Using OpenAI API in commercial SaaS — what liability am I taking on?

Building a SaaS product that uses the OpenAI API to generate marketing copy for customers. Will have a few hundred paying users.

I'm worried about:

• If the API generates copyrighted content, can my customers sue me?
• If it generates something defamatory or harmful, am I liable?
• What happens if OpenAI changes their terms or pricing drastically?

What protections do I need in my own terms of service?

I launched a similar product last year. You definitely need solid liability waivers in your ToS. The copyright question is the biggest one.

OpenAI's terms say outputs are yours, but they don't guarantee the output is original or doesn't infringe. So if GPT spits out something that's too similar to copyrighted content, you could theoretically be on the hook.

Let me break down OpenAI's current Terms of Use (as of March 2025) for API usage:

• Section 3(a) - Ownership: "As between you and OpenAI... you own all input you provide, and subject to your compliance with these Terms, OpenAI assigns to you all its right, title and interest in and to output."
• BUT Section 5(c) - No warranties on copyright: OpenAI doesn't warrant that outputs are original, don't infringe IP rights, or are suitable for any purpose.
• Section 6 - Indemnification: OpenAI requires YOU to indemnify THEM for claims arising from your use of the API.
• Section 7 - Limitation of liability: OpenAI's liability is capped at the lesser of $100 or amounts paid in the past 12 months. They disclaim all consequential damages.

Translation: You own the outputs, but you bear all the risk if those outputs cause problems.

So basically OpenAI gives me the output but zero protection if it causes legal issues? That seems like a huge liability to take on.

How are other AI wrapper companies handling this?

Correct - you're assuming the risk. Most AI-powered SaaS companies are doing a few things to protect themselves:

• Pass-through liability to users: Your ToS should say users are responsible for ensuring outputs don't infringe IP or violate laws. Include strong indemnification clauses.
• Disclaimers: Explicitly state that AI outputs may not be original, may require human review, and shouldn't be used without verification.
• Acceptable use restrictions: Prohibit using the service for high-risk applications (legal advice, medical advice, etc.)
• Insurance: Get E&O insurance and cyber liability coverage. Make sure it covers AI-related risks.

You also need to comply with OpenAI's usage policies - no CSAM, illegal activity, deceptive AI-generated content without disclosure, etc.

One thing to watch out for: OpenAI's data usage policies changed in March 2023. They used to train on API data by default. Now:

• API data is NOT used for training by default
• Data is retained for 30 days for abuse monitoring, then deleted
• You can opt into zero retention

Make sure your privacy policy reflects this accurately. If you're handling customer data through the API, you need to be clear about where it goes.

Good point on the data retention. My users will be inputting their brand info and product details. So I need to:

• Disclose in my privacy policy that data goes to OpenAI
• Get user consent for that
• Maybe opt into zero retention?

Do I need a DPA (data processing agreement) with OpenAI if I have EU customers?

Yes, if you're processing EU personal data through the OpenAI API, you need a DPA. OpenAI provides one - check their Trust Portal.

The data flow is: Your EU customer → Your SaaS → OpenAI (US-based). Under GDPR:

• You're the "controller" (deciding why/how data is processed)
• OpenAI is a "sub-processor" (processing on your behalf)
• You need a DPA with OpenAI covering EU data transfers
• OpenAI uses Standard Contractual Clauses (SCCs) for EU-US transfers

Your privacy policy must disclose this third-party processing. And your customer agreement should allow you to use sub-processors (with the ability to update your sub-processor list).

On the copyright liability question - this is still evolving. Recent cases to watch:

• NY Times v. OpenAI (filed Dec 2023): Alleges ChatGPT reproduces NYT content verbatim. Still pending.
• Silverman v. OpenAI (July 2023): Authors claim training on copyrighted books is infringement. Partially dismissed but ongoing.
• Getty Images v. Stability AI (Feb 2023): Similar claims for image generation.

If these cases establish that AI companies are liable for training on copyrighted data, OpenAI might face massive damages. They could pass costs on to API users through price increases, or get shut down entirely (unlikely but possible).

Your ToS should include a clause addressing what happens if OpenAI discontinues the API or dramatically changes pricing. Reserve the right to switch to alternative AI providers.

This is getting more complex than I thought. So I need:

• ToS with strong disclaimers and user indemnification
• Privacy policy disclosing OpenAI data processing
• DPA with OpenAI for EU customers
• E&O insurance covering AI risks
• Fallback plan if OpenAI changes terms/pricing

Any template ToS for AI wrappers or do I need to pay a lawyer to draft custom?

I'd strongly recommend custom drafting, at least for the AI-specific sections. Generic SaaS templates won't cover the unique risks here.

Key clauses you need that standard templates miss:

• AI output disclaimer: "Outputs are generated by AI and may not be accurate, original, or free from third-party rights. User must review and verify all outputs."
• No warranties on IP: "We do not warrant that AI-generated content is free from copyright, trademark, or other IP infringement."
• User responsibility: "User is solely responsible for ensuring outputs comply with applicable laws and do not infringe third-party rights."
• Third-party AI provider risks: "We use third-party AI providers whose terms, availability, and pricing may change. We reserve the right to switch providers or adjust our service accordingly."
• Prohibited uses: Specific restrictions on high-risk applications, regulated industries, automated decision-making about individuals, etc.

Budget $2-5K for a tech attorney to draft this properly. Way cheaper than getting sued later.

One more thing - insurance. I got quoted $3K/year for $1M E&O coverage that explicitly covers AI/ML risks. Some carriers exclude AI entirely, so make sure it's clearly covered.

Also consider adding an arbitration clause to your ToS. If you get sued for AI output issues, arbitration is usually faster and cheaper than court litigation.

Super helpful everyone. Going to:

• Hire an attorney to draft proper ToS and privacy policy
• Get E&O insurance with AI coverage
• Sign OpenAI's DPA for EU data
• Add clear disclaimers in the product UI about AI-generated content
• Build in ability to swap AI providers if needed

Appreciate all the guidance. AI legal landscape is still the wild west but at least I know what to protect against now.