Legal liability issues of artificial intelligence and corporate decision making
Artificial intelligence (AI) is now mainstream, in particular, in particular the most popular applications of generative AI. Companies have realized that it is a tool, in its different modalities and versions, that allows making processes more efficient and agile or reconsidering the allocation of the workforce for certain tasks. The decision to acquire or develop AI tools depends on the type of industry and specific needs.
INTRODUCTION
Corporate management in the age of AI is marked by significant changes in how businesses are organized, operate, and make decisions. Artificial Intelligence technologies are transforming the corporate landscape in various ways, leading to both opportunities and challenges for organizations.
Corporate management in the age of AI requires a strategic approach to leverage the potential of AI technologies while addressing the challenges and ethical considerations associated with their use. Companies that adapt and integrate AI effectively into their operations are more likely to thrive in the rapidly evolving business landscape. Generative AI offers numerous opportunities for businesses, notwithstanding, CEOs and organizations can make mistakes when implementing or utilizing these technologies. Underestimating the Technology: One of the most common mistakes is underestimating the capabilities and limitations of Generative AI.
ARTIFICIAL INTELLIGENCE AND CORPORATE DECISION-MAKING
Artificial Intelligence is useful in corporate decision-making across various industries. For instance in the following fields: (i) Data Analysis and Insights: AI can process and analyze large volumes of data to extract valuable insights. This helps businesses make data-driven decisions by identifying trends, patterns, and anomalies in their data; (ii) Predictive Analytics: AI algorithms can be used to predict future trends, customer behavior, market changes, and more. This assists in making proactive decisions and planning for the future; (iii) Customer Relationship Management (CRM); (iv) AI-powered CRM systems can analyze customer interactions, preferences, and feedback to improve customer service, personalize marketing campaigns, and enhance customer retention strategies; (v) Financial Forecasting: AI can analyze financial data and market indicators to assist in financial planning, budgeting, and investment decisions. It can also help detect financial fraud and reduce risks; (vi) Supply Chain Management: AI can optimize supply chain operations by predicting demand, managing inventory, improving logistics, and reducing costs. This leads to more efficient decision-making in supply chain management; (vii) Human Resources: AI can assist in talent acquisition by screening resumes, conducting initial interviews, and identifying top candidates. It can also help in workforce management and employee engagement; (viii) Marketing and Sales: AI-powered marketing tools can segment audiences, recommend product recommendations, and personalize marketing campaigns. AI can also analyze sales data to optimize pricing strategies and sales forecasts; (ix) Risk Management: AI can assess and predict various types of risks, including cybersecurity threats, credit risks, and market risks. This helps businesses make informed decisions to mitigate and manage risks effectively; (x) Process Automation: AI-driven automation can streamline repetitive tasks and decision-making processes. It improves efficiency and reduces human errors, allowing employees to focus on more strategic tasks; (xi) Natural Language Processing (NLP): NLP-based AI systems can analyze customer feedback, social media mentions, and other text data to gauge public sentiment and make marketing or reputation management decisions; (xii) Product Development: AI can assist in product design and development by analyzing market data, customer feedback, and competitor information to identify opportunities for innovation and improvement; (xiii) Compliance and Regulation: AI can help businesses stay compliant with industry regulations by monitoring and reporting on regulatory changes, ensuring adherence to data protection laws, and identifying potential compliance issues; (xiv) Strategic Planning: AI can provide insights into long-term strategic planning by analyzing market trends, competitive intelligence, and other factors that affect the company’s growth and direction; (xv) Personalized Customer Experiences: AI-driven personalization enhances customer experiences by tailoring product recommendations, content, and communication to individual preferences.
AI can be applied to corporate decision-making. The specific use cases and benefits of AI will vary depending on the industry and the organization’s goals and needs.
LIABILITY OF DIRECTORS AND CEO
The liability of directors in corporate decision-making can vary depending on the legal and regulatory framework of the jurisdiction in which the corporation operates. Directors have a fiduciary duty to act in the best interests of the company and its shareholders. Here are some key aspects of liability for directors in relation to corporate decisions:
- Duty of Care: Directors are generally expected to exercise due care, skill, and diligence when making corporate decisions. This means they should make informed decisions, be well-informed about the company’s affairs, and act in a manner that a reasonably prudent person would under similar circumstances. If a director fails to meet this duty, they may be held liable for negligence.
- Business Judgment Rule: Many jurisdictions have a business judgment rule that protects directors from personal liability if they make decisions in good faith and in what they believe to be the best interests of the company. As long as directors are not self-dealing, conflicts of interest are properly managed, and they act within their authority, they are generally protected by this rule.
- Conflicts of Interest: Directors must disclose any conflicts of interest they may have in a particular corporate decision. Failure to do so can lead to legal liability. If a director stands to benefit personally from a decision at the expense of the company or its shareholders, it can be considered a breach of fiduciary duty.
- Corporate Governance and Compliance: Directors are responsible for ensuring that the company complies with all applicable laws and regulations. Failure to do so can lead to legal consequences not only for the corporation but also for individual directors who may be held personally liable for regulatory violations.
- Insider Trading: Directors must also be cautious about insider trading laws. Using non-public information for personal gain or sharing such information with others who may use it for personal gain can lead to serious legal consequences.
- Environmental and Social Responsibility: In some jurisdictions, there is an increasing focus on environmental and social responsibility. Directors may be held liable if they fail to address significant environmental or social issues that could impact the company’s long-term viability.
- Bankruptcy and Insolvency: In situations where a company becomes insolvent or enters bankruptcy proceedings, directors may face increased scrutiny. If it’s found that their decisions or actions contributed to the company’s financial distress, they could be held personally liable for some of the company’s debts.
- Legal Proceedings and Shareholder Actions: Shareholders or other stakeholders can bring legal actions against directors if they believe the directors have breached their duties or acted improperly. These actions can result in financial penalties or removal from the board.
Directors can often mitigate their liability by seeking legal counsel, following best corporate governance practices, and maintaining accurate records of board meetings and decisions. It’s essential for directors to understand the specific legal requirements and standards of care in their jurisdiction and industry to minimize their exposure to liability in corporate decision-making. Additionally, many corporations provide directors and officers (D&O) liability insurance to protect directors from personal financial loss in the event of legal actions.
In Colombia, Law 222 of 1995 introduced a special liability regime to the local legal system. In this sense, civil law evaluates fault in relation to the higher standard of diligence and places the burden on the plaintiff to prove the negligence or carelessness of the person deemed responsible. According to article 22 of Law 222, the following may be responsible in this context: the legal representative, the liquidator, the factor, the members of the board of directors and those who, in accordance with the statutes, exercise administrative functions.
It is the law itself that defines what the duties and obligations of the administrators are, which, if breached, may give rise to their liability. Thus, article 23 of Law 222 of 1995 establishes good faith, loyalty and diligence of a fair businessman as guiding principles in the actions of administrators.
In relation to the duty of diligence, this corporation believes that the standard or abstract model of conduct that should guide the management of the administrator is that of a good businessman, that is, diligence superior to that of an average man, worth noting, that of a professional in the management of the company’s affairs, since the legislator did not limit himself to demanding the actions that any businessman has in the performance of his responsibilities, but rather that which is characteristic of “fair businessmen”
For the high court, the incorporation of the criterion of the fair businessman implies the express exclusion of the tripartite classification of fault in article 63 of the Civil Code, and even more so that of very slight fault and not only that: it also implies that the standard of conduct to which you have referred is understood to be met when the decisions have been made in good faith, without personal interest in the matter, with sufficient information and in accordance with an appropriate procedure,
The liability scheme that concerns directors responds to a model of subjective liability or fault with these requirements (a) the action or omission of a director, contrary to legal, statutory or contractual duties, attributable to fraud or negligence ; (b) damage and (c) the causal link between that and this.
The liability of the administrator may be demanded, either through an individual action (when the damage is suffered by the assets of a partner or a third party) or through a social liability action, which aims to compensate for the damage caused. to the assets of the company.
AI ASSISTANCE IN DECISION-MAKING AND CEO LIABILITITY
CEOs who make decisions with the help of Artificial Intelligence (AI) can still be subject to various sources of liability, depending on the specific circumstances, legal framework, and ethical considerations. Here are some potential sources of liability for a CEO using AI in decision-making:
- Fiduciary Duty: CEOs have a fiduciary duty to act in the best interests of the company and its shareholders. If a decision made with the assistance of AI is found to be contrary to the best interests of the company or if the CEO fails to exercise reasonable care in utilizing AI tools, they could be held liable for breaching their fiduciary duty.
- Ethical Concerns: Using AI in decision-making may raise ethical concerns, such as bias in AI algorithms or the ethical implications of certain decisions. If a CEO fails to address or consider these ethical concerns, it can lead to reputational damage and potential legal repercussions.
- Regulatory Compliance: Depending on the industry and jurisdiction, there may be regulations that govern the use of AI, especially in sectors like healthcare, finance, and data privacy. CEOs need to ensure that their use of AI complies with relevant laws and regulations. Non-compliance can result in legal penalties.
- Data Privacy: If the AI system uses personal or sensitive data to make decisions, CEOs must ensure that the data is handled in compliance with data protection laws (e.g., GDPR in Europe or Law 1581 in Colombia). Mishandling or data breaches can lead to legal liabilities.
- Transparency and Accountability: Lack of transparency in AI decision-making processes can be a source of liability. CEOs should be able to explain how AI decisions are reached and be accountable for them. If AI is used opaquely, it can lead to legal and regulatory challenges.
- Security: CEOs are responsible for ensuring the security of the AI systems and data used in decision-making. A data breach or cyberattack can result in legal and financial consequences, especially if it is determined that the CEO did not take adequate measures to protect the AI systems and data.
- Bias and Discrimination: If AI algorithms used by the CEO’s organization exhibit bias or discrimination, it can lead to legal challenges, especially in cases involving employment decisions, lending, or other areas where discrimination is prohibited by law.
- Product Liability: If the AI is used in a product or service offered by the corporation, the CEO may be liable for product defects or issues related to AI functionality, particularly if these defects result in harm to consumers.
- Third-Party Agreements: CEOs need to consider contractual agreements with AI providers. Failure to fulfill contractual obligations or violations of intellectual property rights can result in legal disputes.
- Shareholder Actions: Shareholders may bring legal actions against CEOs if they believe that decisions made with AI have negatively impacted the company’s performance or shareholder value. This can include claims of mismanagement or breaches of fiduciary duty.
To mitigate these potential sources of liability, CEOs should exercise due diligence in overseeing the use of AI, ensure compliance with relevant laws and regulations, and actively manage ethical and reputational risks associated with AI decision-making. Consulting legal counsel and establishing clear corporate governance and ethical guidelines for AI use can also help reduce liability exposure.
COMMON MISTAKES CEOS MIGHT MAKE WITH GENERATIVE AI
While Generative AI offers numerous opportunities for businesses, CEOs and organizations can make mistakes when implementing or utilizing these technologies. Underestimating the Technology: One of the most common mistakes is underestimating the capabilities and limitations of Generative AI. CEOs may expect too much from the technology, leading to unrealistic expectations and disappointment when it doesn’t perform as anticipated.
- Lack of Clear Objectives: Implementing Generative AI without a clear understanding of the business objectives it’s meant to address can lead to wasted resources and efforts. It’s important to have a well-defined purpose and strategy for using Generative AI.
- Insufficient Data Quality: Generative AI relies heavily on data. CEOs may overlook the importance of high-quality, clean, and relevant data, leading to inaccurate or biased outcomes. It is crucial to invest in data quality and governance.
- Ignoring Ethical Considerations: Failing to address ethical considerations such as bias, fairness, and privacy in AI-generated content can result in public backlash, legal issues, and damage to the organization’s reputation.
- Not Involving Legal and Compliance Teams: Generative AI can produce content that might infringe on copyright, violate regulations, or raise legal issues. CEOs should involve legal and compliance teams early in the AI deployment process to mitigate these risks.
- Overlooking Cybersecurity: Generative AI systems can become vulnerable to cyberattacks if not properly secured. CEOs should prioritize cybersecurity measures to protect AI models and data from unauthorized access and breaches.
- Lack of Human Oversight: Relying too heavily on AI-generated content without human oversight can lead to content that lacks context, coherence, or quality. It’s essential to strike a balance between automation and human involvement.
- Ignoring User Feedback: Not actively seeking and incorporating user feedback can result in AI-generated content that doesn’t meet customer expectations or needs. Continuous improvement based on user input is critical.
- Overreliance on AI for Creativity: Generative AI can assist in creative processes, but it should not replace human creativity entirely. CEOs should recognize the value of human creativity and judgment in content creation.
- Ignoring Employee Concerns: Implementing AI can lead to concerns among employees about job security or the ethical implications of AI. CEOs should address these concerns through transparent communication and training opportunities.
- Neglecting Scalability and Integration: Failing to plan for the scalability and integration of AI solutions into existing systems can hinder their effectiveness and create technical challenges.
- Inadequate Testing and Validation: Not thoroughly testing AI models for various scenarios and edge cases can result in unexpected errors or biases. Rigorous testing and validation are essential before deploying AI in production.
- Overlooking ROI Analysis: Implementing Generative AI without a clear understanding of the return on investment (ROI) can lead to wasted resources. CEOs should assess the cost-benefit analysis before embarking on AI projects.
CEOs need to approach Generative AI with a clear understanding of its capabilities, ethical considerations, and potential risks. By avoiding these common mistakes and adopting a well-informed, strategic approach, organizations can harness the power of Generative AI effectively to achieve their business objectives while mitigating potential pitfalls.
SOME PROBLEMS ASSOCIATED WITH THE PROOF AND EVIDENCE IN CASES OF LIABILITY DERIVED OF MISUSE OF ARTIFICIAL INTELIGENCE SYSTEMS
The misuse of artificial intelligence can lead to various problems and challenges, particularly when it comes to establishing evidence of liability. AI systems are often complex and can involve intricate algorithms and neural networks. Understanding and explaining these systems to establish liability can be challenging, especially for non-experts. Many AI systems operate as “black boxes,” meaning their internal workings are not transparent or easily explainable. This lack of transparency can hinder efforts to trace the causes of misuse and attribute liability.
The misuse of AI may involve the unauthorized access or processing of sensitive data. Proving liability might require demonstrating how data was mishandled, which can be complicated by privacy regulations and the difficulty of obtaining evidence related to data breaches. Determining who is responsible for the misuse of AI can be difficult, especially in cases where multiple parties are involved, such as developers, users, or organizations deploying the AI system. AI systems may exhibit unintended behaviors or consequences that were not explicitly programmed. Proving liability in such cases requires establishing a connection between the AI’s actions and the misuse, which can be challenging. Machine learning models, especially those employing reinforcement learning, can adapt and evolve over time. Pinpointing the exact moment or reason for a specific behavior becomes more challenging as the system continuously learns from new data.
The legal and ethical frameworks for AI are still evolving. Establishing liability often requires navigating a complex landscape of laws and regulations that may not have caught up with the rapid advancements in AI technology. Determining whether the misuse was intentional or a result of automated processes can be challenging. Establishing liability may require proving not just the actions taken by the AI but also the intentions behind those actions. If an AI system exhibits biased or discriminatory behavior, proving liability may involve demonstrating the existence of bias, its impact, and the failure of developers or operators to address or mitigate these issues.
Changes in the field of evidence as a consequence of the use of artificial intelligence systems in daily life may warrant reviewing the scope, relevance, use of evidentiary means and interpretation criteria established in the Código General del Proceso y CPACA, among others.
CONCLUDING REMARKS
The challenges that decision makers face in companies due to the use of artificial intelligence do not only refer to their practical skills and abilities but to the legal limits.
Although the uses of Artificial Intelligence are still in a very initial stage, it is important that the law begins to define rules that allow its adoption for decision making, risk assessment and management competencies.
Everything indicates that artificial intelligence is not just another tool nor a type of software, but its effects in the corporate sphere can even become a fundamental support in the strategic management function of companies and, therefore, in decision-making. crucial managerial decisions.
Legal protection for innovation strategies
INTRODUCTION
Innovation is crucial for the long-term success and competitiveness of companies in the rapidly evolving business landscape. To foster innovation, companies employ various strategies and approaches. To protect your innovation, you can utilize various forms of intellectual property (IP) rights. The choice of which IP protection to pursue depends on the nature of your innovation and your business goals.
Before pursuing any form of IP protection, the following steps are recommended:
- Conduct a Prior Art Search: To ensure your innovation is truly novel and eligible for protection, conduct a thorough search to identify prior art (previous similar inventions or creations) that might impact your ability to obtain protection.
- Consult Legal Experts: Intellectual property laws can be complex and vary by jurisdiction. Consult with intellectual property attorneys who specialize in the relevant field to guide you through the process and help you make informed decisions.
- Strategize: Develop an IP strategy aligned with your business goals. Some innovations may benefit from a combination of protections, while others may require choosing the most suitable single form of protection.
Obtaining IP protection is just one step; enforcing and maintaining these rights require ongoing attention and legal vigilance.
COMMON INNOVATION STRATEGIES THAT COMPANIES OFTEN USE:
- Open Innovation: This approach involves collaborating with external partners such as customers, suppliers, universities, and even competitors to bring in fresh ideas, technologies, and expertise. Companies share and exchange knowledge to accelerate the innovation process.
- Research and Development (R&D): Companies allocate resources to research and develop new products, services, or technologies. This can involve creating dedicated R&D departments or innovation labs to focus solely on generating novel ideas and solutions.
- Design Thinking: Design thinking is a human-centered approach that emphasizes empathy, collaboration, and iteration. Companies using this strategy involve cross-functional teams to deeply understand user needs, brainstorm solutions, prototype, and test ideas before implementation.
- Disruptive Innovation: This strategy involves introducing new products or services that create a significant shift in the market and often target underserved or overlooked customer segments. Disruptive innovations can reshape industries and change consumer behaviors.
- Incremental Innovation: Companies continuously improve existing products, services, or processes to enhance efficiency, performance, and user experience. This strategy involves making small, incremental changes over time.
- Blue Ocean Strategy: This approach focuses on creating entirely new market spaces where competition is limited or nonexistent. Companies aim to offer unique value propositions, differentiating themselves from competitors and attracting new customers.
- Acquisitions and Mergers: Some companies acquire or merge with other firms to gain access to their technologies, products, or intellectual property, thereby accelerating their own innovation efforts.
- Lean Startup Methodology: Popularized by Eric Ries, this strategy involves quickly building and testing minimal viable products (MVPs) to gather user feedback and iterate rapidly based on that feedback. This approach minimizes waste and reduces the risk of launching products that don’t meet customer needs.
- Crowdsourcing: Companies solicit ideas and solutions from a large group of people, often through online platforms, competitions, or challenges. This approach leverages the collective intelligence of a diverse group to solve problems and generate new ideas.
- Corporate Venture Capital: Companies invest in startups or innovative ventures that align with their strategic goals. This approach provides the company with insights into emerging trends and technologies while supporting external innovation.
- Technology Scouting: Companies actively search for emerging technologies, ideas, and trends outside their industry and then adapt or integrate them into their own operations or products.
- Intrapreneurship: This strategy involves encouraging employees to act as entrepreneurs within the company, empowering them to propose and develop new ideas and projects.
- Hackathons and Innovation Challenges: These events encourage employees or external participants to collaborate intensively over a short period to solve specific problems or develop innovative solutions.
- Agile Development: Agile methodologies, often used in software development, emphasize iterative development and collaboration, allowing companies to respond quickly to changing market demands.
- Successful innovation strategies are often tailored to a company’s industry, culture, and specific goals. The key is to create a conducive environment that encourages creativity, experimentation, and a willingness to embrace change.
KEY POINTS OF AN INNOVATION STRATEGY IN A COMPANY:
An effective innovation strategy in a company should encompass various key points to guide and support the organization’s efforts in creating and implementing innovative ideas. Here are some essential points to consider when developing an innovation strategy:
- Clear Objectives: Define specific innovation goals that align with the company’s overall mission and business strategy. These objectives should be measurable and time-bound, providing a clear sense of direction for the innovation initiatives.
- Alignment with Business Strategy: Ensure that the innovation strategy is closely aligned with the company’s core business strategy. Innovation efforts should contribute to the company’s competitive advantage and long-term growth.
- Leadership Support: Obtain commitment and active support from top leadership. Leaders should champion the importance of innovation and allocate necessary resources to foster a culture of creativity.
- Resource Allocation: Allocate dedicated resources, including funding, time, and personnel, to support innovation projects. Adequate resources are essential for experimentation and development of new ideas.
- Cross-Functional Collaboration: Encourage collaboration between different departments and teams. Innovative ideas often emerge at the intersection of different disciplines, so fostering a culture of collaboration can lead to breakthroughs.
- Open Communication: Establish channels for open communication that allow employees to share their ideas, feedback, and suggestions. Creating an environment where employees feel valued and heard fosters innovation.
- Risk Tolerance: Cultivate a culture that embraces calculated risk-taking. Innovation involves experimentation, and not all ideas will succeed. It’s important to learn from failures and iterate on ideas.
- Customer-Centric Approach: Focus on understanding customer needs and pain points. Innovations that directly address customer challenges are more likely to gain traction in the market.
- Continuous Learning: Encourage continuous learning and professional development. Provide opportunities for employees to acquire new skills and stay updated on industry trends and emerging technologies.
- Idea Generation and Management: Implement processes for generating, capturing, evaluating, and selecting innovative ideas. This might involve brainstorming sessions, idea submission platforms, and cross-functional evaluation teams.
- Innovation Metrics: Define key performance indicators (KPIs) to measure the effectiveness of innovation efforts. These metrics could include the number of new products launched, revenue from new products, or percentage of revenue from products developed in the last few years.
- Innovation Culture: Nurture a culture that values creativity, curiosity, and continuous improvement. Recognize and reward employees for their innovative contributions.
- Innovation Pathways: Develop a framework for moving innovative ideas from concept to implementation. This could include stages for idea validation, prototyping, testing, and scaling.
- External Partnerships: Explore opportunities for collaboration with external partners, such as startups, research institutions, and industry experts. These partnerships can bring fresh perspectives and accelerate innovation.
- Intellectual Property Protection: Establish procedures for protecting intellectual property generated through innovation. This could involve patent applications, copyrights, and trade secrets.
- Adaptability: Recognize that the innovation landscape is constantly evolving. Be prepared to adapt the strategy as new opportunities and challenges arise.
- Measurement and Feedback Loop: Regularly review and assess the progress of innovation projects against established objectives. Use feedback to refine and improve the strategy over time.
An innovation strategy should be tailored to your company’s unique circumstances, goals, and industry context. It’s important to create a strategy that resonates with your organization’s culture and capabilities.
KEY ELEMENTS OF A LEGAL PROTECTION FOR AN INNOVATION STRATEGY:
Protecting your innovation strategy involves a combination of legal measures to safeguard your intellectual property, proprietary information, and competitive advantage. The advisable steps to ensure comprehensive legal protection for an innovation strategy are the following:
- Intellectual Property (IP) Strategy:
- Patents: If your innovation involves a novel, non-obvious, and useful invention, consider filing for patents. Patents grant exclusive rights to your invention for a specific period, preventing others from making, using, selling, or importing it without your permission.
- Copyrights: If your innovation includes original creative works such as software code, artistic designs, or written content, consider obtaining copyrights to protect against unauthorized copying or distribution.
- Trademarks: Register trademarks for unique brand names, logos, and symbols associated with your innovation strategy. Trademarks protect your brand identity and prevent others from using similar marks that might cause confusion.
- Trade Secrets: Implement strict confidentiality measures to protect sensitive information that provides your company with a competitive advantage. This could include proprietary processes, customer lists, formulas, and more.
- Non-Disclosure Agreements (NDAs): When sharing confidential information with employees, partners, contractors, or potential collaborators, use NDAs to legally bind them to maintain confidentiality and prevent unauthorized disclosure.
- Employee and Contractor Agreements: Include clauses in employment and contractor agreements that specify that any innovations or intellectual property developed during their tenure belong to the company. This helps ensure the company’s ownership of innovations created by its workforce.
- Partnership and Collaboration Agreements: Clearly outline intellectual property ownership, usage rights, and profit-sharing arrangements in agreements when collaborating with external partners, vendors, or research institutions.
- Licensing Agreements: If you’re interested in monetizing your innovation by allowing others to use it, consider licensing agreements that define the terms under which others can use your intellectual property.
- Innovation Disclosure Policies: Develop internal policies and procedures for employees to disclose their innovative ideas and developments. This establishes a framework for capturing and evaluating new concepts.
- Regular IP Audits: Periodically assess your intellectual property portfolio to ensure that your patents, copyrights, trademarks, and trade secrets are up to date and aligned with your innovation strategy.
- Global Considerations: If your innovation strategy has an international component, be aware of intellectual property laws and regulations in various jurisdictions. File for protection in countries where you plan to operate or expand.
- Litigation Preparedness: While prevention is the primary goal, it’s wise to have a plan in place in case of IP infringement. Consult legal experts to understand your options for enforcing your rights and pursuing legal action if necessary.
- Legal Counsel: Consult with intellectual property attorneys who specialize in the relevant areas, such as patent law, copyright law, and trademark law. They can provide tailored guidance based on your specific innovation strategy.
MAIN CONTRACTUAL CLAUSES TO PROTECT INNOVATION MODELS AND PRODUCTS:
Some examples of clauses to be considered in contracts to protect innovation and intellectual property (IP):
- Confidentiality and Non-Disclosure Clause:
“Confidential Information” refers to all information disclosed by one party to the other that is not publicly available and is marked or communicated as confidential. The recipient agrees not to disclose or use the Confidential Information for any purpose other than the intended collaboration/project and to protect its confidentiality.
- Intellectual Property Ownership Clause:
“Any inventions, designs, works of authorship, developments, concepts, ideas, or other intellectual property created during the term of this Agreement shall be the exclusive property of [Company Name], regardless of which party contributed to their creation.”
- Assignment of Intellectual Property Rights Clause:
“Employee/Contractor hereby assigns and transfers to [Company Name] all rights, title, and interest in and to any and all intellectual property created in the course of employment/engagement, and agrees to execute any necessary documentation to effectuate such assignment.”
- Joint Ownership Clause (for collaborations):
“Any jointly developed intellectual property shall be owned jointly by the parties in proportion to their respective contributions. The parties agree to work together to secure appropriate protection and make commercialization decisions.”
- Non-Compete and Non-Solicitation Clause:
“During the term of this Agreement and for [X] years thereafter, the Employee/Contractor agrees not to engage in any business that competes with [Company Name] or solicit [Company Name]’s clients, customers, or employees.”
- Dispute Resolution Clause:
“Any dispute arising under or in connection with this Agreement, including disputes related to intellectual property rights, shall be resolved through mediation or arbitration, with [Arbitration/Mediation Provider] acting as the mediator/arbitrator.”
- Indemnification Clause:
“Employee/Contractor agrees to indemnify and hold harmless [Company Name] from any claims, damages, or liabilities arising from any breach of intellectual property rights or misuse of confidential information.”
- Termination and Return of Property Clause:
“Upon termination of this Agreement, Employee/Contractor shall promptly return to [Company Name] all confidential information, documents, and materials related to the project, including any prototypes, designs, and research.”
- Use of Company Resources Clause:
“Employee/Contractor shall not use [Company Name]’s resources, facilities, or equipment for any purposes other than the project specified in this Agreement, without prior written consent.”
- Governing Law and Jurisdiction Clause:
“This Agreement shall be governed by and construed in accordance with the laws of [Jurisdiction]. Any disputes arising under or in connection with this Agreement shall be subject to the exclusive jurisdiction of the courts of [Jurisdiction].”
CONCLUDING REMARKS:
Failing to seek IP protection in a timely manner can result in the loss of rights. It’s important to initiate the protection process as soon as your innovation is ready to be disclosed to others.
Not keeping thorough and organized records of the development process, dates of invention, and interactions with collaborators or partners can weaken your ability to prove the originality and ownership of your innovation. Neglecting to conduct a thorough search for existing patents, copyrights, trademarks, and other IP rights similar to your innovation can lead to conflicts, rejections, or invalidations of your claims.
Drafting incomplete or vague agreements, such as nondisclosure agreements (NDAs) or partnership contracts, can leave gaps in IP ownership and usage rights, leading to disputes later on. Not properly safeguarding trade secrets through contractual agreements and security measures can result in leaks of sensitive information, compromising your competitive advantage.
Disclosing details about your innovation to the public before applying for IP protection can impact your ability to obtain patents or certain types of protection. Public disclosures can trigger statutory grace periods in some jurisdictions. Failing to include strong IP ownership and assignment clauses in employee agreements can lead to uncertainties about who owns the rights to innovations created by employees.
If you plan to operate globally, not considering international IP protection can leave your innovation vulnerable in jurisdictions where you haven’t secured rights.
Licensing your IP without clear terms, usage limitations, and enforcement mechanisms can lead to unauthorized use or disputes. Confusing the differences between patents, copyrights, trademarks, and trade secrets can result in pursuing the wrong type of protection for your innovation.
Assuming that you don’t need to take any legal steps to protect your innovation can leave you exposed to IP theft or infringement. Forgetting to renew trademarks, pay maintenance fees for patents, or keep documentation up to date can lead to the loss of your IP rights.
Not actively monitoring for IP infringement and taking appropriate legal action when needed can weaken your IP position and allow others to infringe on your innovation. Relying on inexperienced or uninformed legal advisors can result in inadequate protection or misguided strategies.
The Supreme Court of Justice unifies the requirements for electronic invoicing as a value title:
Decision STC11618 of the Civil Cassation Chamber of the Supreme Court of Justice (SCJ), issued on October 27, 2023, established unified criteria on the requirements necessary to consider an electronic invoice of sale (EIS) as a value title. These requirements are divided into two categories:
Formal requirements:
- The EIS must be generated in electronic format (XML) and include a description of the goods or services invoiced, as well as the name “electronic invoice” and the Unique Electronic Invoice Code (CUFE).
- The CUFE must be validated by the National Tax and Customs Directorate (Dian) and delivered to the purchaser. This requirement does not apply to physical invoices, or to situations where validation is not possible due to technological problems attributable to Dian.
It is important to note that, according to the Supreme Court of Justice, registration of the EIS in RADIAN is necessary for its circulation, but not for it to be considered a title.
Substantive requirements:
- The EIS must mention the right it represents, including the author’s signature and the expiration date.
- Acknowledgement of receipt of the EIS is required.
- Acknowledgement of receipt of goods or services is required.
- Express or tacit acceptance of invoice must be made within three days of receipt of goods.
With regard to acceptance, the Supreme Court of Justice has chosen to follow the position of Decree 1154 of 2020 and not to apply Law 1231 of 2008. The Decree erroneously stipulates that express acceptance must take place within three days of receipt of the goods or services, whereas Law 1231 of 2008 states that the period begins on receipt of the invoice. This SCJ decision is contested for several reasons:
- The hierarchy of norms establishes that the law prevails over the regulatory decree, despite its specific nature: the decree does not have the power to override the law, which remains in force and applies in full to both electronic and physical sales invoices. Where the rule makes no distinction, it is not for the interpreter to create one.
- The Supreme Court of Justice underlines the speed of e-commerce, which often leads to invoices being issued before goods or services are delivered. However, this is contrary to Article 1 of Law 1231 of 2008, which stipulates that all invoices must correspond to goods or services that have actually been delivered or provided. This applies to both electronic and physical sales invoices.
- Finally, acceptance of the invoice, whether express or tacit, serves as proof of delivery of the goods or service, as indicated by the SCJ in STC9542-2020. Acceptance implies that the purchaser of the goods or service has validated that the contents correspond to reality.
This recent position of the Supreme Court of Justice regarding acceptance is not only contrary to the law, but could also lead to practical difficulties when it comes to proving “receipt of the goods” by the party executing the action. Despite the existence of a certain flexibility in terms of evidence to support this fact, it is undeniable that some judicial operators tend to apply very strict criteria with regard to these requirements.
The Council of State clarifies the requirements for the application of the VAT exemption for services rendered in the country and used exclusively abroad
In order for exporters of services to benefit from the VAT exemption, they must comply with a number of requirements (section c of article 481 of the Tax Statute) among which are that the services are rendered from Colombia; that their use or exploitation is carried out exclusively abroad; and that the beneficiary does not have any business or activities in Colombia.
In its ruling number 27317 of July 19, 2023, the Council of State has reiterated that a service is understood to be used abroad when the benefit or profit derived therefrom takes place outside the national territory, provided that the activities that constitute the service, whose export is claimed, have been performed in Colombia, the foregoing in accordance with the provisions of paragraph c) of Article 481 of the Tax Statute.
Thus, the requirements for the VAT exemption on the exportation of services are as follows:
- That the service had been rendered in Colombia to a foreign country.
- That the service was used or consumed exclusively abroad.
- That the consumer is one or several persons, individual or business entity, without any business or activities in Colombia.
- That, even if the consumer is national or has ties with Colombia, the service object of the exemption must be used abroad.
- That the other requirements indicated by article 2 of Decree 2223 of 2013 were met which are:
- To be registered as an exporter of services in the RUT.
- Keep the invoices, service offers and/or quotations with their respective acceptances, the contract between the parties or the purchase/service order plus the acknowledgement of receipt of the service.
- To have the certification of the provider or legal representative stating that the service was provided to be consumed exclusively abroad.
The Council of State explained that a difference exists between the acquisition of a service in Colombia and its use abroad. Even if a service is acquired in national territory, if this (i) is provided from Colombia (ii) is consumed exclusively from abroad as, for example, a medical assistance service that is acquired in Colombia to be used outside the territory in case of a contingency (iii) that the service is used abroad by a person without business or activities in Colombia for the specific service as in the case of the traveler and (iv) even if he/she has them, this service is used exclusively abroad because the advantage, benefit or consumption of the same is given outside Colombia.
It is always necessary to identify the final destination of the operation where the service acquired from Colombia is going to be materialized in order to apply section (c) of article 481 of the Tax Statute. The concept of business or activity cannot be confused as all the actions that are performed in Colombia to acquire the service that will be performed abroad, since the previous acts do not prevent the application of the exemption since, in the end, the client must benefit from the service abroad. Nor can the non-exemption be claimed if the consumer of the service abroad has businesses unrelated to the business subject to exemption in Colombia if the activity to be exempted complies with all the requirements of art 481 already referred to.
Obligation to enter data in the Beneficial Ownership Single Registry “RUB”
By: Juan Simon Larrea & Javier Moya
With the issuance of Law 2155 of September 14, 2021 “Social Investment Law”, articles 631-5 and 631-6 of the Tax Statute (hereinafter “ET”) were modified and the Single Registry of Final Beneficiaries (hereinafter “RUB”) was created, which was regulated by Resolution 164 of December 2021, subsequently modified by Resolution 37 of March 17, 2022, issued by the National Tax and Customs Directorate “DIAN”. In addition, the Identification System for Structures Without Legal Personality “SIESPJ” was created.
Acronyms and Abbreviations
- SWLP – Structure Without Legal Personality
- RUB – Single Registry of Beneficiary Owners
- RUT – Single Tax Register
- SIESPJ – Identification System for Structures Without Legal Personality
- BO – Beneficiary Owner / Final Beneficiary
- DIAN – Directorate of National Taxes and Customs
1. Single Register of Beneficial Owners “RUB”
1.1. What is RUB?
The RUB is the registry that is an integral part of the Single Tax Registry (RUT) that must be completed virtually and in which legal entities and unincorporated or similar structures must provide the information of their Beneficiary Owners.
1.2. Who are the Beneficiary Owners of legal persons?
The BO of Colombian legal entities, according to article 631-5 of the ET, is any individual who:
- Acting individually or jointly, holds, directly or indirectly (through third parties), five percent (5%), or more of the capital or voting rights of the legal person, and/or benefits in five percent (5%), or more of the assets, yields or profits of the legal person.
In order to better understand the above condition, by way of example we can establish that any individual who is a shareholder of any type of corporation with a percentage greater than 5% is a Final Beneficiary. Likewise, if he/she is a shareholder in this proportion, but indirectly (through a legal entity), he/she would also be considered as a Final Beneficiary.
- Acting individually or jointly exercises direct and/or indirect controls[1] over the legal entity by any means other than those set forth in the preceding point.
Regarding this second condition, the Inter-American Development Bank’s Manual on Beneficial Ownership establishes that the individual may exercise direct or indirect control through a significant percentage of the voting rights, or the ability to appoint or remove members of the board of directors of an entity.
It can also be exercised in other ways. For example, through a power of influence or veto over the decisions made by an entity, through agreements between shareholders or partners through family or other ties with decision makers, or through the ownership of negotiable obligations or other debt securities of an entity convertible into shares.
Thus, according to the manual and the recommendations issued by the Financial Action Task Force (FATF), the beneficial owner must be identified through other means such as exercising control without having an ownership interest in a company.
Now, as a residual condition and only when no beneficial owner is identified (in non-corporate legal persons such as: national or foreign non-profit entities) under the criteria indicated above, the individual who holds the position of legal representative shall be considered as the beneficial owner, unless there is an individual who holds greater authority in relation to the management or direction functions of the legal person, in which case the latter individual must be reported.
1.2.1. Who are the BO in unincorporated or similar structures?
The Beneficiary Owner of an Unincorporated Structure o structures without legal personality (hereinafter referred to as “ESPJ”) are the individuals who hold the status of:
- Trustor(s), settlor(s), constituent(s) or similar or equivalent position.
- Trustee(s) or similar or equivalent position.
- Trustee committee, finance committee or similar or equivalent position.
- Trustee(s), beneficiary(ies), or conditional beneficiary(ies); and
- Any other individual exercising effective and/or final control or having the right to enjoy and/or dispose of the assets, benefits, results or profits.
Based on the above, a resident or non-resident individual who holds five percent (5%) or more of the capital of a legal entity and/or benefits from five percent (5%) or more of its assets, yields or profits, carries out transactions with the assets of another person or makes decisions in the administration, direction or management of a company or benefits from the activities of a private non-profit entity, is a beneficial owner and must be registered in the RUB. Likewise, if he/she holds the status of beneficiary in the ESPJ.
1.2.2. Who is obliged to provide information?
The following legal entities and structures without legal personality or similar, are required to provide information in the RUB, with respect to their beneficial owner:
- Corporations and national profit or non-profit entities in accordance with the provisions of Article 12-1 of the ET, including those whose shares are registered or listed in one or more stock exchanges.
- Permanent establishments, i.e., those that have a fixed place of business in the country, through which a foreign company, whether a corporation or any other foreign entity, or individual without residence in Colombia, performs all or part of its activity.
- National companies and entities, including those listed on the stock exchange and registered in its respective list, that have their main domicile in Colombian territory; or that make effective commercial, administrative or management decisions in Colombia; or that have been incorporated in Colombia.
- All structures without legal personality or similar that were created or that are administered in Colombia or that are governed by Colombian regulations or whose trustee or similar is a national legal person or individual resident for tax purposes. An example of the above are trusts or trusteeships, if these are administered or were created in Colombia, their beneficial owner must be in the RUB.
- Foreign legal entities, when the totality of their investment in Colombia is not made in legal entities, permanent establishments and/or ESPJ obliged to provide information in the RUB.
1.2.3. Who is not obliged to provide information?
Public entities, establishments or agencies or national entities or corporations in which one hundred percent of their capital is public are not required to provide information in the RUB. Neither are embassies, diplomatic missions, consular offices or international organizations and agencies accredited by the National Government. Nor are foreign legal entities or structures without legal personality that do not operate in Colombia or are not incorporated in the territory, and even less foreign legal entities whose assets value in Colombia represents less than 50% of their total assets. In addition, any other situation that does not meet the requirements described in the preceding paragraphs.
1.2.4. What information must be provided and what is the procedure to register data for legal entities in the RUB part of the RUT?
The RUB is an integral part of the Single Tax Registry (RUT) before the DIAN, for legal entities, and the information that must be submitted is the following, according to article 8 of resolution 164 of 2021 DIAN:
- Type of document
- Identification number and country of issuance
- NIT or functional equivalent and country of issuance.
- Names and Surnames
- Date and country of birth
- Country of Nationality
- Location: Country of residence, department or state, city, zip code, e-mail address
- Criteria for determining the final beneficiary
- Percentage of participation in the capital of the legal entity.
- Percentage of benefit in the yields, results or profits of the legal entity, structure without legal entity or similar.
- Date from which it has been the beneficial owner or the condition exists.
- Date from which it ceases to have the quality of beneficial owner or the condition no longer exists.
1.2.5. Deadline for registration of information by legal entities in the RUB
According to the same Resolution 164 of 2021 of the DIAN, modified by Resolution 37 of 2022 and Resolution 1240 of 202, the information must be provided no later than July 31, 2023, by legal entities, structures without legal personality or similar structures constituted or created prior to September 30, 2022.
In the case of legal entities, unincorporated structures or similar that are constituted after September 30, 2022, they will have 2 months from the registration in the Single Tax Registry RUT or in the Identification System of Unincorporated Structures SIESPJ.
1.2.6. What is the due diligence principle?
This principle is developed in Article 12 of Law 2195 of 2022 through which measures of transparency, prevention and fight against corruption are adopted and provides that anyone who has the obligation to deliver information to the RUB, must carry out due diligence measures that allow identifying the final beneficiary(ies) taken these criteria:
- Identify the individual, legal entity, ESPJ or similar that enters into legal business or state contract.
- Identify the beneficial owner(s) and the ownership and control structure of the legal person, legal entity, JSE or similar and verify the information.
- Request and obtain information on the purpose of the legal business or state contract when the state entity is the contracting parties and in order to obtain information on the corporate purpose of the contractor.
- Perform ongoing due diligence on the business or contract by examining that the transactions are consistent, its business activity, risk profile and source of funds.
1.2.7. Which authorities have access to the RUB?
According to Article 13 of Law 2195 of 2022, the Comptroller General of the Republic, the DIAN, the Prosecutor´s General’s Office, the Superintendence of Industry and Commerce, the Superintendence of Finance, Attorney General’s Office and the Financial Information and Analysis Unit UIAF will have access to the RUB.
1.2.8. Penalty
We also remind you that failure to register the data on time may result in the penalties contemplated in Article 658-3 of the Tax Statute, ranging from fines to the temporary closure of the establishment, office, business or headquarters of the owner.
1.2.9 How do I register my beneficial owner in the RUB?
The following link refers to the infographic that explains how individuals and ESPJs, with prior registration in the Unincorporated Structures Identification System as developed below, can register their BO in the RUB.
https://www.dian.gov.co/impuestos/RUB/Documents/Paso-a-paso-2687-RUB.pdf
2. IDENTIFICATION SISTEM OF STRUCTURES WITHOUT LEGAL PERSONALITY “SIESPJ”
The SIESPJ is the identification mechanism, for tax purposes, of unincorporated structures that are not required to register in the RUT. The operation and administration of the System will be the responsibility of the Special Administrative Unit of the DIAN.
2.1.1. What information must be provided and what is the procedure for the registration of data for unincorporated structures in the RUB by SIESPJ
The RUB is an integral part of the Unincorporated Structures Identification System (SIESPJ), for unincorporated structures, before the DIAN and the information to be submitted is the following, according to article 15 of resolution 164 of 2021 DIAN:
1. Type of structure without legal personality or similar.
2. Name and alphanumeric code assigned internally for the identification of the unincorporated or similar structure.
3. Date of creation of the unincorporated or similar structure.
4. Date of termination of the unincorporated or similar structure.
5. Identification number of unincorporated structures – NIESPJ assigned by the Special Administrative Unit of the National Tax and Customs Directorate – DIAN.
6. Start date of administration of the unincorporated or similar structure.
7. End date of administration of the unincorporated or similar structure.
8. Change of administrator of the unincorporated or similar structure.
These percentages are individual and the information must be provided through the electronic system of the Single Registry of Beneficial Owners. Learn the step by step in the following link:
Paso-a-paso-2706-RUB.pdf (dian.gov.co)
In order to register Structures without legal status in the RUB, they must first be registered in the SIESPJ and with the identification provided by the SIESPJ, proceed to register in the RUB.
2.1.2 Deadline to register the information of an unincorporated or similar structure
For unincorporated or similar structures, updates can be made within the month following the event that generated the update.
[1]What is meant by “exercise control”?
To understand what is meant by control, we refer to different sources, among them, the Code of Commerce Arts. 260-261, the Tax Statute Art. 260-1 and Resolution 164 of 2021. It is understood that there is control when a person or a group of persons, natural or legal, exercises dominant influence in the decisions of the administrative bodies. For example, when the shareholders’ meeting makes decisions for the management to implement and the whole company or foundation to undertake new paths. In addition to the influence, these persons must have the right to cast votes constituting the minimum majority of votes in the shareholders’ meeting or in the assembly; or the number of votes necessary to elect the majority of the members of this board of directors. In these cases we may be talking about direct control.
Individuals exercising indirect control, i.e., through an intermediary person or company, are also obliged to be included in the RUB. For example, the owner or sole shareholder of a company that is the parent company of a subsidiary in Colombia that meets the requirements mentioned in previous sections. In this case, it should be registered in the RUB.
As a complement, a situation of control is also present when any of the following situations arise:
- that more than 50% of the capital of a company, directly or through or with the assistance of several of its subordinates or at the same time those that these may have.
- When the parent company and subordinates have in common or separately the right to issue votes.
- When the parent company exercises a dominant influence in the decisions of the administrative bodies of the subordinate company.
One or several legal entities may also be understood as a Parent Company and these parameters apply to them to determine whether they exercise control or not.
“From the above rules it is possible to infer when control is consolidated with respect to commercial companies in Colombia, and the form in which it can be exercised; that is, directly and indirectly; individually or jointly; by participation or simply by dominant influence.” (Concept 220 081921, 2015, S.I.C)
In conclusion, control exists when the decision-making power of a controlled company is subject to the will of another or other persons that will be its parent or controlling company. For example, if a company X in Colombia is controlled by a parent company abroad, and this meets the requirements described in previous paragraphs, the individual who is the ultimate beneficial owner of the parent company must be sought and this person must be registered in the RUB by the controlled company.
How to form a company in Latin America
New Measures to Control Energy Prices in Colombia
On September 16, 2022 the government announced the following specific measures, to be implemented as of November 2022, to contrul the rising prices resulting from workshops with different actors in the sector:
- Draft resulution 701 017, for a 12-month period. This resulution seeks:
- To invulve all sector actors in the reduction of tariffs.
- To assist traders by implementing an 18-month deferral of their obligations with generators and distributors, in at least 20% of from September to December 2022. The interest rate of such deferred obligations shall be the lowest between that reported by the market administrator XM and a preferential rate.
- To renegotiate regulated market agreements between traders and generators, including the modification of payment terms and consumption periods in 12 months.
- Draft resulution 701 018, to be enforced in 5 months. This resulution seeks:
- Optimize thermal plants’ operation according to their number of units and capacity.
- Draft resulution 701 019, also projected for a 12-month period. This resulution seeks:
- To determine the percentage of variation of the tariff option for hte first month after the resulution is approved. After that, a tariff option increase rate will be defined. Before the resulution this may not be less than 0.6. Now it may be equivalent to “0” or even negative.
- To adjust distribution and transmission charges at the Producer Price Index (PPI) of December 2020. These values shall be brought to present value and may vary according to the Consumer Price Index (CPI).
- Moving forward and as a transitory measure, one the sector index is defined, charges shall be updated with the lowest between the CPI, PPI or any other index proposed by the operators. These will have a 5 business day deadline to inform CREG about their adjustment acceptance.