The Hidden Legal Risks of Using AI Design Tools for Your Business
- Whelan Lawyers
- Oct 14
- 8 min read
Introduction
Artificial intelligence has revolutionised how businesses approach design work. From generating logos in seconds to producing complex architectural renders, AI design tools promise efficiency and cost savings that traditional design processes cannot match. Yet beneath this technological promise lies a complex web of legal risks that many business owners and design professionals fail to recognise until it’s too late.
The fundamental challenge with AI design tools centres on a deceptively simple question: who actually owns the designs these systems create? When your business uses AI-generated designs for branding, products, or client projects, you may discover that the legal protections you assumed existed simply aren’t there. For architects, construction firms, and creative businesses operating in Victoria, understanding these AI design tools legal risks isn’t merely about legal compliance, it’s about protecting the commercial value of your work and avoiding disputes that can derail projects and damage professional relationships.
This article examines the copyright challenges, intellectual property uncertainties, and documentation gaps that emerge when businesses integrate AI into their design processes, providing practical guidance on managing these risks under Victorian law.
Why AI Design Risks Matter for Your Business
The commercial appeal of AI design tools is undeniable. These platforms can produce design concepts, iterate variations, and generate visual content at a pace that human designers cannot match. However, the speed and convenience of AI-generated designs create a false sense of security about ownership and legal protection.
Under Victorian law, which follows the federal Copyright Act 1968, copyright protection is foundational to design work. Copyright determines who controls reproduction, adaptation, and commercial use of creative works. When this foundation becomes uncertain, as it often does with AI-generated content, the commercial value of your designs becomes equally uncertain. A logo, building design, or product prototype without clear copyright ownership presents significant risks in commercial transactions, licensing arrangements, and dispute resolution.
The challenges extend beyond copyright. Design rights, particularly those protecting the visual appearance of products under the Designs Act 2003, require clear authorship and documentation. AI design tools complicate both requirements. Without human authorship clearly established, your ability to register design rights may be compromised. Without a documented design process showing how concepts evolved, proving originality and defending against infringement claims becomes considerably more difficult.
The Copyright Problem: Who Owns AI-Generated Designs?
The law recognises copyright in original artistic works, including drawings, designs, and visual compositions. However, copyright requires human authorship. The Copyright Act protects works created by people, not machines. This fundamental principle creates immediate problems for AI-generated designs.
When an AI tool generates a design based on text prompts or parameters you provide, determining authorship becomes complex. Did the AI create the design, or did you? Courts have not yet definitively answered this question in the Australian context, leaving businesses in a position of legal uncertainty. This uncertainty has profound commercial implications.
Consider a scenario where your business commissions an AI-generated logo for your company rebrand. You invest in marketing materials, signage, and digital assets featuring this logo. Later, a competitor begins using a substantially similar design. When you attempt to enforce your rights, you discover that your copyright claim is vulnerable because you cannot demonstrate human authorship in the traditional sense. The AI tool’s terms of service may claim ownership of outputs, or may provide only limited licences that restrict your commercial use. Your competitor may successfully argue that the design lacks copyright protection entirely, leaving you without recourse.
This scenario isn’t hypothetical. Businesses across various sectors are encountering similar challenges as AI design tools become more prevalent. The problem intensifies when designs are used in client work, licensed to third parties, or incorporated into products destined for commercial markets.
Intellectual Property Ownership and Registration Challenges
Beyond copyright, AI design tools create complications for registered design rights. The Designs Act 2003 provides protection for the visual appearance of products, offering exclusive rights that can be commercially valuable. However, registration requires identifying the designer, a natural person who created the design.
When AI generates or substantially contributes to a design, identifying the human designer becomes problematic. Did the person who wrote the prompts design the product? Did the person who selected from AI-generated options and made modifications qualify as the designer? These questions lack clear answers, creating risk when businesses attempt to secure registered design protection for AI-assisted work.
The implications extend to design ownership within business relationships. When engaging contractors or employees to create designs using AI tools, the usual rules about ownership may not apply as expected. Employment and contractor agreements typically assign intellectual property created by individuals to the business. However, if the AI tool, rather than the individual, created the substantive design elements, these assignment clauses may not effectively transfer rights the individual never possessed.
Businesses commissioning design work should carefully consider these ownership questions before projects commence, particularly when AI tools will feature in the creative process.
The Missing Paper Trail: Documentation and Proof of Originality
Traditional design processes generate natural documentation: sketches, iterations, revision histories, and design rationale documents. This paper trail serves multiple legal functions. It demonstrates originality, establishes priority dates, provides evidence of human creative input, and documents the evolution from concept to final design.
AI design tools can eliminate this documentation trail entirely. When a design springs fully formed from an AI generator, the evidence of creative process vanishes. This absence creates several specific risks from a legal perspective.
First, proving originality becomes difficult. Copyright protection requires that works be original, the result of independent intellectual effort rather than copying. When defending copyright in AI-generated designs, demonstrating this originality without process documentation becomes challenging. An opponent can argue that the design lacks originality because it emerged from an algorithmic process trained on existing works, rather than human creative effort.
Second, establishing priority becomes uncertain. In design disputes, proving you created a design before another party, can determine the outcome. Without documentation showing when and how your AI-generated design was created, establishing priority becomes problematic, particularly if others used similar AI tools with similar prompts around the same timeframe.
Third, defending against infringement claims becomes more complex. If someone alleges your AI-generated design infringes their earlier rights, your ability to demonstrate independent creation (a key defence) requires showing your creative process. Without documentation, this defence weakens considerably.
Liability and Indemnity: When AI Designs Infringe Others’ Rights
Perhaps the most immediate commercial risk involves infringement liability. AI design tools train on vast datasets of existing creative works. When these tools generate designs, they may inadvertently reproduce or substantially copy protected works within their training data. This creates a scenario where your business uses what appears to be an original AI-generated design, only to later discover it infringes someone else’s copyright or registered design.
Under the law, copyright infringement occurs when someone reproduces a substantial part of a protected work without authorisation. Ignorance provides no defence. If your AI-generated logo substantially reproduces another business’s protected mark, you face potential liability regardless of whether you knew about the earlier work or intended to copy it.
The commercial consequences can be severe. Infringement claims may result in injunctions stopping your use of designs you’ve invested in deploying, damages and claims for losses the rights holder suffered, and potential account of profits requiring you to hand over revenue generated using the infringing design. For businesses that have built brand identity or product lines around AI-generated designs, these consequences can be commercially devastating.
Many AI tool providers include terms of service that disclaim liability for infringement and place responsibility squarely on users. This means when problems arise, your business bears the full consequences without recourse against the tool provider. Reviewing these terms before using AI tools for commercial design work is essential.
Practical Steps to Manage AI Design Risks
While AI design tools present genuine legal risks, businesses can take practical steps to manage exposure while still benefiting from these technologies.
Start by understanding the terms of service for any AI design tool you use. Determine what rights the provider grants over outputs, what restrictions apply to commercial use, and what liability disclaimers exist. Many tools retain ownership of outputs or provide only non-exclusive licences, which may not suit commercial requirements.
Maintain detailed documentation of your design process, even when using AI tools. Record the prompts used, iterations generated, selection criteria applied, and modifications made. This documentation helps demonstrate human creative input and provides the paper trail needed for copyright claims and design registration applications.
Consider conducting intellectual property searches before committing to AI-generated designs for important applications. Trademark searches, design register searches, and broader copyright checks can identify potential conflicts before you invest in implementing designs commercially.
Use AI tools as starting points rather than final outputs. Having qualified designers modify, adapt, and refine AI-generated concepts ensures clear human authorship while retaining efficiency benefits. This approach strengthens copyright claims and provides better documentation of creative process.
Finally, review your contracts with clients, contractors, and employees to address AI use explicitly. Clarify who owns designs when AI tools contribute to creation, what warranties apply regarding originality and non-infringement, and what indemnities exist if problems arise. Standard intellectual property clauses developed before AI tools became prevalent may not adequately address these scenarios.
How We Can Help
At Whelan Lawyers, we work with architects, construction professionals, and creative businesses navigating the intersection of technology and intellectual property law. We understand that AI design tools present both opportunities and risks, and we help clients structure their use of these technologies to protect commercial interests while maintaining competitive advantages.
Our approach focuses on practical risk management tailored to your business operations. We review AI tool agreements to identify problematic terms before you commit to platforms, draft contract clauses that address AI-generated content ownership and liability, and develop documentation practices that preserve intellectual property rights even when using automated tools.
If you’re using AI design tools or considering incorporating them into your business processes, we can help you understand the specific risks you face and implement strategies to manage them effectively. Contact our intellectual property team to discuss how we can support your business as technology and law continue to evolve.
Frequently Asked Questions
Question: Can I copyright designs created by AI tools?
Answer: Copyright law in Australia requires human authorship. Designs created entirely by AI without substantial human creative input may not qualify for copyright protection. However, if you use AI as a tool while making significant creative decisions, selections, and modifications, you may establish sufficient human authorship to claim copyright. The extent of your creative involvement determines whether copyright protection exists, making documentation of your process particularly important.
Question: What happens if my AI-generated design infringes someone else’s copyright?
Answer: If your AI-generated design infringes protected works, you face potential liability regardless of whether you intended to copy or knew about the earlier work. The copyright owner can seek injunctions preventing your use of the design, damages for losses suffered, and potentially an account of profits from your use. Most AI tool providers disclaim liability for infringement, meaning your business bears full responsibility. Conducting intellectual property searches before committing to designs for commercial use helps identify potential conflicts early.
Question: Do I need to disclose that AI created my designs to clients?
Answer: While no specific law requires disclosure that AI tools contributed to design work, professional obligations and contractual requirements may apply depending on your industry and agreements. More importantly, clients may have legitimate concerns about intellectual property ownership and protection when AI tools are used. Being transparent about your design process, including AI tool use, helps manage client expectations and allows for appropriate contractual protections addressing ownership and liability questions that AI-generated content raises.
Disclaimer: This article provides general information only and is not legal advice. The law is complex and varies based on individual circumstances. You should seek specific legal advice about your particular situation before making any decisions about legal matters.
