Artificial Intelligence (AI) is revolutionising how Australian businesses operate, from automating customer service and streamlining logistics, to drafting documents and screening job applicants. But with innovation comes complexity. As AI adoption accelerates, as does the legal, ethical, and regulatory challenges.

This blog outlines the key legal considerations for Australian businesses integrating AI into their operations, including regulatory developments, intellectual property, data privacy and discrimination risks, and best practice recommendations.

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1. The Regulatory Landscape: Where are we headed?

Australia is undergoing a significant transformation in privacy and AI regulation. The Privacy and Other Legislation Amendment Act 2024 (Cth), which received Royal Assent on 10 December 2024, marks the first of two major reform tranches. Notably, from 11 December 2026, businesses will be required to ensure transparency in automated decision-making.

Key developments include:

• Automated Decision Transparency: The new rules apply to AI systems using personal information, as well as other computer-assisted decisions. These transparency obligations are among the first formal steps toward broader AI regulation.
• OAIC Guidance: The Office of the Australian Information Commissioner has issued guidance on how existing privacy laws apply to the use of commercially available AI and the development of generative AI.
• Forthcoming Reforms: The second tranche of privacy reforms is expected to introduce:
• Mandatory Privacy Impact Assessments for high-risk activities, including automated decisions;
  
  • Requirements to explain automated decisions;
  • A new standard that data use must be “fair and reasonable”, regardless of consent; and
  • Expanded definitions of personal information, affecting AI model training and deployment.
• Voluntary AI Safety Standard: The government released the Standard as part of the government’s broader consultation on mandatory guardrails for AI in high-risk settings.

These changes signal a clear trajectory toward more robust AI governance and regulation in Australia.

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2. Intellectual Property: Who Owns AI Outputs?

The legal status of AI-generated content remains one of the most unsettled areas in intellectual property law, particularly in Australia, where current legislation does not yet recognise AI as a creator or inventor.

The legal status of AI-generated content remains uncertain:

• Copyright: Under the Copyright Act 1968 (Cth), copyright protection in Australia is automatic once a work is reduced to material form, but only if it has a human author. This means that content generated entirely by AI, without meaningful human input, may not be eligible for copyright protection.
• Trade Secrets & Training Data: AI systems are often trained on vast datasets, which may include proprietary or copyrighted material. Businesses should:
  
  • Secure contractual protections when using proprietary data to train AI models, ensuring that trade secrets and confidential information are safeguarded.
  • Vet third-party AI tools to confirm that their training data sources are legally obtained. Using AI trained on scraped or unlicensed content could expose your business to copyright infringement claims, not only for the training process but also for outputs that replicate protected material.

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3. Privacy and Data Protection

AI systems often rely on vast amounts of data, much of which may be personal or sensitive information. In Australia, the Privacy Act 1988 (Cth) and the Australian Privacy Principles (APPs) apply to all uses of AI by APP entities that involve personal information, including data used to train, test, or generate outputs from AI systems.

APP entities using AI must ensure compliance with the following core obligations:

• Data Minimisation: Collect only personal information that is reasonably necessary for your functions or activities (APP 3).
• Transparency: Clearly inform individuals about how their data will be used (within your organisation or control) and disclosed (made accessible to others outside the organisation and released from your organisation’s effective control), especially if it will be input into, or generated by, an AI system. Organisations must take particular care with sensitive information, which generally requires consent to be handled (APP 5 and APP 6).
• Security Safeguards: Implement robust technical and organisational measures to protect personal information from misuse, interference and loss (APP 11).

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4. Best Practices for Responsible AI Use

To mitigate legal and reputational risks associated with the use of AI solutions, businesses should adopt the following practices:

• Governance and Transparency
  
  • Develop internal policies outlining approved AI tools and use cases.
  • Maintain documentation on how AI decisions are monitored, reviewed, and audited.
• Due Diligence and Contracts
  
  • Conduct vetting of third-party AI providers, ensuring compliance with intellectual property, data privacy and ethical standards.
  • Include contractual provisions, such as warranties, indemnities and audit rights, to manage risks associated with AI solutions.
• Staff Training and Awareness
  
  • Educate employees on the risks and responsibilities of AI use, especially in client-facing or HR roles.
  • Foster a culture of accountability and encourage reporting of potential misuse or unintended consequences.

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Conclusion

AI offers immense potential for innovation, efficiency, and growth, but it also introduces complex legal and regulatory challenges. By proactively managing governance, compliance, and risk, Australian businesses can responsibly harness the power of AI while minimising legal exposure.

If your organisation is considering AI adoption or would like support reviewing your current privacy policy or AI practices from a legal and regulatory perspective, Sierra Legal is here to help.

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