AI for Small Businesses: Copyright Loopholes and Legal Landmines to Avoid

ai for small businesses

Small businesses across the Midwest are embracing AI tools to create marketing copy, logos, videos, and more. But with innovation comes new legal pitfalls. This guide to AI for small businesses breaks down eight key issues – from copyright ownership to fair use and contract risks – so you can harness AI creatively without stepping on legal landmines.

AI Creations Have No Copyright (Human Authorship Required)

Can you copyright content created entirely by AI? According to the U.S. Copyright Office, the answer is generally no. U.S. law only protects works of authorship created by humans. In fact, the Copyright Office has stated that when an AI “determines the expressive elements” of the output, the material is not considered a human-authored work and “is not protected by copyright”. In one recent case, a graphic novel’s text written by a human was copyrighted, but the AI-generated images in the book were denied protection. The logic is simple: if no person actually crafted the expressive content (words, art, etc.), then no one can claim it as their exclusive intellectual property.

For small businesses, this has big implications. If you use an AI tool to generate a blog post, design, or marketing image with little to no creative input of your own, you likely can’t enforce copyright over that material. It essentially falls into the public domain. The inability to obtain copyright protection for purely AI-generated work can severely limit your legal rights. In practical terms, that means a competitor could copy your AI-generated logo or ad text, and you’d have minimal recourse because you don’t legally “own” that content. The workaround is to ensure a human hand in the creation process – for example, by creatively editing AI output or combining multiple elements in an original way. The Copyright Office will recognize human contributions as copyrightable, but only those human-crafted aspects (such as your particular arrangement or significant modifications) – not the raw AI material itself.

Bottom line: Don’t assume that cool AI-generated graphic or text belongs exclusively to your business. Treat purely AI-made content as unprotected – and be cautious about building your brand around something you can’t legally protect.

AI Tools and Accidental Copyright Infringement

AI can not only leave you without rights in your own content – it can also put you in the crosshairs for infringing others’ copyrights. Generative AI systems “train” on vast libraries of human-created works. As a result, they might output text, images, or music that closely resemble parts of the copyrighted material in their training data. This risk isn’t theoretical – it’s already led to high-profile lawsuits (for example, artists and stock photo agencies have sued AI developers for ingesting their works without permission). For a small business using AI, the concern is that your AI-generated marketing content could inadvertently duplicate someone else’s protected expression.

Consider an example: You ask an AI to create a slogan or jingle for your shop. Unbeknownst to you, the AI’s output happens to include a distinctive phrase or melody from a popular song or a competitor’s ad campaign. Or perhaps you use an AI image generator for a promo graphic, and the resulting image happens to be very similar to an existing illustration or includes a recreation of a brand’s logo. In such cases, you could be accused of copyright infringement even though you used AI in good faith. When AI tools generate content, problems arise “if the AI inadvertently incorporates copyrighted material from its training data.” In one scenario, an AI designed a promotional image for a gift shop that ended up replicating elements of a local artist’s copyrighted work scraped during training. The gift shop owner was blindsided – and suddenly facing a potential infringement dispute involving not just the artist, but also the AI software provider.

What can you do? First, choose reputable AI platforms that strive to filter out copyrighted training data or have proper licenses in place. (Open-source or free tools may carry higher risk since you don’t know what they were trained on.) Second, review and edit AI outputs carefully. Run an internet search on distinctive phrases or do a reverse image search to see if the AI might have copied from an existing source. If something looks too familiar or “on the nose,” don’t use it. Finally, stay informed: read the tool’s terms of service to understand who bears responsibility if a generated piece is challenged. Some AI providers disclaim all liability, which means the burden falls entirely on you. In short, treat AI outputs as you would content from a freelance creator – vet it before you publish it. If there’s any doubt, err on the side of originality or seek legal advice.

Fair Use or Foul? How to Handle Short Clips, Images & Quotes

Small businesses love to get creative on social media – sharing funny GIFs, movie one-liners, or meme-worthy video clips to engage customers. You might think using just a “tiny snippet” of copyrighted material is automatically fair use (or at least too trivial to matter). Unfortunately, that’s a myth. There is no fixed “5-second” or “30-second” rule that guarantees you won’t get in trouble. U.S. copyright law doesn’t set a specific number of seconds, lines, or words that are always safe to use without permission. In fact, even a very short clip can be infringing if it’s the heart of the work or used for the wrong purpose. Fair use depends on context, not a stopwatch.

So how do you practically evaluate fair use for things like an Instagram Reel, blog excerpt, or tweet? U.S. law uses a four-factor balancing test, which basically asks:

  • Purpose and character of your use: Are you adding new expression or meaning (transforming the content), or just copying it? Are you using it for commentary, criticism, news, or education, or simply for entertainment/advertising? Transformative, commentary uses (especially non-profit or educational) lean toward fair use; straightforward commercial uses weigh against it.
  • Nature of the original work: Using material from factual works or non-fiction may be more permissible than from highly creative works (like movies, songs, art), which get stronger protection.
  • Amount and substantiality: How much of the original are you using, and is it the “heart” of the work? Using a small portion can help, but even a short excerpt that captures the most memorable aspect of a work can weigh against fair use.
  • Effect on the market: Does your use potentially hurt the market for the original? (For instance, would someone watch your 30-second clip instead of buying/renting the movie, or does your meme replace the need for the original work?) If your post could substitute for the original or usurp its market (even a licensing market), that’s a strike against fair use.

All four factors are weighed together – no single factor wins by itself. Sound complicated? It can be. The key is why and how you are using the material. Using a short movie clip or quote for genuine commentary, criticism, parody, or news reporting is more likely to be fair use. For example, posting a 10-second movie scene to critique the film or illustrate a point in a documentary could be fair use (you’re using it in a new way, for comment). But using that same clip in a promotional TikTok just because it’s funny or will get likes is probably not fair use. If you’re just capitalizing on someone else’s creative content to entertain or attract viewers, without adding commentary or meaning, it’s unlikely to be deemed “transformative.” In the eyes of the law, that leans toward stealing rather than fair use.

Common misconception: “It’s just a 10-second clip and I gave credit in the caption, so it’s fine.” In reality, crediting the source does not automatically make a use fair (or legal) – fair use is about the nature of the use, not just attribution. And there’s no de minimis exception that says very short = okay. Many businesses have learned the hard way that even a few seconds of unlicensed music or video can trigger DMCA takedown notices or monetization claims online.

Before you post that cool snippet or image:

  • Ask yourself why you’re using it. If it’s for a punchline or aesthetic appeal rather than commentary or critique, fair use is shaky.
  • Use the minimum necessary. Don’t use a full verse of a song if a single line would do, for example – and avoid the “heart” of the work (like the climax of a movie or the hook of a song).
  • Add your own commentary or context. Make sure you’re saying something about the material or using it to illustrate a larger point, not just reposting it on its own.
  • When in doubt, seek permission or use legitimately licensed content. There are plenty of stock images, stock music, and clip libraries available for little or no cost that won’t leave you guessing about legality.

Remember, fair use is case-by-case. If you’re ever unsure, consult an attorney. It’s far better to spend a little time up front than to spend a lot of money later fighting a lawsuit or responding to a cease-and-desist.

No “Safe Amount” of Music for Social Videos

Many entrepreneurs have heard a rumor that “up to 5, 10, or 15 seconds of a song” is free to use. This is flat-out false. There is no magic number of seconds or bars of music that you can use without permission. Copyright law protects the work as a whole and any substantial part of it – theoretically, even a one- or two-second recognizable riff could be infringing if it’s distinctive (think of the three-note chime of NBC, or the iconic “Dun Dun” of Law & Order). Using any portion of a copyrighted song in your marketing video or reel requires proper licensing, unless it clearly qualifies as fair use (which, as discussed, is a narrow path in commercial settings).

Social media platforms like TikTok, Instagram, and YouTube have some licensing deals in place that allow users to add popular music to their personal videos on those platforms. However, those platform licenses often have limitations – and they typically don’t cover commercial or business use. For example, Instagram restricts certain music on business accounts, pushing royalty-free tracks instead. If you’re posting a video as a business (or an ad), using that Top 40 hit as background music without a license can land you in hot water. It doesn’t matter if it’s only a short clip or you only use the chorus: from a legal standpoint, any unlicensed use is infringement. Sharing music in marketing content is a common infringement risk for businesses – and indeed, many small businesses have received nasty surprises in the form of DMCA takedowns, muted videos, or even legal demands for payment after using music without permission.

Also, be wary of so-called “disclaimers.” Writing “I do not own the rights to this music” in your caption does nothing legally. It doesn’t erase the infringement or shield you from liability. The same goes for giving credit to the artist – it’s polite, but not a defense. The only things that make a use of music legal are: (1) the use is fair use (a tough argument for background music in a promo), or (2) you obtained a proper license (or the music is in the public domain). There’s no middle ground.

Hard rules for using music in your content:

  • Use the platform’s licensed music library (and check the terms!). If TikTok or IG provides the music clip and you’re within their allowed use, that’s generally safe on that platform. But keep the video there – don’t repost it on a different platform or on your website unless you have rights for that too.
  • For any commercial/promotional project, consider royalty-free music. There are many sources of music that are free or low-cost to license for business use. This avoids the risk entirely.
  • No, 10 seconds is not “safe.” Neither is 5, 7, or 30. The law looks at quality, not just quantity. Using the “heart” of a song (often the chorus or a famous riff) will weigh against fair use even if it’s short.
  • When in doubt, leave it out. If you can’t confidently justify a music clip as fair use (e.g. you’re directly commenting on that song or making a parody of it), it’s wiser to cut it or replace it with something you have rights to. The background ambiance isn’t worth a legal battle.

The takeaway: Popular music is heavily copyrighted territory. Big labels do monitor social media and they have automated systems flagging unlicensed uses. Small businesses are not too small to be flagged. So don’t rely on myths – if you haven’t obtained rights, assume zero seconds of a song is okay to use.

Beware of AI-Generated False or Biased Content

Copyright isn’t the only legal concern with AI content. What if the substance of the AI’s output gets you in trouble? AI tools can churn out text that is false, biased, or even discriminatory, which can lead to serious reputational and legal liabilities for your business.

Today’s AI text generators are notorious for speaking very confidently – and sometimes completely incorrectly. If you have an AI write a blog post or social media caption about a topic, there’s a risk it may fabricate “facts” or figures. If you publish those and they turn out false, you could face issues ranging from customer complaints and loss of trust to lawsuits in some scenarios. For example, making false claims about your products (even accidentally) could be considered false advertising or invite regulatory scrutiny (the FTC has shown growing interest in policing AI-related misrepresentations). Even more damaging, if an AI tool generates a false statement about a person or another company – for instance, incorrectly stating that a certain person endorses your product, or mixing up biographical details – you might be looking at a defamation claim. Remember: you are the publisher of the content that goes out in your name, regardless of who (or what) wrote it. The fact “the AI made a mistake” doesn’t absolve you. As one legal scholar put it, our liability system “presupposes a real author” – but if you publish AI-spawned lies, you effectively stand in the shoes of the author for liability purposes.

AI systems can reflect biases in their training data. This can be simply tone-deaf (e.g. a blog post draft that unintentionally stereotypes a group of people) or outright discriminatory. If you use AI to screen job applicants or write job ads, for instance, a biased output could mean you’re unintentionally violating employment laws. The U.S. Equal Employment Opportunity Commission has made it clear that companies can’t dodge liability by blaming an algorithm – if your hiring tool rejects candidates in a discriminatory way, your business is on the hook just as if a human made those decisions. Similarly, if an AI-generated marketing post offends a protected group or shows discriminatory preference (“We’re looking for a young, energetic salesman…”), you could face legal consequences under discrimination or harassment laws. Even beyond formal liability, the PR damage from an offensive or insensitive AI-generated tweet can be intense (and very public). Major companies have had to apologize for AI mishaps – you don’t want your small business making headlines for the wrong reasons.

How can you enjoy AI’s benefits while avoiding these pitfalls?

  • Human in the loop: Never auto-post AI content without human review. Treat AI drafts like an initial sketch written by an intern – check every factual assertion, and read it for tone and potential bias. If something seems off, fix it or cut it.
  • Fact-check and source-check: If the content makes factual claims (statistics, quotes, legal info, etc.), verify them using reliable sources. AI is known to “hallucinate” fake facts. You might ask it to provide sources, but don’t trust without verifying – often the sources it gives are made-up or don’t say what the AI claims.
  • Bias and sensitivity review: Put yourself in your audience’s shoes (or have diverse team members review content) to catch any wording that could be culturally insensitive or exclusionary. Edit out anything problematic. If using AI in hiring or decision-making, regularly audit the outcomes for disproportionate impacts.
  • Use reputable models and stay updated: Newer or well-maintained AI models might have better guardrails against overt false or hateful outputs. Additionally, use any settings or filters the AI tool offers (some platforms let you enable a “professional” or “factual” tone). Keep the AI model trained on your own data when possible – for instance, some businesses fine-tune an AI on their product documentation so it’s less likely to go off-script.
  • Have a crisis plan: Despite best efforts, if something slips through and an AI-generated post backfires, respond quickly. A sincere apology and correction can mitigate damage. But internalize the lesson to strengthen review processes.

In short, AI is a powerful assistant, not an autonomous agent you can trust blindly. You wouldn’t let a junior employee send out material to the public unedited; treat the AI the same way. With the right checks, you can tap its efficiency without letting it run your brand into a legal wall.

Don’t Rely on AI for Contracts or Legal Documents

Drafting a contract or employee policy with ChatGPT and calling it a day might sound like a money-saver – but it’s a lawsuit waiting to happen. While AI can help brainstorm or summarize legal information, it is not a lawyer. Using AI to generate contracts, terms of service, HR policies, or other legal documents without attorney review is extremely risky for small businesses.

AI does not know the specifics of your business, your intentions, or the nuances of state law. It produces generic text that sounds plausible, but as several real-world incidents have shown, it can be flat-out wrong. In one example, a law firm submitted an AI-generated brief that cited non-existent cases and incorrect legal standards, leading to embarrassment and court sanctions. If a lawyer can be misled by AI, think about the errors that might lurk in a contract draft. Your lease agreement or client contract could be missing critical clauses, include unenforceable terms, or even accidentally admit liability because of a poorly worded provision. Courts can and do refuse to enforce contracts (or parts of them) that are unclear, illegal, or against public policy. An AI, lacking true legal understanding, might insert language that seems fine but actually voids the whole agreement. The result? You only discover the problem when a dispute arises – and by then it’s too late.

Good contracts are tailored to your specific needs and local laws. An AI might churn out a mash-up of boilerplate clauses it found in training data, but it won’t tailor indemnification, remedy, or jurisdiction clauses to protect you. For instance, if you’re a Michigan business dealing with Ohio vendors, an AI-drafted contract might not clearly address which state’s law applies or how disputes will be handled. Ambiguities like that are fertile ground for litigation. Boilerplate isn’t always safe – sometimes a clause that’s fine in one context can be disastrous in another. Without a human expert to tweak and explain the terms, you could sign something you don’t fully understand.

Using AI for legal drafting also skirts close to the unauthorized practice of law. While you can draft your own contracts, an AI giving what amounts to legal advice (by choosing contract language) is uncharted territory. It won’t uphold any professional duty of care to you. And obviously, it can’t appear in court to defend the contract it wrote. If things go south, the blame and consequences rest with you.

Always involve a qualified attorney for legal documents. A good lawyer can use AI as a helper – for example, to quickly generate a preliminary draft or suggest alternative phrasing – but then they will rigorously review and revise it. Human oversight is essential: counsel must “validate every machine output” and confirm that a real human review occurred. The lawyer’s judgment ensures the final document truly reflects your intent, covers likely scenarios, and complies with all applicable laws. Yes, legal fees are a consideration for small businesses, but compare that to the cost of a contract dispute or an unenforceable agreement that leaves you high and dry. Spending a bit upfront for peace of mind is a smart investment.

If you do experiment with AI for initial drafting, treat the result as a rough draft in need of heavy editing. Do not sign or implement an AI-written document as-is. Use it to discuss ideas with your attorney, who can then produce a polished, legally sound version. In the end, contracts and policies are meant to protect your business – don’t entrust that job to a bot.

Using Online Images: Permission Required (Credit Isn’t Enough)

It’s so easy to find a perfect picture on Google or Instagram and think, “I’ll just use this on our website/Facebook page – I’ll even give credit to the photographer, so it’s okay.” Beware: Using images you don’t own without proper licensing or permission is copyright infringement, plain and simple. And simply crediting the source does not shield you from liability.

Every photo or graphic on the internet is copyrighted by default. That includes Pinterest finds, Google Image search results, memes on Reddit, and that beautiful shot your favorite Instagram influencer posted. Unless the image is explicitly in the public domain or offered under a free license (like certain Creative Commons licenses), you need permission to use it in your business materials. Permission can come via purchasing a license (e.g. buying a stock photo or obtaining the creator’s consent) or via the terms of use (e.g. the platform provides a “share” or embed feature that implies a license, in some cases). If you just copy-paste or save-as an image and use it in your content, you are potentially violating the owner’s exclusive rights. Using stock photos without a license and repurposing someone else’s content without permission are common infringement risks for businesses. In other words, pulling a random image even from a stock photo site (without actually purchasing or complying with the license) is a recipe for a demand letter.

Ethically, giving credit is nice; legally, it’s irrelevant to copyright infringement. Texas A&M University’s copyright guidelines flatly state: “Using images from Google without obtaining proper permission or licensing is a copyright violation,” and simply citing the photographer “does not absolve [you] from copyright infringement.” Plagiarism (taking credit for someone’s work) is different from copyright infringement (using someone’s work without permission). You could credit the photographer in neon lights and still get sued if you didn’t have a license. In fact, some photographers actively search for unauthorized uses of their work and have lawyers send out demand letters seeking settlements (hundreds or thousands of dollars) from infringers – yes, even small businesses and nonprofits get these.

What about social media sharing? Platforms like Facebook, Twitter, and Instagram have share or repost functionalities – using those to reshare content within the platform is usually covered by the platform’s license (the user who posted it agreed others could share within that platform). However, screenshotting someone’s photo and posting it as your own post, or taking an image from one platform and using it on another (or on your website or in print), is not covered. For example, you can retweet a photo someone tweeted, but you shouldn’t download it and then upload to your business’s Instagram. A recent court case even cast doubt on whether embedding Instagram posts on a website is safe – it’s a gray area, so the conservative approach is to ask permission or stick to official sharing tools.

How to stay on the right side of the law with images:

  • Use your own photos or graphics. If you took the photo or your employee designed the graphic from scratch, you’re the copyright owner (assuming it was done as part of their job or you have an agreement transferring rights).
  • Use licensed stock images. There are many stock photo websites where you can buy images or subscribe for a library of images. Read the license terms (most standard licenses allow use in marketing, websites, etc., but might have limits on things like using in merchandise or sensitive contexts).
  • Look for Creative Commons or public domain resources. Sites like Unsplash, Pexels, or Wikimedia Commons offer images that are free to use under certain conditions. Still check the specifics: some require attribution, or have restrictions on commercial use. “Public domain” images are free to use without permission, but ensure they truly are public domain (e.g., U.S. government works, very old photographs, or authors explicitly dedicating them to public domain).
  • When in doubt, get permission. If there’s a perfect image taken by a local photographer or posted by a social media user, reach out and ask if you can use it. Many creators will gladly allow it if you credit them or pay a small fee. Keep the permission in writing. If they say no or want a high fee, then move on – but at least you asked.
  • Avoid Google image search as your go-to. If you do use it, use the tools to filter by usage rights (there’s an option to show “Creative Commons licenses” for example), though even then, double-check the image source to confirm the license.

Remember that the internet is not anarchy – copyright laws fully apply. Every time you use an image, imagine someone asking “Did you take or make that, or do you have rights to use it?” If the answer is no, think twice. As a business, you have to be extra careful because the “educational” or “personal fair use” leeway often doesn’t apply. When in doubt, leave it out – or talk to an IP attorney about how to legally get the visuals you want.

By being aware of these issues – from copyright ownership and fair use to content accuracy and licensing – you can enjoy the benefits of AI and online content without stumbling into legal trouble. The laws can be complex, but the guiding principle is simple: respect others’ rights as you’d want yours to be respected. And when new tools or ideas emerge, pause to assess the legal implications before diving in. As the saying goes, an ounce of prevention is worth a pound of cure – a little caution and diligence now can save your small business from costly headaches down the road.

More from Tishkoff PLC

For further reading on legal issues at the intersection of technology, creativity, and small business, check out these related posts from Tishkoff PLC’s blog:

Each of the above articles offers valuable perspective for business owners navigating intellectual property, contracts, and marketing in a changing technological era. Staying informed is your best defense – and Tishkoff PLC’s blog is a great resource to keep handy as you grow your business safely and successfully.

References

  1. U.S. Copyright Office: Copyright Registration Guidance—Works Containing Material Generated by Artificial Intelligence
    https://www.federalregister.gov/documents/2023/03/16/2023-05321/copyright-registration-guidance-works-containing-material-generated-by-artificial-intelligence
  2. Copyright Guidelines – Texas A&M AgriLife
    https://agrilife.tamu.edu/marketing-and-communications/resources/copyright-guidelines/
  3. FTC Announces Crackdown on Deceptive AI Claims and Schemes
    https://www.ftc.gov/news-events/news/press-releases/2024/09/ftc-announces-crackdown-deceptive-ai-claims-schemes
  4. Regulation by the EEOC and the States of Algorithmic Bias in High-Risk AI (American Bar Association)
    https://www.americanbar.org/groups/business_law/resources/business-lawyer/2024-2025-winter/eeoc-states-regulation-algorithmic-bias-high-risk/
  5. NSPA – The (Non-existent) 30-Second Rule
    https://studentpress.org/nspa/the-non-existent-30-second-rule/
  6. Can AI Be Sued for Defamation? (Columbia Journalism Review)
    https://www.cjr.org/analysis/ai-sued-suit-defamation-libel-chatgpt-google-volokh.php
  7. Artificial Intelligence, Defamation, and Libel: Is Anyone Liable? (Nolo)
    https://www.nolo.com/legal-encyclopedia/artificial-intelligence-defamation-and-libel-is-anyone-liable.html
  8. U.S. FTC’s New Rule on Fake and AI-Generated Reviews and Social Media Bots
    https://datamatters.sidley.com/2024/08/30/u-s-ftcs-new-rule-on-fake-and-ai-generated-reviews-and-social-media-bots/