstorming” new products and services.

It is easy to see why businesses are moving in this direction. They want to cut costs, improve their operations, and speed up research. But this rapid rush has created a dangerous blind spot for business executives. Many leaders assume that because they pay for a subscription or buy a software tool, they automatically own whatever the machine creates. This can be a costly mistake. There is a vast legal difference between purchasing a service and holding enforceable rights over its output.

The increase in operational speed from using AI can be helpful, but the practice can silently destroy your company’s proprietary defenses. If competitors can copy your core products without any legal consequences, your business can quickly go from market leader to basement dweller. That is why AI intellectual property ownership is one of the most critical issues facing tech leaders today.

At Martensen, we frequently talk with companies facing this scenario. We work with corporate leaders to integrate legal protection into their business plans. True protection—not simply checking a box—is the foundation of long-term business value. To build a real competitive advantage, executives have to understand exactly how these automated tools change the rules of ownership.

Can You Copyright or Patent AI-Generated Output?

To understand why machines can’t create protectable property, we must look at how the law defines creators. Under U.S. law, original creativity is the starting point for IP protection. This is particularly true for generative AI copyright disputes. Federal courts and the U.S. Copyright Office have repeatedly ruled that works created without human authors are in the public domain.

Here is an illustration. Imagine that a human writer drafts a fully original memo—that memo is protected by copyright. But if a manager uses an automated system to draft an identical memo, the resulting text lacks copyright protection. Because a machine is not a person, its output is not copyrightable. When a business relies on machine-generated designs, software, or text, those assets can be copied by anyone. You might own the digital file, but you can’t stop a competitor from copying your exact product. Misappropriation perhaps, but not copyright infringement. A similar rule applies to patents.

The U.S. Patent and Trademark Office has issued clear guidance regarding AI patent inventorship. Only natural persons can be named as inventors. A machine is only a tool of invention. It is not the inventor. To secure a patent, a human must provide an inventive contribution to the development. If an automated system comes up with the inventive step (meaning the non-obvious breakthrough), the technology is not patentable.

This creates a large risk during mergers, acquisitions, or enforcement actions. The patent office doesn’t have the tools to detect whether an invention was generated by a machine. But during litigation or due diligence, your competitors will dig into your records. If they prove that a machine conceived the invention, and there was no significant human contribution, the court can invalidate or find your patent unenforceable. If that occurs, your corporate value might drop overnight.

What Are the IP-Related Risks of AI-Created Software?

Software development is another high-risk area where companies are making dangerous assumptions. Traditionally, developers safeguard proprietary source code through a combination of patents, trade secrets, and copyrights. Many businesses choose to guard their code as a trade secret. They restrict access, encrypt files, and require secure logins.

If human engineers write your code, you have a solid dual defense. If someone steals the code, you can sue for trade secret theft and copyright infringement. Copyright infringement is a powerful legal weapon. It allows courts to award significant statutory damages, which are much easier to prove than actual financial losses.

On the other hand, if your software was generated by a machine, it lacks copyright protection. If a disgruntled employee walks out with that code, or if your system suffers a data breach, your trade secret status might evaporate. Once the code is in the public domain, any competitor can copy, distribute, and sell it legally. Because you lack a copyright, you have no way to stop them from using your leaked software.

Some companies try to solve this by building proprietary, internal AI systems. While secure internal models can prevent immediate data leakage, they don’t solve the underlying legal problems. The software generated by an internal model still lacks copyright protection because no human authored it.

How Should Companies Structure Subcontractor and Vendor Contracts for AI?

Traditional contractor agreements aren’t sufficient in this automated environment. Historically, vendor contracts relied on work-for-hire clauses and assignment provisions to secure intellectual property rights. But a machine can’t hold legal rights.

If your external developers are using automated systems without your knowledge, you might be paying for deliverables that anyone can copy. To protect your investments, you have to restructure your vendor contracts, drafting precise language that defines clear boundaries.

When structuring these agreements, it is crucial to address several operational factors:

• Documenting pre-existing assets. Partners must clearly define background assets brought into the collaboration to avoid future ownership disputes.
• Defining new innovations. Contracts must explicitly assign ownership of newly created works and account for any potential tool usage.
• Prohibiting unsanctioned tools. Hiring firms should restrict or ban subcontractors from using external automated software to generate deliverables.
• Maintaining audit rights. Companies must secure the right to audit vendor development processes, interview engineers, and inspect code bases.
• Demanding detailed logs. Contracts should mandate that external developers keep clear records showing the human efforts behind every deliverable.

These measures help businesses manage the balance between speed and legal security. By creating a clear paper trail related to vendor contracts, you can prove the human role in your technology and protect your IP.

How Cost Accounting Can Become an Intellectual Property Disaster

Many companies weaken their most valuable assets because they focus on the wrong expenses. Facing budget pressures, leadership teams often try to optimize short-term R&D costs. They might replace human software engineers with automated systems, or they might slash their legal budgets.

But this short-term perspective can devastate AI enterprise valuation. If your core technology is generated by a machine, and you don’t own enforceable rights to it, your business is highly vulnerable. Saving a few thousand dollars on development or patent filing is a poor trade-off if your product can be duplicated legally by any competitor. A technology company without exclusive IP is worth very little to investors, and it may have zero value in their eyes.

To avoid these costly disasters, corporate leaders should involve IP counsel at the start of the planning process. It is vital to not treat legal advisors as an emergency contact that you call only after an IP theft or a lawsuit. Instead, successful companies treat legal protection as strategic business infrastructure.

Frequently Asked Questions About AI and Intellectual Property

Who owns the intellectual property created by an AI engine?
Under current U.S. law, a machine cannot invent or create protectable subject matter. Because the law requires human authorship and human conception, purely automated output lacks standing for protection. Should a third party obtain a copy of the material, copyright law does not preclude them from copying, distributing or using it.

Can a company enforce copyright on AI-generated software code?
No, while your business can try to protect the code as a trade secret, you cannot file a copyright infringement lawsuit against someone who copies it. This significantly limits your legal remedies and financial recovery if your code is leaked or stolen.

How does AI use affect patent validity in litigation?
If a competitor can prove that an AI system produced the core invention covered by your patent, the court might invalidate or hold your patent unenforceable. That very real risk makes exhaustive documentation of human contribution essential during the development and filing process.

Create an IP Portfolio That Protects All of Your Intellectual Property Assets

At Martensen, we help founders, investors, and executives evaluate the legal risks of automation. Our firm has a long track record of success helping stakeholders align financial goals with strong legal strategies to protect IP and secure the company’s long-term value.

If you have questions about artificial intelligence and intellectual property, contact us today.

About Martensen IP
At the intersection of business, law and technology, Martensen understands the tools of IP. Martensen knows the business of IP. We understand the tech market, especially when the government is a customer, and we know how to plan, assess, and adjust. Patents, trademarks, copyrights, trade secrets, licenses are our tools. https://www.martensenip.com

Martensen IP Media Contact
Mike Martensen | Founder
719-417-8709

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