The $29,877 Question Nobody Asks Before Signing an AI Vendor Contract: Who Pays When It's Wrong?
So now there are two questions sitting unresolved in that case file. Did the tool produce bad output, or did the attorney produce bad output and blame the tool? And more importantly for the rest of us: when a firm signs a legal AI vendor contract, who actually owns that question?
In a Texas bankruptcy case decided this July, a law firm's motion leaned on "Westlaw Precision", Thomson Reuters' AI-assisted research tool, for a string of citations.
The court found the citations didn't hold up. A quote attributed to one case doesn't appear anywhere in it. A holding attributed to another case is the opposite of what that case actually says. Several citations pointed to the wrong opinions entirely.
The court's response: mandatory CLE on generative AI, a civil contempt finding, and an adverse costs order totaling $29,877.
Here's the part that should worry every firm running AI-assisted research: Thomson Reuters disputed the finding. Their position, on the record, is that none of the alleged hallucinations originated in Westlaw.
So now there are two questions sitting unresolved in that case file. Did the tool produce bad output, or did the attorney produce bad output and blame the tool? And more importantly for the rest of us: when a firm signs a legal AI vendor contract, who actually owns that question?
Most legal AI contracts are written by the vendor, reviewed by procurement, and never touched by the partner who'll be standing in front of a judge if something goes wrong. The indemnification language, the liability caps, the "outputs may be inaccurate" disclaimer buried in section 14, none of that protects the attorney whose name is on the filing. Rule 11 doesn't have a vendor exception.
Before your next AI tool renewal, three questions worth asking your vendor directly:
— What does the contract say about liability for hallucinated or inaccurate output?
— What's the data portability and exit process if you switch tools mid-engagement?
— Does "AI-assisted" research come with any warranty at all, or just a disclaimer?
The tool is not the professional of record. You are. Price that risk before the invoice, not after the contempt order.
What's actually in your firm's AI vendor agreements on this? Would love to hear how GCs and managing partners are handling it.
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