By Palak Devpura
A founder uses an AI tool to design a logo, write marketing copy and create much of a new app. Within weeks, the product is ready to launch. The team celebrates having done months of work in days.
Then an investor asks a seemingly simple question: “Does the company own everything it is selling?”
With AI, that question has become surprisingly difficult to answer.
Startups usually assume that because they paid for a tool, they automatically own its output. But permission to use an AI-generated result, copyright protection in that result, and ownership of underlying code or data are different questions.
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Under the US Copyright Office’s approach, purely AI-generated expression without sufficient human authorship is not protected by copyright merely because someone entered prompts. Human-created parts of a work, creative editing and the original selection or arrangement of material may qualify, depending on the facts. In other words, the presence of AI does not destroy all copyright, but the software cannot simply be treated as a human author.
Commercial terms matter as well. An AI provider may allow business use of outputs, but its conditions can address model inputs, training, confidentiality or responsibility for third-party claims. A product may also contain open-source code with licence obligations, or material that resembles another company’s protected work.
The challenge grows when a freelancer uses AI to build the product. Did the contractor assign their rights to the startup? Which components were written by people? Which libraries were reused? Can the team show how the final product was developed?
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These details can become important during fundraising or an acquisition. Investors do not want to discover after signing a deal that crucial technology cannot be licensed, transferred or defended as expected.
The practical approach is not to ban AI. It is to keep records of important tools, their terms, the human work that went into key assets, software licences and signed intellectual property assignments. Sensitive customer information and proprietary code should not be fed into tools without checking the relevant privacy and confidentiality rules.
AI can help a small team build quickly. But speed is not the same as ownership. The businesses that benefit most will be the ones that can explain not only what their technology does, but also what rights they actually have in it.
(Palak Devpura is co-founder of Spinach Laws, a startup-focused legal services firm advising founders on incorporation, brand protection and cross-border transactions. This column is part of the ongoing Spinach Laws × The American Bazaar series on law for founders.)