Chapter 2 – The new technology risk landscape

Businesses are anticipating the next phase of transformation, and new risks will be the inevitable result

Organisations across all sectors and in all regions have experienced a broad range of technology-related disputes in recent years (see figure 2).

Figure 2: Top sources of technology-related disputes over the past three years

Q: Please rank your top five primary sources of technology-related disputes over the past three years (top two answers displayed).

In most industries, the leading source of disputes has been compliance and regulation. More surprising, perhaps, is that nearly a quarter of respondents (24%) rank issues arising from the use of AI as the first or second leading source of disputes over the past three years. Coupled to this, the adoption of transformational technologies like AI is the leading driver of business-critical technology (see figure 1), suggesting that AI sets a complex precedent – both risky and essential.

AI is just ahead of performance issues, including service level failings and outsourcing disputes (23%) as a driver of historic disputes, marginally ahead of software licensing disputes (22%).

Intellectual property issues and trade secrets are a perennial concern but with distinct regional variations. Only 5% of LATAM respondents place IP as their top dispute, for example, compared with 14% of US and Canadian respondents.

Respondents also considered likely sources of disputes over the coming three years. Aside from IP and trade secrets, future concerns are dominated by novel technologies: AI, smart contracts and crypto currencies, with smart contracts leading concerns in retail and crypto leading concerns in the energy sector.

In addition, a clear majority of respondents anticipate an increased volume of disputes. Cloud technology disputes are expected to rise (see figure 3), which ties to the trend of businesses moving away from in-house IT infrastructure to scalable cloud services, outsourcing some aspects of risk management but taking on new risks in the process.

Figure 3: Issues expected to trigger increased disputes volume over the next three years

Q: In which areas do you expect to see an increase or decrease in technology-related disputes over the next three years?

Conversely, of the disputes expected to decrease over the next three years, three areas dominate. More than three quarters (76%) expect compliance and regulatory disputes to decrease; two-thirds (67%) expect cyber breach disputes to decrease; and more than three in five (62%) expect IT performance or service levels disputes to decrease.

The picture that emerges is of familiar and perhaps predictable risks receding (or receiving less attention) as organisations focus on managing new risks.

Attitudes and concerns over AI are a case in point.

There is a strong competitive desire to invest in AI (see figure 1), and almost 70% anticipate greater use of AI in their organisations over the next three years. This is consistent with the sentiment (reported by 81% of respondents) that the constant updating of technologies generally is necessary to compete in their industry sector.

Those choosing ‘adoption of transformational new technologies like AI’ as their leading reason for adopting business-critical technology range from one-fifth (21%) of those working in life sciences, where AI is known to help in developing novel drugs and 18% in financial services, where AI is known to help service clients or find novel investment strategies and has an increasing role to play in asset management.

At the other end of the spectrum, only 12% of those working in the consumer products and retail sector chose this as their first option. This perhaps reflects the fact that AI and machine learning algorithms have already seen greater use in this sector than in some other sectors.

Nevertheless 50% of respondents believe that the use of AI technologies will give rise to risks and disputes that cannot be foreseen, and more than half (56%) anticipate AI will be a leading source of increased disputes.

The new risk landscape is characterised by a dilemma: invest for competitive advantage and take on future risks, or diminish risk and introduce the possibility of blunting the organisation’s competitive edge.

With the vast majority of companies indicating an intention to make use of novel technology over the next 3 years, but with a substantial number of companies with no IP licensing or third party infringement mitigation policies in place, IP disputes will inevitably ensue. Complete confidence in freedom to operate pre-launch is often difficult to achieve for adoption of new technology, or indeed new applications of existing technology, but much can be done to mitigate risk. A well planned IP licensing and infringement mitigation strategy could result in significant cost saving.
Caitlin Heard, Partner, Intellectual Property, CMS

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