New Federal Legislation Proposes Product Liability Standards For AI Systems

Highlights

• Broad Definition of Covered AI Products. The AI LEAD Act would define "Artificial Intelligence Systems" as software, tools, or applications that use algorithms or machine learning to make or assist in decisions — whether standalone or built into larger systems.
• Potential Developer and Deployer Liability. Developers could face claims for defective design, failure to warn, breach of express warranty, and strict liability. Deployers may be liable for unauthorized modifications or misuse but can seek dismissal if the developer is available and solvent.
• A Federal Cause of Action. The bill creates a federal right of action for individuals, state attorneys general, and the U.S. Attorney General, with a four-year statute of limitations and additional protections for minors.
• Retroactive Reach. The legislation would apply to suits filed after enactment, even if the alleged harm occurred beforehand — raising potential due process and fairness concerns.

The Senate recently received S.2937, the AI LEAD Act (Aligning Incentives for Leadership, Excellence, and Advancement in Development Act) introduced on Sept. 29, 2025 by Sens. Dick Durbin (Ill.) and Josh Hawley (Mo.). The Act seeks to establish federal product liability standards tailored to artificial intelligence technologies.

What AI-Related Systems Would be Defined as "Products"

The bill covers "Artificial Intelligence Systems," which it deems "covered products" under the proposed legislation. It also defines these "covered products" broadly as any software, data system, application, tool, or utility that:

1. Is capable of making or facilitating predictions, recommendations, actions, or decisions for a given set of human- or machine-defined objectives; and
2. Uses machine learning algorithms, statistical or symbolic models, or other algorithmic or computational methods (whether dynamic or static) that affect or facilitate actions or decision-making in real or virtual environments.

The bill expressly provides that an AI system may be integrated into, or operate in conjunction with, other hardware or software. As drafted, "covered products" under this Act would encompass not only standalone AI applications such as chatbots, but would also include AI components embedded into larger systems.

The legislation takes the fundamental position that these AI systems constitute "products" within traditional liability frameworks, foreclosing potential arguments for platform immunity under Section 230 of the Communications Decency Act.

Potential Liability: Developers and Deployers of AI

The bill envisions potential liability for both developers and deployers of AI technology. It identifies various grounds for potential developer liability, arising under four distinct theories:

• Defective design, with proof from plaintiffs that a reasonable alternative design was feasible;
• Failure to warn;
• Breach of express warranty; and
• Strict liability

Plaintiffs also could rely on circumstantial evidence to support an inference of product defect when harm ordinarily occurs from such defects. The proposed legislation further prohibits developers from including user agreement terms that would waive rights, limit forums or produces, or unreasonably restrict liability — rendering such clauses unenforceable.

Additionally, deployers of AI technology could be liable when they make 'substantial modifications," or deliberate changes that alter the product's purpose, use function, or design that are not authorized by the developer or otherwise intentionally misuse the technology contrary to its intended use. However, deployers could seek dismissal from such litigation if the developer of the at-issue technology is available, solvent, and subject to the court's jurisdiction, absent independent deployer liability.

A Federal Cause of Action

The bill specifically creates a federal cause of action enabling the Attorney General, state attorneys general, individuals, or class actions to bring claims in federal district court, with a four-year statute of limitations applicable to such claims. In addition, the proposed legislation seeks to establish heightened safeguards for minor users. In particular, it provides that risk cannot be presumed "open and obvious" to users under the age of 18.

Potential Shortcomings of the AI LEAD Act

Most notably, the Act would apply retroactively to any action commenced after its enactment, regardless of when the underlying alleged harm and related alleged conduct occurred.

While the bill represents a significant legislative attempt to address alleged AI-related harms, it may face conceptual and practical hurdles. Traditional product liability frameworks are not a tight fit for the kinds of AI technologies called out in the bill, with unique challenges possible when it comes to establishing causation and identifying any so-called "defects" at the time of sale due to the "learning" nature of these technologies. Critics argue the bill may stifle innovation, while others contend that the standards outlined in the bill are too vague to provide meaningful guidance.

What to Consider Today

Although this bill is in the early stages, developers and users of AI technology should consider:

1. Prompt Compliance Review. Consider conducting comprehensive risk assessments of existing products, focusing on design, training data selection, testing protocols, and adequacy of warnings.
2. Document, Document, Document! Maintain records of design-related decisions, testing, risk assessments, alternative designs considered, and the rationale for choices made. This documentation may be critical in defending against negligence claims.
3. Remain Aware of the Standards Applicable to Minors. Under this legislation, the "open and obvious" defense is unavailable for users under 18 years of age. Be intentional when considering minor users.

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