Dr. Karl Michael Popp
M&A, Business Models, platforms and ecosystems in the software industry

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Can ChatGPT Simplify Legal Due Diligence? (Copy)

Legal due diligence is the process of evaluating a business before a merger or acquisition. It is a critical step in ensuring that the buyer understands the legal liabilities associated with the target company. However, this process can be time-consuming and complex.

ChatGPT is an artificial intelligence chatbot that specializes in legal research. It can provide quick and accurate answers to questions, saving time and resources. But can it answer legal questions like asking for critical clauses in license contracts?

Let´s try it

which clauses are critical in GNU LESSER GENERAL PUBLIC LICENSE Version 3, 29 June 2007? (i added the license text, not reproduced here)

the answer was:

The critical clauses in this license are as follows:
  • The license is the GNU Lesser General Public License, version 3.
  • Everyone is permitted to copy and distribute verbatim copies of the license document, but changing it is not allowed.
  • The license incorporates the terms and conditions of version 3 of the GNU General Public License, supplemented by additional permissions listed below.
  • The license defines several terms, including "this License," "GNU GPL," "The Library," "Application," and "Combined Work."
  • Section 1 provides an exception to Section 3 of the GNU GPL, allowing covered works to be conveyed without being bound by Section 3.
  • Section 2 describes the conditions under which modified versions of the Library may be conveyed.
  • Section 3 allows the object code form of an Application to incorporate material from a header file that is part of the Library, under certain conditions.
  • Section 4 describes the conditions under which Combined Works may be conveyed, including the requirement to give prominent notice with each copy that the Library is used in it and that the Library and its use are covered by this License, and the requirement to provide Installation Information under certain conditions.

You could argue that comments in this statements are correct, but what is missing is flagging the copy-left effect of the license, which is critical for commercial use of LGPL licensed code. Overall, this is a very shallow analysis of the license terms.

So, when it comes to due diligence, ChatGPT cannot really help. The only thing you get is a shallow summary of the terms. There are other ML-based tools, some are part of data room functionality, which can do a better job for legal purposes.

In summary, legal due diligence is a crucial step in any merger or acquisition. However, it can be difficult and time-consuming. ChatGPT can only provide very limited help here. More sophisticated tools are available and should be used.

digitalmandaKarl Poppdigitalmanda, acquisitions, M&A, processes, merger, chatgpt, legal, law