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In brief

In our commitment to keep you informed of emerging legal challenges, we would like to draw your attention to the issue of AI hallucinations and their implications for the responsible use of AI in your business. This alert aims to provide an overview of the legal ramifications of AI hallucinations, as well as recent regulatory developments in this area.


Contents

  1. Hallucinating law
  2. Mitigation of AI hallucinations
  3. Sensible use of AI in business
  4. Harnessing the power of AI

Hallucinating law

AI hallucinations, incorrect or misleading results from AI models, are often caused by inadequate or biased training data and incorrect model assumptions. These factors can lead to AI learning flawed patterns, resulting in hallucinations.

  • A newly released study by the Stanford Institute for Human-Centered Artificial Intelligence (HAI) documents the particular prevalence of AI hallucinations related to legal queries. When confronted with questions on US case law, popular AI chatbots like ChatGPT were more likely to give false than correct answers.
  • The study’s findings highlight the risks of imprudent and unsupervised use of AI for complex legal questions. Users need to be aware of the risk of receiving incorrect or misleading answers.

Mitigation of AI hallucinations

The risks of AI hallucinations can be mitigated through careful model evaluation, establishing human oversight, and prioritizing transparent data sets to make AI outcomes understandable and traceable. While further innovation is needed to address the issue of AI hallucinations, sensible regulation can guide responsible progress.

The EU AI Act, which is set to be adopted soon, addresses challenges posed by AI hallucinations, emphasizing data transparency obligations.

  • All general-purpose AI models will have to meet data transparency obligations. Their results must be traceable and explainable. This may include providing explanations of how an AI system arrived at its decision, as well as information on the data used to train the system and the accuracy of the system.
  • High-risk AI systems are faced with much stricter transparency obligations, as well as the requirement of appropriate human oversight.
  • The US Executive Order on AI includes similar provisions mandating transparency. 

Sensible use of AI in business

AI is already an important tool for many businesses, and in the future it will become indispensable. However, an awareness of AIs shortcomings is crucial. Unsupervised use carries a variety of risks, for instance:

  • Hidden biases in AI may lead to unwitting discrimination within a company, for example, in hiring decisions.
  • Commissioning AI with complex legal issues harbors the risk of incorrect application of the law and could expose companies to liability.

Harnessing the power of AI

Companies need to pursue a structured approach to AI. With a robust AI risk management strategy in place, companies can ensure responsible and forward-thinking usage that maximizes the immense potential of AI.

We are here to assist you with the legal aspects of this journey. Please don’t hesitate to reach out to us with any questions you may have. Our dedicated team at Baker McKenzie is here to help.

Author

Anahita Thoms heads Baker McKenzie's International Trade Practice in Germany and is a member of our EMEA Steering Committee for Compliance & Investigations. Anahita is Global Lead Sustainability Partner for our Industrials, Manufacturing and Transportation Industry Group. She serves as an Advisory Board Member in profit and non-profit organizations, such as Atlantik-Brücke, and is an elected National Committee Member at UNICEF Germany. She has served for three consecutive terms as the ABA Co-chair of the Export Controls and Economic Sanctions Committee and as the ABA Vice-Chair of the International Human Rights Committee. Anahita has also been an Advisory Board Member (Beirätin) of the Sustainable Finance Advisory Council of the German Government.

Anahita has won various accolades for her work, including 100 Most Influential Women in German Business (manager magazin), Top Lawyer (Wirtschaftswoche), Winner of the Strive Awards in the category Sustainability, Pioneer in the area of sustainability (Juve), International Trade Lawyer of the Year (Germany) 2020 ILO Client Choice Awards, Young Global Leader of the World Economic Forum, Capital 40 under 40, International Trade Lawyer of the Year (New York) 2016 ILO Client Choice Awards. In 2023, Handelsblatt recognized her as one of Germany’s Dealmaker and “most sought after advisors of the country” in the field of sustainability.

Author

Dr. Alexander Ehrle is a member of the Firm's International Trade Practice in Baker McKenzie's Berlin office. Alexander studied law at the Universities of Heidelberg, Montpellier (France), Mainz, Munich and New York (NYU) specializing in Public International and European Law. He worked as advisor and member of a delegation of a developing country at the United Nations before qualifying for the German bar. He spent his clerkship with the Higher Regional Court in Berlin, the German Ministry of Foreign Affairs in Berlin and Tokyo as well as an international law firm in Frankfurt and Milan. He wrote his doctoral dissertation on the structural changes of public international law and their conceptualization in academic discourse basing his research on the governance of areas beyond national jurisdiction. Alexander is admitted to practice in Germany and New York. 

Alexander co-chairs the Business & Human Rights Committee of the American Bar Association’s International Law Section and has been recognized as one of 40 under 40 lawyers worldwide for foreign investment control by the Global Competition Review.

Author

Kimberley Fischer is a member of the International Trade Practice in Baker McKenzie's Berlin office. She joined the Firm in 2022. Kimberley studied law at the Ruprecht Karls University of Heidelberg and the Universidad de Deusto (Spain), with a focus on public international law and human rights. Prior to joining the Firm, Kimberley completed her legal traineeship at the Higher Regional Court of Frankfurt am Main, the German Federal Foreign Office in Berlin and at an international law firm in Brussels and Frankfurt am Main. She also gained significant experience in public (international) law as a research assistant at the University of Heidelberg and at a reputable law firm.

Author

Caroline Walka is an Associate in Baker McKenzie, Berlin office

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