Can a company license its data to AI labs while it is being sold or merged?
Short answer. Yes, but timing changes what is allowed. Before a purchase agreement is signed, the owner decides alone and discloses the license to the buyer. Between signing and closing, the agreement usually requires the buyer to approve contracts outside the ordinary course, and a new data license is likely one of them. After closing, the new owner decides, and it stays bound by the privacy promises made when the data was collected.
General information, not legal advice.
Before a deal is signed
An owner thinking about selling the company can license data first, and some do it to show a revenue line or to turn records into value the buyer would not pay for. The license then becomes part of what the buyer reviews. Expect questions on what was licensed, whether it was exclusive, how long it runs, what the AI lab may keep after the term, and whether payments are still to come.
An exclusive license is the one that worries buyers most, because it limits what the combined company can do with its own records. A non-exclusive license or a narrow scope usually raises fewer questions. Our blog post on data licensing before selling your company covers the planning steps in more detail.
Between signing and closing
Purchase agreements normally include interim covenants: promises by the seller to run the business in the ordinary course until closing, and not to enter into material contracts or dispose of assets without the buyer agreeing. A first license of company records to an AI lab is rarely ordinary course. Signing one without the buyer agreeing can breach the purchase agreement.
If a license is in negotiation when the purchase agreement is being drafted, the clean approach is to list it as an agreed exception, or to agree that it will be signed only with the buyer approving the final terms. The buyer may want a say in exclusivity, the term and how the payment is split between seller and buyer.
Assignment and change of control
Most licenses say whether they can be transferred. If the company is bought through a purchase of its shares, the license usually stays in place because the same company remains the party. If assets are sold, the license has to be assigned, and many licenses require the other side to agree. Some licenses also give the lab a right to end the deal on a change of control.
The seller should read those clauses before signing a license and, if a sale is likely, negotiate them so the license can move with the business. The license should also say who receives payments due after a sale and whether the lab may keep using the data if the company changes hands.
Privacy promises carry over
US privacy rules generally let personal information pass to a buyer as part of a merger without treating that transfer as a sale. That exception covers moving the records with the business. It does not cover a later license of those records to an AI lab, which is a new use.
The Federal Trade Commission has said that an acquisition does not cancel the privacy promises made when data was first collected. In its 2014 letter on a large messaging acquisition, FTC staff wrote that the acquired company had to keep honoring its promises, and that a material change in use needed people to agree. A buyer that plans to license records from an acquired company is therefore bound by the promises the target made, and de-identification remains the usual route.
Closing companies
A company that is winding down rather than being bought follows a different path: a trustee, receiver or assignee may control the records, and a court may need to approve a sale of data assets. Our pages on closing companies cover those cases. In every case, counsel for the company and for the buyer read the purchase agreement and the license together. Neither document should be signed without both of those reviews.
Follow-up questions
Should we license our data before or after selling the company?
It depends on whether the buyer values the records and on the price you could get for them now. A license signed before the deal must be disclosed, and one signed after closing is for the new owner to decide.
Does a share sale end our data license?
Usually not, because the same company stays the licensor. Check for a change of control clause, which can give the lab the right to end the license or ask for consent.
Can the buyer of our company take over the license payments?
If the license is assigned, or the company that signed it is bought, future payments follow it. The purchase agreement can also split payments between the old owners and the buyer.
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