Can an agency assign copyright in AI-generated work to a client?

You can only assign rights you hold. U.S. Copyright Office guidance and the Thaler line of cases hold that material generated by a machine without human authorship is not copyrightable, so there is no copyright in that portion to assign. What you can assign is copyright in the human-authored contribution — the selection, arrangement, editing, and original text or design a person actually created — plus contractual rights of use. A clause that purports to assign 'all copyright in the deliverable' is not void, but it silently conveys less than the client believes it is buying.

Does the work-made-for-hire clause in my contract cover AI output?

Work made for hire is a statutory doctrine that determines who counts as the author of a copyrightable work. It does not create copyright where none exists. If the deliverable's protectable expression came from a generative model rather than a person, the work-made-for-hire clause and its assignment fallback both operate on an empty set. The doctrine also only applies to commissioned works in nine enumerated categories with a signed writing, which is why most agency contracts pair it with a backup assignment clause anyway.

What is the biggest legal risk to an agency using AI on client work?

The originality and non-infringement warranty, not the ownership question. Standard agency agreements warrant that the deliverable is original, does not infringe third-party rights, and that the agency has authority to grant the rights conveyed. Generative output can reproduce protected expression, trade dress, or a recognizable style, and the agency has no visibility into the training corpus. That warranty is usually paired with an uncapped or IP-carve-out indemnity, which is where the actual dollars are.

Do agencies have to disclose AI use to clients?

There is rarely a statute requiring it in a general commercial services relationship, but three things effectively force it: many enterprise master services agreements and procurement addenda now prohibit or restrict generative AI in deliverables, so undisclosed use is a breach; the originality warranty is materially harder to make truthfully without disclosure; and clients that need to register copyright must disclose AI-generated material to the Copyright Office and disclaim it, which they cannot do if you never told them. Silence converts a manageable contract term into a misrepresentation problem.

How should an agency contract handle AI-generated deliverables?

Replace the blanket originality warranty with a scoped one covering human-authored contributions and the agency's own conduct, add an explicit AI-use provision stating whether and how generative tools may be used and requiring approval for restricted categories, carve machine-generated material out of the copyright assignment while granting a broad perpetual license so the client's practical use is unaffected, and require the agency to keep records of prompts, tools, and human editing sufficient to support a later copyright registration.

Work Made for Hire Doesn't Work on AI Output: What Agencies Are Actually Assigning to Clients

You Cannot Assign What Never Existed

A copyright assignment is a transfer. It moves an existing property right from one party to another. It does not manufacture a right in something that was never protected in the first place.

U.S. copyright protection requires human authorship. Where the expressive choices in a piece of work were made by a generative model rather than a person, that material sits in the public domain from the moment it is produced. Nothing in your contract changes that. A clause reading "Agency hereby assigns all right, title, and interest, including all copyrights, in and to the Deliverables" does exactly what it says — it assigns the copyrights that exist. If eighty percent of the deliverable's expression came out of a model, the client just paid for a transfer of the other twenty percent and a set of contractual promises.

That is not usually a catastrophe. Most clients want the ability to use, modify, and publish the work, and a license plus practical possession delivers that. It becomes a problem in exactly two situations: when the client needs to stop a competitor from copying the work, and when the client is representing to an acquirer, investor, or licensee that it owns the asset outright.

What Survives: The Human Contribution

Copyright does not evaporate the moment a model touches a file. What remains protectable is the human expressive contribution, which typically falls into three buckets:

Selection and arrangement

Choosing which of forty generated variants ships, sequencing sections, composing generated elements into a layout. Protectable as a compilation, thin but real.

Substantive human editing

Rewriting, restructuring, adding original passages, redrawing. The edits themselves are authored; the underlying generated material is not.

Human-authored source material

Brand strategy documents, original photography, interview transcripts, copy written by a person and merely polished by a tool.

Prompting alone has consistently been treated as insufficient. Writing an elaborate prompt is closer to commissioning a work than to authoring one — you described a result, you did not fix expression in a tangible medium. Agencies that assume "our prompt engineering is the authorship" are building on the weakest available theory.

Work Made for Hire Is a Tie-Breaker, Not a Source

Work made for hire answers the question "given that a copyright exists, who is treated as its author?" It has two paths: works prepared by an employee within the scope of employment, and specially commissioned works that fall into one of nine statutory categories and are covered by a signed written agreement.

Most agency deliverables — a website, a brand system, a campaign — do not cleanly fit the nine commissioned categories, which is precisely why competent contracts pair the work-for-hire clause with an assignment fallback. Add AI to the picture and both paths point at the same void. The doctrine allocates authorship. It cannot create it.

The practical failure mode: a client tries to register the deliverable with the Copyright Office years later, discloses the AI-generated portions as the application requires, and is issued a registration covering only the human contributions. Then they come back to the agency asking why the thing they bought as an owned asset is thinner than the contract described.

The Real Exposure Is the Warranty, Not the Ownership

Ownership shortfalls produce awkward conversations. Warranty breaches produce invoices. The standard agency representation package says some version of:

The Deliverables are original to Agency
The Deliverables do not infringe any copyright, trademark, trade secret, right of publicity, or other right of any third party
Agency has full authority to grant the rights granted herein
Agency will indemnify Client against claims arising from breach of the above — frequently uncapped or carved out of the liability cap

Every one of those is harder to make honestly when a model contributed. Generative systems can reproduce protected expression, recognizable trade dress, and living artists' distinctive styles, and no agency has visibility into the training corpus that would let it verify otherwise. You are warranting the output of a process you cannot inspect, and you agreed to pay for the consequences.

Right of publicity is the underrated half of this. A generated spokesperson, voice, or likeness that reads as a recognizable person creates exposure under state publicity statutes that has nothing to do with copyright and is not cured by any assignment language. Related risk lives in AI voice cloning and right of publicity and in vendor copyright indemnification, which determines whether your tool provider absorbs any of it.

Disclosure: The Question Agencies Keep Not Asking

There is generally no statute that says "tell your client you used AI." Three practical forces do the same work:

Procurement terms. Enterprise master services agreements increasingly include AI addenda that prohibit generative tools in deliverables, restrict them to approved vendors, or require written notice. Undisclosed use in that setting is a straightforward breach, independent of any copyright question.
Registration mechanics. A client that later registers the work must identify and disclaim AI-generated material. If they file without knowing, the registration is exposed to challenge for a material omission — and the omission traces back to you.
The warranty itself. Signing an originality representation while knowing a model produced the expression is not a gray area. It is the fact pattern that turns a contract dispute into a misrepresentation claim.

What to Change in the Contract

Scope the originality warranty

Warrant that the human-authored contributions are original to Agency and that Agency has not knowingly incorporated third-party material without license. Do not warrant that machine output is free of all third-party rights — nobody can verify that, and pretending otherwise is what makes the indemnity bite.

Add an explicit AI-use clause

State whether generative tools may be used, in which categories of deliverable, and whether client approval is required. Silence is the worst possible drafting choice: it leaves the general warranty carrying the entire risk.

Split the grant

Assign copyright in human-authored contributions; grant a perpetual, worldwide, royalty-free, sublicensable license to everything else in the deliverable. The client's day-to-day rights are identical, and the paperwork now describes reality.

Keep an authorship record

Log which tools were used, on which assets, and what the human editing consisted of. This is the file that makes a later copyright registration possible and the file that defends the warranty if a claim arrives.

Fix the indemnity asymmetry

If IP indemnity is carved out of your liability cap, either bring AI-related claims inside the cap or push the exposure upstream to tool vendors that offer output indemnification — and read what their indemnity actually conditions on.

Frequently Asked Questions

Our contract says the client owns everything. Isn't that enough?

It is enough to give the client contractual comfort and enough to stop the agency from reusing the work. It is not enough to give the client an exclusive right enforceable against the world, because that right only exists where a human authored the expression. The clause is not wrong — it is just describing a smaller asset than either party assumed.

What if a person heavily edited the AI output? Does the whole thing become protectable?

No. Protection attaches to the human contributions, not retroactively to the generated base. In practice that means a work with substantial human rewriting has a meaningful, enforceable copyright in those additions and in the overall selection and arrangement, while the untouched generated passages remain unprotected. The more the human did, the thicker the resulting right.

Can we just not tell the client and rely on nobody finding out?

Detection is not the constraint — the contract is. If the MSA restricts AI use, you are already in breach whether or not anyone notices, and the discovery event is usually a lawsuit or a due-diligence questionnaire, which is the worst possible moment. Disclosure converts an unbounded warranty problem into a negotiated term.

Does this apply to freelancers too, or just agencies?

It applies identically. Freelance agreements use the same work-made-for-hire plus assignment plus warranty structure, often copied from a template, and frequently with no liability cap at all. A solo contractor signing an uncapped IP indemnity on generated deliverables is carrying more relative exposure than a firm with insurance.

Do EU clients have additional requirements?

Yes, and they arrive from a different direction. Transparency obligations for generative systems and content labeling requirements under the EU AI Act affect deliverables distributed in Europe regardless of who owns the copyright, and clients selling into the EU increasingly push those obligations down to their agencies contractually.

The Contract Should Describe What You Are Actually Selling

Agencies did not create this gap deliberately. The template predates the tooling, and the tooling arrived faster than anyone renegotiated. The result is a document that promises exclusive ownership of material that cannot be exclusively owned, and warrants the cleanliness of output nobody can audit.

Fixing it does not require giving clients less. It requires saying accurately what they are getting: a broad, unrestricted right to use the work, ownership of the human craft inside it, and a warranty scoped to things you can actually stand behind.