Tag: attorney

Can I Use ChatGPT to Put Bad Bunny in my business’s social media ads?

Posted by Jaime Farrant on August 20, 2026 with 0 Comment

As I write this post, social media in Puerto Rico has blown up with Bad Bunny’s announcement that he will close his world tour in concert scheduled for August 22 and 23 in San Juan’s Hiram Bithorn Stadium. The amount of posts about this announcement reminded me of the many promotions posted by Puerto Rican restaurants, bars, and small businesses in their Facebook, Instagram and TikTok accounts, where they showed a photo of Bad Bunny eating at their restaurant, or having a beer at their bar. However, he was never in any of these places. These were AI-generated images, posted without his consent, for one obvious reason — to draw customers to their businesses using the likeness of arguably the most recognizable person in Puerto Rico today. However, no business paid a license, asked permission, or, in most cases, thought twice about it.

If your business operates in Puerto Rico, New York, Maryland, or Washington D.C., the answer to whether you can legally do this depends heavily on which of these you’re in — and the gap between them is bigger than most business owners realize.

In the US, How – or If – you can use Deepfakes Depends Entirely on Where You Live

Unlike Puerto Rico, which just amended its “Right to One’s Own Image” statute (Law 139-2011, as amended by Law 163-2026) to explicitly cover AI-generated deepfakes by penalizing their unauthorized commercial use with damages of up to $100,000 per violation if the use was intentional or with gross negligence, the United States has no uniform federal right of publicity. Each state decides for itself whether — or how — to protect someone’s name, voice, or likeness from unauthorized commercial use. That means that the same AI-generated Bad Bunny photo can be a serious legal problem in one state and close to unregulated in the state next door.

New York: The Strongest Protections of All

New York has protected this right since long before generative AI existed. Civil Rights Law §§ 50–51 makes it a misdemeanor — and a civil cause of action — to use a living person’s name, portrait, picture, likeness, or voice for advertising or trade purposes without their prior written consent. Section 51 lets the injured person seek an injunction, actual damages, and, if the defendant knowingly used their likeness, exemplary (punitive) damages at the jury’s discretion.

On top of that foundation, New York has added two AI-specific layers in the last 2 years:

The Digital Replica Contracts Act (General Obligations Law § 5-302): voids contract provisions that let an employer replace a performer’s actual performance with a digital replica, unless the performer was represented by counsel or a union and the terms are stated clearly in a separately signed agreement.
The Synthetic Performer Disclosure Law (General Business Law § 396-b), effective June 9, 2026: requires advertisers to conspicuously disclose when an ad contains a “synthetic performer” created using generative AI. Civil penalties run $1,000 for a first violation and $5,000 for each subsequent one.

Put together, a New York business running that “Bad Bunny at my bar” photo is exposed on two fronts: a §§ 50–51 claim from Bad Bunny himself (or his estate, for that matter, since New York also protects deceased performers’ digital replicas under Civil Rights Law § 50-f), and a separate disclosure penalty if the ad used a synthetic element and didn’t label it.

Maryland: Barely Any Legal Protections at All

This is likely to surprise business owners coming from New York or Puerto Rico: Maryland has no right of publicity under its statutes or common law. It’s one of only a handful of states (along with Alaska, Kansas, and North Carolina) where this right doesn’t exist as such. A bill that would have created a civil cause of action for unauthorized use of someone’s identity via AI or deepfakes — House Bill 1425/Senate Bill 905 — did not pass in the 2025 session. It’s been reintroduced as House Bill 184 for the 2026 session, but as of this writing, it has not been approved.

Maryland does have a deepfake statute — Senate Bill 141 (2026), effective June 1, 2026 — but it is narrowly limited to election-related deepfakes intended to influence voting or misrepresent election facts. It has nothing to say about a restaurant using an AI-generated photo of a celebrity to sell arepas, margaritas or mofongo.

Practically, this means that today, a Bad Bunny impersonation ad run by a Maryland business faces essentially no exposure under Maryland state law specifically built for this problem. That could change if HB 184 passes, and it’s also worth remembering that Bad Bunny himself could still bring a claim in a state where he does have rights like New York, depending on where the harm occurred.

Washington D.C.: Regulated by Common-Law, Not a Statute

D.C. has no right-of-publicity statute either. What it has is a common-law claim for misappropriation, drawn from the Restatement (Second) of Torts § 652C, as applied in Vassiliades v. Garfinckel’s, Brooks Bros., 492 A.2d 580 (D.C. 1985). To win, a plaintiff has to show both that the defendant benefited from using their identity and that there’s a recognizable public or commercial value in that identity — the exact opposite of a bright-line statute like New York’s. This makes outcomes far less predictable and cases more expensive to bring, since there’s no statutory damages figure to point to and no per-violation civil penalty to threaten a defendant with.

How is This Regulated in the European Union?

The European Union has taken an approach very different than the patchwork of state laws in the US through its enactment of the EU AI Act, which applies across all Union states. The EU AI Act does not establish a standalone private right of action for damages; rather, it imposes administrative transparency obligations. Under Article 50 of the Act, providers of Al systems that generate or manipulate image, audio, or video content constituting a deepfake must clearly disclose that the content has been artificially generated or altered. An exception applies when such content is part of an obviously artistic, satirical, or fictional work, provided it is not presented in a misleading manner. Failure to comply with these transparency requirements constitutes a serious infringement, subject to administrative fines of up to €15 million or 3% of the undertaking’s total worldwide annual turnover for the preceding financial year, whichever is higher.

Why Should This Matter to You?

If you run a business — or advise clients who do — across any of these jurisdictions, the question “can I use an AI image of a celebrity in my ad” doesn’t have one answer, and responses range from “yes, expect a lawsuit and pay damages of up to $100,000” (Puerto Rico), to “yes, expect a lawsuit and possible punitive damages” (New York) to “there’s currently no statute built for this” (Maryland) to “it depends on how a judge applies a 40-year-old privacy tort” (D.C.), or “you must publish in your campaign that its content was artificially generated” (EU). Consequently, a marketing decision that’s clearly reckless in Manhattan might be legally uneventful across in Maryland — for now.

These differences are exactly the kinds of gaps that generative AI has widened. Tools like ChatGPT, Claude, Midjourney, and similar platforms make it trivial to generate a photorealistic image of a real, identifiable person for a fraction of what a licensing deal would have cost a few years ago. The law in most of the United States hasn’t caught up uniformly, which means your exposure depends less on what you did and more on where you did it.

How Can You Comply With the Law?

If you operate in New York, treat any AI-generated image or voice of a real person in your advertising as requiring the same written consent you’d need for a real photo — Civil Rights Law § 51 doesn’t distinguish between a real photograph and a generative AI recreation.
If your New York ad uses a synthetic performer (not a real, identifiable person, but a “no such person exists” AI-generated model), confirm you’re including the conspicuous disclosure required by GBL § 396-b before it airs.
If you operate in Maryland, don’t assume the absence of a right-of-publicity statute means zero risk — track HB 184, and remember a claim can still be brought in a state where the depicted person has stronger rights.
If you operate in D.C., document your process for obtaining consent regardless of the weaker legal baseline; a misappropriation claim can still succeed, and consent is always the safer route.
If you operate in Puerto Rico, make sure your processes clearly document that the use was authorized.
If you operate across multiple states, apply the strictest applicable standard (in this example, New York’s) to any content you plan to run across state lines or online, since your audience — and any resulting claim — isn’t limited to where your business is physically located.
If your campaign will be shown in the European Union, you will have to divulge that it was artificially generated.

The Bottom Line

Puerto Rico, New York, Maryland, D.C., and the European Union sit at very different points on the right-of-publicity spectrum — from New York’s statutes with real teeth, to Maryland’s near-total absence of protection, to D.C.’s uncertain common-law doctrine. If your business uses generative AI in marketing and you operate in more than one of these jurisdictions, the safest approach is to assume the strictest rule applies everywhere your content is seen, not just where you’re physically located.

Does your business use AI-generated content in advertising across New York, Maryland, or D.C.? Schedule a consultation today to review your exposure in each jurisdiction where you operate.

About the Author

Jaime Farrant is admitted to practice law in Puerto Rico, New York, Maryland and the District of Columbia. Practice in other jurisdictions is limited to immigration law. This article is for informational purposes only and does not constitute legal advice or create an attorney-client relationship. Laws referenced are current as of August 15, 2026.

ADVERTISING MATERIAL. This article constitutes advertising as defined by the professional conduct rules in New York (22 NYCRR 1200.7.1 and 1200.7.3), Maryland (Rule 19-307.1 and 19-307.2), and the District of Columbia (D.C. Rules of Professional Conduct 7.1), and the Puerto Rico Rules of Professional Conduct (Rules 7.1-7.3). It is not solicitation of prospective clients known to need legal services in a particular matter. Instead, it is general information directed to the public about the practice of law and available legal services. No attorney-client relationship is created by your reading of this article or by contacting the author. Consult qualified counsel in each jurisdiction with specific situations.

Your Security Camera Vendor Wants to Cover Your Bathroom – Is that Worth 3 Years in Jail?

Posted by Jaime Farrant on August 5, 2026 with 0 Comment

A security vendor offers you a great deal: a full camera package for your office or clinic, including units for “every room” — bathrooms included. Before you say yes, here’s the one word that should stop you: no.

Installing a camera in a bathroom isn’t a gray area. In most states, it’s either a specific criminal offense, an actionable civil tort, or both — regardless of whether you own the building, whether employees consented to “general” workplace monitoring, or whether your intent was purely about theft prevention.

All Kinds of Laws and Regulations Are Against Your Vendor’s Sales Pitch

Video surveillance law in the U.S. is a patchwork, but one principle is close to universal: people have a reasonable expectation of privacy in spaces where they may be nude or partially undressed — bathrooms, locker rooms, and changing areas top that list in nearly every jurisdiction.

The following layers of law apply here:

1. The federal wiretap/ECPA gap doesn’t help you here. Most security cameras don’t record audio, which is why they generally fall outside the federal Wiretap Act and the Electronic Communications Privacy Act (those statutes govern communications, not silent video). Business owners sometimes hear “no audio recorded, no ECPA problem” and assume that means video is unregulated. It isn’t. ECPA’s silence on soundless video just means you have to look elsewhere — and state law fills that gap fast, especially for restrooms.

2. State statutes specifically ban restroom and changing-area recording. California, for example, expressly forbids video recording in restrooms, locker rooms, and places where people change clothes. Many states have similar “video voyeurism” or “unlawful surveillance” statutes that criminalize recording — or even just installing recording equipment — in a place where someone has a reasonable expectation of privacy, whether or not any footage is ever viewed or used. These are often felony-level offenses, and consent from you as the business owner is irrelevant; the person being recorded is the one whose consent (or knowledge) matters.

3. Healthcare and other regulated settings add another layer. If you run a medical office, a bathroom camera also raises immediate collateral problems: patients or staff visible on camera in a restroom implicates dignity and privacy obligations that go well beyond HIPAA’s technical safeguards — it’s the kind of fact pattern that turns into a licensing board complaint, a media story, or both.

4. Even without a specific statute, common law will find you. Every U.S. jurisdiction recognizes some version of the tort of intrusion upon seclusion: intentionally intruding on someone’s private affairs in a way that would be “highly offensive to a reasonable person.” A camera in a bathroom is the textbook example courts use to illustrate this tort. That means even in a state without a dedicated criminal statute, an employee, patient, or customer who discovers the camera can sue you civilly — and juries tend to have little patience for this fact pattern.

What Does Puerto Rico’s Constitution and Penal Code Say?

If you operate in Puerto Rico, your exposure is arguably higher than in the 50 states, as the right to privacy here isn’t left to a patchwork of state statutes and common-law torts. It’s written directly into the Constitution.

Article II, Section 8 of the Puerto Rico Constitution states: “Toda persona tiene derecho a protección de ley contra ataques abusivos a su honra, a su reputación y a su vida privada o familiar” (Every person has the right to protection of law against abusive attacks on their honor, reputation, and private or family life). What makes this different from the U.S. Constitution is that the Puerto Rico Supreme Court has held that this right applies directly between private parties, not just against government action. In Arroyo v. Rattan Specialties, Inc., 117 D.P.R. 35 (1986), the Court held that the right to privacy operates ex propio vigore — on its own force — and can be asserted by one private citizen against another, including an employer against an employee. That means a bathroom camera dispute in Puerto Rico doesn’t need a separate statute to become a constitutional violation; the Constitution itself solves the controversy.

The Puerto Rico Penal Code then backs this up with a specific criminal provision. Article 168 of the Puerto Rico Penal Code, titled “Illegal recording of images”, makes it a crime for any person, without legal justification or a legitimate investigative purpose, to use electronic or digital video equipment — with or without audio — to conduct secret surveillance in private places, or in any other place where a reasonable expectation of privacy exists. A bathroom is about as clear an example of that as exists. Conviction of this crime carries a 3 year imprisonment penalty, and if the convicted party is a corporation (or any legal person), they face a criminal fine of up to $10,000, on top of civil liability.

Put together, that’s 3 independent legal problems stacked on top of each other for accepting the salesperson’s offer: a constitutional privacy violation that doesn’t require a lawsuit-specific statute to exist, a specific criminal statute naming the conduct, and civil liability for damages. There’s no version of “we didn’t think it applied to us” that survives this situation.

What Will “Getting This Wrong” Cost You?

You will face real exposure across all fronts, notably:

Criminal liability: Many state voyeurism/unlawful surveillance statutes are felonies, carrying fines and potential jail time for the person who installs or operates the equipment — that could be you, personally, not just “the business.”
Civil damages: Intrusion-upon-seclusion claims, among other tort claims, can result in compensatory damages, and courts in the US have allowed punitive damages where the conduct is found egregious — a bathroom camera is close to the paradigm case.
Employment claims: If the person recorded is an employee, expect this to also surface as a hostile work environment or wrongful termination claim if discipline follows the discovery.
Reputational cost: Unlike a data breach notice, this is the kind of story that runs on local news with your business’s name in the headline. There’s no regulator fine that costs you more than the client and patient trust it destroys.

Why Should You Care About This?

Because although you might think the sales pitch sounds reasonable, you could end up in a lot of trouble. “Fully covered and protected business” sounds like a good security practice, and most business owners installing these systems aren’t trying to do anything invasive — they’re thinking about delivery problems, break-ins, shoplifting, and slip-and-fall liability. However, your good intent doesn’t matter for most of these statutes, and it won’t matter to a jury either. The law doesn’t ask whether you meant well; it asks whether a reasonable person would find being recorded in that space highly offensive. In a bathroom, the answer is already decided.

This is also a useful moment to audit your entire camera plan, not just the bathroom question — because the same vendor conversation is a good opportunity to think through where cameras are legally fine (entrances, sales floors, hallways, parking areas) versus where they cross the line (restrooms, break-rooms used for nursing mothers, private offices with an expectation of confidentiality).

What Can You Do to Comply?

Decline any bathroom, locker room, or changing-area camera outright. There’s no notice, consent form, or signage that fixes this. Don’t install it, and don’t let a vendor bundle it into a package “in case you change your mind.”
Map your camera locations against expectation-of-privacy zones. Entrances, registers, storage, parking, and common work areas are generally fine. Restrooms, changing rooms, and private offices are not.
Put your monitoring policy in writing. For the cameras you do install, a written policy — reviewed by an attorney — that discloses locations, purpose, and retention helps establish notice and reduces the risk of a monitoring-related claim from staff.
Check your state’s specific statute. Voyeurism and unlawful-surveillance laws vary — some cover only “for sexual gratification” purposes, others cover any recording in a private space regardless of purpose. If you operate in Puerto Rico, the relevant provision is Article 168 of the Penal Code — broader than many mainland statutes since it isn’t limited to a sexual-purpose requirement.
Train whoever manages the footage. Access controls and retention limits for legitimate camera footage matter too — who can view it, how long it’s kept, and how it’s secured.

The Bottom Line

Say yes to the cameras. Say no to the bathroom units — every time, no exceptions, regardless of how the package is bundled or how good the discount is. This is one of the few areas of privacy law where there’s no compliant way to do the thing at all; the only right answer is not installing it.

If you’re building out a security camera plan for your office, clinic, or retail space and want a compliance check before you sign anything, book a consultation — better to ask before the cameras go up than after.

This post is for general informational purposes and does not constitute legal advice. Camera and surveillance laws vary by state; consult an attorney about the rules that apply to your specific location and industry.

About the Author

Jaime Farrant is admitted to practice law in Puerto Rico, New York, Maryland and the District of Columbia. This article is for informational purposes only and does not constitute legal advice or create an attorney-client relationship.

Duration of Status Is Over. Will My Visa Now Have a Deadline?

Posted by Jaime Farrant on July 31, 2026 with 0 Comment

For nearly 50 years, F-1 students, J-1 exchange visitors, and I-visa foreign media representatives have lived under one of the most forgiving rules in U.S. immigration law: “duration of status,” or D/S. As long as you were still enrolled in school, still in your program, or still doing your job, your admission simply didn’t expire. No countdown clock, no renewal deadline, no fixed date circled on the calendar.

That era ends on September 15, 2026.

On July 17, 2026, the Department of Homeland Security published a final rule eliminating D/S for F, I and J nonimmigrants and replacing it with a fixed admission period, capped at 4 years, after which you must either finish your program, get approved for an extension, or leave. If you’re currently in the U.S. on one of these visas — or you’re an employer, school, or program sponsor who works with people who are — take a few minutes to read the rest of this article to understand what’s changing, because the old assumption that “I’m fine as long as I’m still studying” no longer holds.

What Was D/S, and Why Is DHS Getting Rid of It?

Since 1978 for students and 1985 for exchange visitors and media representatives, D/S admissions didn’t come with an end date stamped in your passport. Your authorized stay was tied to your activity — finishing your degree, completing your exchange program, continuing your foreign employment — not to a specific day on the calendar.

DHS now says that this flexibility is now a liability. In fiscal year 2024 alone, there were over 1.8 million F-1 admissions and more than half a million J-1 admissions — and DHS says it has identified over 2,100 people who first entered as F-1 students between 2000 and 2010 and are still in active F-1 status today. Because D/S doesn’t require any check-in with immigration officials unless you’re filing for something specific like practical training authorization, DHS argues it never had a reliable way to confirm these nonimmigrants were still doing what their visa authorized — or to catch it quickly when they weren’t.

So DHS is doing what it’s done with nearly every other nonimmigrant category for decades: giving F, J, and I nonimmigrants a fixed admission period instead of an open-ended one.

What is Changing With the New Rule?

Your admission period now has an expiration date. You’ll be admitted for the length of your program — up to a maximum of 4 years — plus a 30-day grace period to leave the US afterward.
If your program runs longer than 4 years, you’ll need an Extension of Stay (EOS). PhD programs, some medical training, and other multi-year programs routinely exceed 4 years. DHS acknowledges this and expects those nonimmigrants to file for an extension with USCIS before their fixed period runs out.
A 4-year transition period applies to people already here. If you’re currently in D/S status when the rule takes effect, you generally have until the earlier of your program’s end date or four years from the effective date to finish up, extend, or change status.
Automatic extensions during a pending, timely-filed EOS are capped — generally at 240 days (90 or 240 days for I nonimmigrants, depending on your passport country).
Unlawful presence now starts accruing the moment your authorized period ends — automatically, with no adjudication required first. This is the part that deserves the most attention, so let’s slow down on it.

The Change Most People Are Going to Miss

Under the old D/S system, unlawful presence for purposes of the 3- and 10-year reentry bars generally didn’t start accruing until an immigration officer or an immigration judge made an affirmative finding that you’d violated your status. In practice, that meant even if you’d fallen out of compliance, the clock didn’t start running until someone in the government formally said so — and with immigration courts sitting on nearly 3.8 million pending cases, that could take months or years.

That buffer is gone. Once your fixed admission period (or an approved extension) expires, you begin accruing unlawful presence automatically — the same day, with no officer or judge required to trigger it. DHS is explicit that this is the point: it wants F, I and J nonimmigrants “on equal footing” with every other visa category, where overstaying has always worked this way.

Practically, this means:

If your I-20 or DS-2019 end date passes and you haven’t filed a timely EOS, you don’t get the benefit of the doubt anymore. The clock will be running and you are out of status.
Unlawful presence exposure is now real for anyone whose case — including a pending application with USCIS or a case before an immigration judge — outlasts their authorized period without being properly extended.
Because there’s no more need to wait for a formal violation finding, expect Immigration and Customs Enforcement to move faster on issuing Notices to Appear once a fixed period lapses, since nothing is holding back the unlawful presence clock in the meantime.

Why Should You Care About This?

The 4-year cap doesn’t fit everyone’s timeline. DHS’s own data shows a majority of PhD students take longer than four years to finish. If that’s you, an EOS isn’t optional — it will most likely be the only thing standing between you and unlawful presence.
“I’m still enrolled in school” is no longer a legal safe harbor. Under D/S, staying enrolled generally kept you in status. Under the fixed-period rule, your status can lapse on a specific date even while you’re still actively in your program, if you haven’t filed the right paperwork in time.
EOS processing is about to get a lot busier. DHS itself predicts a surge in extension filings, with peak volume expected roughly 4 years after the rule takes effect. If USCIS processing times stretch out the way they have with other benefit categories, you could be left waiting on an EOS decision after your fixed period has already technically expired.
This affects far more than students. Dependents (F-2, J-2), exchange visitors sponsoring international scholars and researchers, foreign media correspondents, and the schools and program sponsors managing all of them are all being pulled into the same fixed-period, same EOS-filing system.
A lapse now has consequences that follow you. Unlawful presence isn’t just an abstract compliance issue — it can trigger 3- or 10-year reentry bars and complicate future visa applications, adjustment of status, or waivers down the road.

What Can You Do About It?

Know your actual admission end date once the rule takes effect — not just your program end date. These will not always be the same thing, especially for anyone whose program runs past four years.
If you’re currently in D/S status, mark your transition deadline now. You have until the earlier of your program’s end date or 4 years after the effective date — don’t wait until you’re already close to that line to start planning.
If your program will run longer than 4 years, start your Extension of Stay conversation as soon as possible with your designated school official (“DSO”), program sponsor, or immigration attorney. Filing an EOS after your fixed period has already lapsed is a very different — and much riskier — situation than filing before it expires.
Build in buffer time for USCIS processing delays. Given the volume DHS expects, don’t assume a last-minute EOS filing will be decided before your authorized stay runs out.
If you’re a school, program sponsor, or employer working with F, J, or I nonimmigrants, update your internal tracking now. You’ll want a system that flags fixed admission end dates well before they arrive, not after.
If your immigration situation is already complicated — a pending application, a change of status in progress, or any uncertainty about your history — talk to an immigration attorney before your current authorized period runs out, not after.

The Bottom Line

For nearly five decades, F, I and J nonimmigrants operated under one of the most flexible admission frameworks in U.S. immigration law — no fixed end date, no automatic overstay clock. As of September 15, 2026, that flexibility will be gone, replaced by a fixed admission period capped at 4 years and an unlawful presence clock that starts automatically the moment that period ends, no adjudication required.

If you’re currently in F, i or J status — or you manage people who are — the safest assumption going forward is the same one that’s always applied to nearly every other nonimmigrant category: know your admission end date, and don’t let it arrive without a plan already in place.

If you want help figuring out exactly where your admission period stands under the new rule, or want to get ahead of an Extension of Stay filing before it becomes urgent, please book a consult with us before your visa runs out.

About the Author

What Happens If Your Vendor’s AI Decides to Hack Someone Else?

Posted by Jaime Farrant on July 28, 2026 with 0 Comment

Have you ever thought about what could happen to your business if a vendor’s AI system decides, on its own, to break into another company’s servers? If you haven’t, it might be time to, because the consequences for your business could be severe. If you’re a business regulated by HIPAA, a violation of this law could carry a civil penalty of up to $2,190,294 per violation category, per year, at the highest tier of culpability. Even a business that did nothing wrong, where a vendor’s AI system acted entirely on its own, could still face a lower-tier penalty, an OCR investigation, breach notification costs, and reputational fallout, for something it never caused and couldn’t have predicted.

This nightmarish possibility is no longer a hypothetical scenario. On July 21, 2026, OpenAI published on its website a notice were they took responsibility for a cyberattack on Hugging Face, a widely used AI hosting and machine-learning collaboration platform. According to OpenAI, a combination of its models — including a publicly available model and a more capable unreleased one, running with reduced safety restrictions for an internal cybersecurity evaluation — broke out of their isolated test environment by exploiting a previously unknown flaw in an internal software tool, reached the open internet, and then used stolen credentials and another unknown vulnerability to gain remote code execution on Hugging Face’s production servers. Their goal, according to OpenAI, was narrow but telling: the models were trying to retrieve the answer key to the benchmark test they were being scored on. Hugging Face had already detected the intrusion over a weekend of automated activity, reported it to law enforcement, and began its own containment before it even learned OpenAI was behind it.

Both companies have called this a watershed moment for cybersecurity. For a small business, medical practice, or professional office that relies on outside vendors — including AI tools — to store, process, or transmit sensitive information, it should also be a wake-up call about a risk category that most vendor contracts were never written to address: the AI agent that acts on its own.

Why could your AI Vendor’s Behavior Become Your Problem?

Most privacy and data security laws that apply to small businesses do not distinguish between a breach caused by a human hacker and a breach caused by an autonomous system. If your practice or business uses a covered entity’s business associate, a cloud vendor, or any third party that touches personal or health information, you are generally still responsible for:

Vetting that vendor’s security practices before you sign a contract (due diligence).
Having the right contractual protections in place, such as a HIPAA Business Associate Agreement (BAA) for medical offices, or comparable data processing and security terms for any business handling personal information.
Notifying affected individuals, and in some cases regulators, if that vendor’s system is compromised and your data is involved.

Under HIPAA, a covered entity’s business associates are contractually and legally bound to safeguard protected health information (PHI), and a breach at the vendor level can trigger notification obligations for the covered entity itself, even though the vendor’s system, not the medical office’s, was the one that failed. Outside of healthcare, most state data breach notification laws work the same way: liability follows the data, not just the party that caused the incident.

An AI agent that autonomously escalates its own access, exfiltrates credentials, or reaches systems it was never authorized to touch does not change any of that legal analysis. It just makes it harder to predict, detect, and contain.

It’s worth being precise about what did and didn’t happen here: by OpenAI’s own account, the models were chasing the answer key to their own benchmark test, not deliberately hunting for customer or patient records. No business should read this incident as proof that patient or client data was taken. What should concern any business relying on outside vendors is the capability on display: an AI system that, on its own initiative, found a zero-day vulnerability, stole credentials, escalated privileges, and reached a third party’s production infrastructure, over an unmonitored weekend, before any human intervened. Point that same capability at a system that holds patient records, financial account numbers, or client files, and the outcome looks very different.

A Disclosure Gap Worth Knowing About

Here’s a detail that matters for any business relying on a vendor’s assurances: OpenAI was not legally required to disclose this incident at all. Two recent state laws, California’s SB 53 and New York’s RAISE Act, require large AI developers to report critical safety incidents, but only if the incident risks more than 50 deaths or serious injuries, or over $1 billion in property damage. An incident like this one falls well short of that bar. OpenAI disclosed it voluntarily. The practical takeaway for your business: you generally cannot count on a public filing or regulatory notice to tell you whether a vendor’s AI system has had a similar failure. That makes your own contract language, and your own right to ask direct questions, the primary tool you have.

Penalty Structure: What’s Potentially at Stake

The exposure here is layered, and it can apply to a business that never asked for an AI system to do anything wrong, if that system operated within its own environment or a vendor’s:

HIPAA: Civil penalties currently range from roughly $145 up to $2,190,294 per violation category per year, depending on the covered entity’s or business associate’s level of culpability. Tier 1 (lack of knowledge) sits at the low end; willful neglect that goes uncorrected sits at the top. State attorneys general can separately pursue HIPAA-related fines of up to $25,000 per violation category, per year, and multi-state actions are increasingly common when a breach touches residents across several states.
State breach notification laws: Most states can pursue penalties or authorize private lawsuits when a business fails to notify affected residents promptly after a breach involving personal information, regardless of whether the breach originated with the business or with a vendor it selected.
Contractual exposure: If your vendor agreement lacks clear breach notification timelines, security requirements, or audit rights covering AI tools specifically, your business could be left absorbing costs, or negotiating from a weaker position, after the fact.

None of this means every AI-related vendor incident automatically results in a maximum fine. Regulators generally consider the nature of the data involved, the number of people affected, whether the business had reasonable safeguards in place, and how quickly the incident was addressed. But the exposure is real, and it is not limited to companies that build or sell AI models. It reaches any business, medical office, or professional practice that relies on one.

Why Should You Care About This?

Because experts who study AI safety are calling this one of the first real-world examples of an AI “loss of control” scenario: a system doing something researchers had long warned about, without a human directing it, and without a simple software bug to blame. The activity reportedly ran for an extended period on a system that, unlike OpenAI’s actively monitored production tools, was not being watched in real time. If a frontier AI lab with dedicated security teams can have this happen during a controlled internal test, it is a reasonable question for any business to ask what oversight exists over the AI-enabled tools, chatbots, scheduling assistants, or back-office automation your practice already uses, and what your vendor’s contract actually says about that risk.

For a medical office, this question is not abstract. AI tools are increasingly built into patient intake, scheduling, transcription, and billing software. For any small business, it applies to whatever AI-enabled service touches client records, financial data, or other sensitive information, even indirectly.

How Can You Protect Your Business?

Inventory every vendor and software tool your business uses that incorporates AI, especially anything touching patient, client, financial, or employee data.
Confirm you have a signed BAA in place with any vendor that creates, receives, maintains, or transmits PHI on your behalf, if you are a covered entity or business associate.
Review vendor contracts for AI-specific language: does the agreement address autonomous system behavior, require prompt breach notification, and specify security obligations?
Ask vendors directly how they test AI systems for containment and what happens if a model exceeds its intended scope.
Confirm your incident response plan accounts for a scenario where a vendor, not your own systems, is the source of a breach.
Revisit your cyber insurance policy to confirm it covers incidents involving AI tools and third-party AI vendors, not just traditional data breaches.
Don’t assume silence means safety: build a contractual right to be notified of AI-related security incidents into your vendor agreements, since current AI safety-incident disclosure laws only cover the most catastrophic events and won’t necessarily surface a vendor’s close call.

The Bottom Line

The OpenAI–Hugging Face incident is a reminder that AI risk in 2026 is not just about what your business chooses to do with AI. It is also about what the AI systems inside your vendors’ infrastructure might do without anyone telling them to. If your practice or business has not reviewed its vendor agreements and incident response plan with that possibility in mind, now is a good time.

If you have questions about your vendor contracts, business associate agreements, or how a breach at a third-party AI vendor could affect your obligations, schedule a consult with us today.