Your Employees Created It with AI. Your business May Not Own it.

AI might save your business time and money, but could using it prevent your company from obtaining enforceable IP rights in what it creates?

Arkansas recently became the first state to enact a law giving AI users ownership of AI outputs. The law provides that the person who creates the AI prompt owns the output, subject to any third-party IP rights in the output. It also says that, when an employer directs an employee to use AI, the employer owns the AI output resulting from the employee’s use.

This law might not work. To see why, one must understand the relevant intellectual property rights.

When an author creates an expressive work, copyright law gives the author certain exclusive rights, such as the right to make copies and derivative works, and to distribute and publicly display the work. Examples of potential copyright property are software code, advertising text, and graphics.

By law, employers own the copyright to works created by employees within the scope of their employment. Employers need written copyright assignments from independent contractors.

Patent law protects an invention – a machine or process that is novel, useful, and not obvious from previous technology. A patent gives certain exclusive rights to the patent owner: the right to make, have made, use, sell, and import the patented invention.

Unless an employee was hired to invent, employees generally retain patent rights to what they invent at work. For the employer to own patent rights to what an employee or independent contractor invents, the employer must obtain a written assignment.

The problem is that using AI can make two of those IP rights unavailable. In 2025, a federal appellate court held that only a human can author copyrightable property, so something composed solely by AI can’t be copyrighted. Similarly, in 2022, a federal appellate court held that a patent can be issued for an invention only if a human conceived it, so an AI-created invention is not patentable.

So, what can a company do to protect the work product its employees create with AI? The options aren’t wonderful, but there are possibilities.

First, you might be able to use trade secret law and confidentiality agreements to protect some AI outputs if you don’t make those outputs public. This might work for AI outputs you use only internally, such as a financial analysis, but it won’t work on anything you make public, such as advertising graphics.

A trade secret protects a business’s confidential information if that information gives the business a competitive advantage, but only if the business has taken reasonable measures to keep it secret. Examples of potential trade secrets include secret formulas and manufacturing techniques that can’t be easily reverse-engineered, as well as internal business information, such as financial information and product development plans.

Trade secret law protects against only misappropriation of information, such as a defecting employee stealing files. It doesn’t protect against reverse engineering, or against others independently developing the same information or acquiring it by lawful means.

Many popular versions of prominent AI models reserve the right to use prompts (including uploaded files) and outputs for AI training, which could breach confidentiality and prevent trade secret protection. Choose a model tier that promises to keep inputs and outputs confidential rather than recycling them into AI training.

Regarding copyright, it might be possible to claim copyright to a human’s shaping of an AI output. The U.S. Copyright Office takes the position that one cannot own the copyright to an AI output simply through extensive prompt engineering. Nevertheless, if a human takes an AI output and reworks it, the human can own a copyright to the modifications and additions the human makes to the output, if the human’s contribution can be distinguished from what the AI generated.

Similarly, a human inventor might be able to use AI in the invention process and still claim some patent rights. For example, the inventor might fully conceive of the invention and use AI only to generate needed drawings or descriptions. Also, the inventor might be able to claim patent rights to improvements he makes to AI output.

What about the Arkansas law? It is almost certainly ineffective or preempted by federal copyright and patent law.

It doesn’t state what exclusive rights flow from the ownership it grants. Thus, it’s difficult to see how a business could use this “ownership” to stop competing businesses from using the AI-generated content or inventions.

If the law implies exclusive rights, it’s tough to imagine any rights other than those covered by federal copyright and patent law. That federal law prohibits states from creating analogous rights. A state can’t extend copyright-like protection to material that is ineligible for federal copyright protection, or patent-like protection to subject matter not eligible for patenting.

In the end, businesses must carefully decide whether and where to use AI in their business processes and implement procedures to ensure employee compliance.

Written on July 22, 2026

by John B. Farmer

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