AI Watermarking: Key Updates on New Transparency Rules

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Updated on October 9, 2026, in light of the passage of SB 1000: California AI Transparency Act.

As generative artificial intelligence (AI) continues to advance, it’s becoming increasingly difficult to distinguish human-created content from AI-generated material. In turn, regulators are requiring certain AI systems to disclose where and how content is created. 

Two important examples are the European Union’s AI Act and California’s AI Transparency Act. While both of these laws address AI-generated content, neither requires businesses to use the same type of disclosure in every situation. Instead, the rules distinguish between different forms of transparency, including machine-readable markings that may not be visible to the human eye. These requirements may apply to both the provider of the AI system and the deployer, or the entity that makes the AI available to consumers.

The laws are falling into place, but how do they work in practice? For businesses developing or using generative AI, the challenge is not only whether AI-generated content should be watermarked, but how different types of media should carry that watermark. 

The EU AI Act 

Transparency requirements under Article 50 of the EU AI Act became generally applicable on August 2, 2026, with a grace period until December 2, 2026, for certain products that were already on the market as of August 2, 2026. 

Among other requirements, providers of AI systems that generate synthetic text, images, audio or video must generally ensure that the output can be detected as artificially generated or manipulated. This may include machine-readable markings built into the content rather than displayed as a visible layer. 

The AI Act also creates separate disclosure requirements for certain users of AI-generated content. For example, deepfakes generally must be clearly disclosed as AI-generated or manipulated; AI-generated or manipulated text about matters of public interest may also require disclosure when it is published without human review. 

While the law provides the end goal, it does not necessarily define how to achieve it. For example, the EU AI Act was accompanied by the Guidelines on Transparency Obligations for Providers and Deployers of Certain AI Systems. These guidelines provide definitions and explain how compliance with the AI Act’s transparency obligations may be demonstrated. But still, these guidelines defer to “providers and deployers [who] can determine adequate measures themselves, while taking into account these guidelines.” In short, this means the EU AI Act sets the standard but leaves the means of meeting it to the AI provider or deployer. 

This means AI transparency can look different, both because of the media involved and because the provider or deployer can determine how best to meet these transparency standards. For example, a machine-readable watermark may help technology detect that AI was involved, while a visible or audible disclosure is meant to inform the person viewing or interacting with the content that it was AI- generated or altered. But the form and format of these transparency measures may largely be subject to the organisation’s discretion. 

The California AI Transparency Act 

California has also adopted AI-content transparency requirements through the California AI Transparency Act, which was originally enacted through SB 942 and amended through AB 853 (which went into effect on August 2, 2026) and SB 1000 (which went into effect on September 30, 2026). Among other things, the California AI Transparency Act has a requirement for 1) a disclosure verification tool, and 2) disclosures within the AI-generated media.

What is the disclosure verification tool?

The law generally requires “covered providers” – defined as any person who produces a generative AI system publicly accessibly within the geographic boundaries of California – to make a disclosure verification tool available.

This tool should be publicly accessible and allow a user to assess if an image, video or audio content (or any combination) was created or altered by a covered provider’s generative AI system. There is an exception for minor modifications of media.

The tool should also provide any “provenance data” detected in the media. This includes information “about the origin of a piece of digital content and the history of modifications of the content.”

Notably, a covered provider may satisfy the requirements regarding the tool by directing a user to a third-party tool, provided the covered provider gives certain disclosures, and the third-party tool meets certain standards.  

What disclosures does the verification tool detect? To effectuate the purpose of the disclosure verification tool, the Act requires disclosures to be included in any image, video or audio content created by the covered provider’s generative AI system, with exceptions for minor modifications.

The California AI Transparency Act distinguishes between two different types of disclosures: latent and manifest. A latent disclosure is built into the content, but it’s not readily visible to the average person. A manifest disclosure is one that a layperson can more easily see and understand. 

Per SB 1000, the latent disclosure must include certain information, including but not limited to the name or the covered provider, the generative AI system that created or altered the content, and the time and date of the creation or alteration of the content.

There are additional compliance requirements for coved providers who license generative AI systems to licensees of those systems.

Through the implementation and subsequent amendments of the California AI Transparency Act, it is evident that California’s requirements are also rapidly evolving. Businesses subject to the law may need to monitor legislative changes as lawmakers revisit how disclosure and detection measures are required under the law.

What does AI watermarking look like? 

Anthropic’s recent changes to Claude provide one example of how companies may approach these requirements. 

In August 2026, Anthropic announced that the new Claude models would include machine-readable markings in response to the EU AI Act and other similar legislative requirements. For generated text, Claude uses an imperceptible watermark based on patterns in how the model selects words. According to Anthropic’s press release, the watermark is not a visible or hidden set of characters and does not identify the person or company who generated the content. 

However, these tools are far from perfect. Anthropic explains that a text watermark can disappear or weaken; they describe it as not “foolproof” if content is heavily rewritten, translated or combined with other materials. File-based provenance information can also get lost if files are converted, resaved or captured by screenshot. 

This means that businesses should not treat watermarking as a perfect way to determine whether something was created by AI. Instead, it may be one tool to provide more information about where content came from and whether AI was involved. 

Can EU rules affect U.S. businesses? 

United States companies may also feel the effects of the EU AI Act even when a particular use of an AI product occurs outside Europe. 

For a company operating in multiple countries, creating different versions of the same product for each jurisdiction can become expensive and technically complicated. A business may instead choose and decide to build one version that satisfies the strictest applicable requirements and use that version more broadly.

For example, Anthropic has said that although its Claude watermarking changes were driven by the EU AI Act, it is applying them globally rather than limiting them to European users. 

This can create a spillover, where a law passed in one jurisdiction changes how an AI product operates for users everywhere else.  Similar regulatory concepts are also appearing in U.S. state AI laws. California and other states have adopted requirements involving transparency, disclosures, and AI governance that overlap with themes found in the EU AI Act, even though the laws differ in their scope and specific requirements.

As AI regulations continue to develop across different jurisdictions, companies may consider whether maintaining different disclosure mechanisms per jurisdiction makes sense. Alternatively, companies may comply with the most stringent regulations across all markets, setting a higher standard of compliance across the board. 

What should businesses take away?

Businesses do not necessarily need to approach every type of AI generated content in the same way. However, companies developing or using generative AI may want to review how their systems identify AI generated content, and whether their disclosure practices meet the requirements that might apply to them. Some steps businesses may want to consider include:

  • Identifying what types of AI-generated content the business uses or provides to consumers, including text, images, audio and video. 
  • Determining whether applicable laws require machine-readable markings or visible disclosures.
  • Understanding how watermarks or provenance information may change if content is edited or redistributed. 
  • Checking if AI-generated content from outside vendors keeps its watermark or disclosure when the business edits, downloads, or republishes it into another product. 
  • Considering whether maintaining different product versions across jurisdictions is practical.
  • Monitoring United States, EU, and other developing AI transparency requirements and laws. 

AI watermarking is still rapidly developing both technically and legally. Businesses do not necessarily need to treat every AI-generated output the same way, but they may need to increasingly understand when AI-generated content should be identified and whether their current systems can provide that transparency. For businesses using AI-generated content in marketing, customer communications, and other business activities, understanding when and how that content must be identified can help reduce compliance risks as these rules continue to develop 

AI Price Fixing and Discrimination with Recommendations for Retailers

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Next year will likely bring more lawmaking surrounding artificial intelligence algorithms used to set consumer pricing. Two themes are emerging: price fixing and price discrimination.

AI price fixing uses algorithms to coordinate pricing, which is raising increased scrutiny in the U.S. and Europe. Companies provide competitively sensitive data to third-party providers that analyze it to recommend prices for participating companies, leading to artificially inflated prices and reducing competition.

After over a year of litigation, the Department of Justice (DOJ) recently filed a proposed settlement with a revenue management software company, related to its algorithmic rental pricing software. State AGs continue to litigate against participating companies, and lawmakers have introduced bills to ban algorithmic price fixing. California has passed laws to restrict the use of common pricing algorithms, and regulators in the EU and UK are also focusing on algorithmic collusion. 

Regulation challenges include the argument that antitrust laws may have loopholes that make AI-driven pricing hard to prosecute; distinguishing collusion from companies’ legitimate responses to market conditions; and AI complexities creating difficulty proving violations.

AI price discrimination uses algorithms to set personalized prices for products or services based on the individual consumer’s behavior, demographics or perceived willingness to pay. The process is often hidden, making it hard to know who pays what. That raises fairness concerns (algorithms might exploit vulnerable groups and charge them more), prompting legal scrutiny and proposed regulations. 

The FTC is investigating AI’s role in price discrimination, while recently passed regulations and laws in California aim to ban using personal data for discriminatory pricing or make it easier to sue over algorithmic pricing. New York has enacted several price discrimination laws requiring algorithmic pricing disclosure and prohibiting gender-based pricing. 

Recommendations for retailers

While it is perfectly legal to test prices and adjust them to market conditions, retailers should be careful when reviewing and adopting AI pricing tools. The recent proposed settlement from the DOJ highlights some best practices for using these tools: 

  • Confirm that the AI tools train on publicly available pricing data or aggregated data, not the non-public and sensitive pricing strategies of competitors. 
  • Ensure that the AI tools allow prices to be lowered as well as increased within user-defined price ranges. 
  • Keep humans in the loop and check that users can reject or override price suggestions. 

In addition, businesses may consider the following best practices to lessen the risks of allegations of unlawful AI price discrimination:

  • The AI tools should not adjust pricing dynamically based on consumer profiles or other sensitive personal information (e.g., veteran status, religious beliefs, health condition). 
  • If the AI tool adjusts pricing based on location, retailers should confirm that this reflects legitimate market conditions and business concerns, rather than historic bias. 
  • Confirm that the AI tool uses de-identified and/or aggregated data, both to train its models and during deployment, so information is not linkable to an individual. 

Shadow AI: How Can Companies Protect Against Unknown Uses?

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Employees don’t always wait for their employers to approve new technology. This could be using a personal chatbot account to summarize a document, installing an AI browser extension, uploading information into an AI analysis tool or using an AI feature built into software without their employer knowing about it. This practice is often referred to as “shadow AI.”

Shadow AI is typically not malicious. Often, it’s the result of employees wanting to work more efficiently, or as a result of unclear AI use policies. However, shadow AI can create security and confidentiality issues. If employees send personal or company information into an AI system that has not been reviewed, the business may not have an accurate picture of where its information is going, how it’s being used, or for how long it is being stored. 

What does shadow AI look like?

Shadow AI could include any number of unapproved AI tools used for work purposes. For example, an employee may paste customer information into an LLM to create a summary, upload internal presentation information for editing or use an AI tool to analyze a spreadsheet. 

The problem is that using shadow AI can result in company information being sent to a third-party provider that the original company may not know about. By hiding in the “shadows,” employees who use AI tools in this way can create governance gaps. Without proper review of the AI tools being used by its employees, a company may not know what information is being provided, how long it will be retained for, who can access it or whether the vendor can use it for other purposes, like training its own systems. 

How can companies address employee AI usage?

Company AI policies can bring clarity to issues surrounding shadow AI. 

By addressing what kinds of technologies may be used, these policies can explain which AI tools are approved, what information employees may enter into those tools, and when a new AI tool or use requires review. In general, companies drafting these policies may want to specifically and clearly state what information may and may not be used. For example, a general policy telling employees to use AI responsibly may not provide enough guidance when someone is deciding whether to upload a confidential document or customer data into a new tool. 

These policies should also be communicated clearly. Without understanding the policies that a company has in place, employees may inadvertently engage in shadow AI use. With clarity on approved tools, uses, and inputs, an effective employee AI use policy could lower these risks. Within this policy, a company may may consider creating a process to request new AI tools. This way, relevant business teams can review any AI tools and uses before company information is provided.  

What should businesses take away?

Businesses do not necessarily need to prohibit AI use. However, companies may consider reviewing which tools employees are using and what information is being provided to them. Some steps companies may consider in this review process include, but are not limited to: 

  • Identifying AI tools employees are actually using, including personal accounts, browser extensions and AI features within existing software.
  • Explaining which tools are approved, restricted or prohibited and what information employees may enter.
  • Considering privacy, confidentiality, retention, deletion and AI-training terms with vendors.
  • Determining whether AI uses involve processing that requires a CCPA risk assessment or updates to privacy documentation.
  • Establishing rules preventing employees from providing sensitive company information to unapproved AI tools.
  • Giving employees a clear way to request new AI tools before using them for company work.

While AI in the workplace may boost efficiency, it may also create risk if the company is not aware of it. By providing employees with guidance on AI, businesses may be able to reduce the risks of shadow AI. 

AI Notetakers: Key Takeaways for Recording Calls

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Use of AI notetakers is quickly becoming routine. These tools can automatically join video calls, listen to conversations, generate transcripts, create summaries, and identify key points in a meeting. 

While these tools have an argument for efficiency, they also create legal, privacy, and confidentiality risks. 

This issue is a lot more complicated than simply asking participants of a meeting for their consent to be “recorded.”  This is because recording, transcription, and AI processing are separate activities – and each may have its own notice and consent requirements.

As a result, businesses using these tools need to understand both what is happening during the meeting and what happens to the information after the meeting has ended.

What are AI notetakers?

An AI notetaker is a tool that captures meeting content and uses artificial intelligence to create transcriptions, summaries, action items, and log other important meeting records. Most operate as a bot that joins a video conference meeting as an additional participant. 

Many AI notetakers process information from meetings through cloud-based services rather than keeping the conversation only on an employee’s local computer. Depending on the provider, the service may receive audio transcripts and other meeting information and then use an AI system to analyze and summarize the dialogue. This means meeting content may be transferred outside of the company’s own system and processed or stored by a third-party provider, which may have privacy and data-sharing implications. 

Why do recording and consent laws matter?

Recording laws differ across the United States. Some states generally follow a one-party consent approach, meaning the consent of one participant is sufficient to record a conversation.  However, other states follow an all-party consent approach, sometimes referred to as “two-party consent” which generally requires the consent of everyone involved in a conversation for recording. The specific details and exceptions vary by jurisdiction. 

What actually counts as consent?

Sometimes consent can be more complicated than just simply displaying a recording symbol. Video-conference platforms may use different methods to alert participants when recording a meeting begins: a pop-up requiring participants to acknowledge the recording, an audible announcement, a banner or an icon that’s displayed during the meeting, some hosts may also require verbal consent.

But notice and consent are not always the same thing and what constitutes legally sufficient consent can depend on the applicable law and the circumstances at hand.

What happens to meeting information after the call?

Once an AI notetaker has captured a meeting, businesses should understand what rights the provider has over that information. Vendor terms can address data ownership, licensing, data retention, and whether information may be used to develop or improve the provider’s service. 

This becomes especially important as ordinary workplace conversations frequently include information that employees may not intentionally send to a third party: customer information, personnel issues, financial projections, internal strategy, product development and many other confidential materials may all be discussed while the AI notetaker captures the conversation. 

The transcription or summary can also create additional security concerns once the meeting ends. For example, automatically generated notes may be distributed via email, downloaded, forwarded and stored in employee accounts long after an original conversation has occurred. Meeting summaries create additional opportunities for sensitive information to spread or remain stored indefinitely. 

Businesses should therefore review not only what the tool captures but also who receives the resulting transcript, where it is stored, how long it is retained and who has the ability to delete it.

What about attorney-client privilege?

Adding an AI notetaker to a legal discussion can create questions about whether confidentiality has been maintained, and depending on the circumstances, whether privilege could be challenged or waived. You can read more updates from Federal District Courts on the issue here. 

This does not mean that all use of technology during a legal meeting automatically destroys attorney-client privilege. Whether privilege is affected may depend on the circumstances such as how the AI provider handles information and why the tool is being used. Therefore, businesses should be more cautious about allowing AI notetakers into meetings that involve legal advice or other professionally protected information. 

The same concern applies to trade secrets and other confidential business information. Meetings involving sensitive product plans or internal strategies and other proprietary information may not be appropriate for AI transcription unless the tool and its data practices have been reviewed carefully. 

What should businesses take away?

AI notetakers can be useful workplace tools, but businesses should have clear policies in place before employees begin using them regularly. Below are some high-level tips that businesses may want to consider when onboarding a new AI notetaker: 

  • Approve specific tools: Employees should know which AI notetakers are permitted and how those tools record, transcribe, store and process meeting information.
  • Create clear notice and consent procedures: Businesses may consider the laws that may apply to meeting participants and make sure notices accurately reflect how AI is being used.
  • Limit use in sensitive meetings: Legal, HR, disciplinary investigation and other confidential discussions may require additional approval or no AI notetaker at all.
  • Review vendor data practices: Companies should understand how meeting information is used, stored, retained and deleted, including whether it may be used to train or improve AI systems.
  • Set rules for transcripts and summaries: Businesses may want to determine who can access or share AI-generated notes, how long they are kept and whether they are treated as official company records.

Healthcare AI data breaches: Why companies need to protect more than patient records

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Healthcare and life science companies are not only protecting traditional patient records – things like names, diagnoses, treatment notes, lab results, and insurance information. They may also be protecting clinical trial data, research data, vendor systems, proprietary models, and other information used to support patients and drug development. When these companies and systems are involved in data breaches, the legal risks can become broader than a standard data breach. 

A useful example is the recent Novo Nordisk incident. Novo Nordisk is the pharmaceutical company that makes drugs such as Ozempic and Wegovy and recently disclosed a cyber incident involving patient data from clinical trials. It has also been reported that a hacking group claimed to have stolen over a terabyte of data and attempted to extort the company, though Novo Nordisk has not confirmed the entire scope of those claims. 

The Novo Nordisk incident shows that healthcare breaches can involve more than names and medical records. Companies also need to consider whether a cyber incident involves clinical trial information, healthcare provider data, research files, AI model information, or other confidential business materials. When this type of data is involved, companies may need to take precautions to protect the data, document their response, and comply with applicable privacy and cybersecurity obligations.

Recent health-related breaches also highlight how these incidents create major legal and business consequences. The Change Healthcare cyberattack that occurred in 2024 shows the scale of healthcare cybersecurity risks with reports that 197.2 million individuals were impacted by this breach. For scale, 197.2 million people would be more than half of Americans. The 23andMe breach also highlights the litigation risks tied to sensitive genetic information, with a bankruptcy judge approving a $46.75 million settlement for victims in the breach. While the facts of these examples differ, they all highlight why companies handling health-related data need to treat cybersecurity, AI governance and breach response as connected compliance and a priority in business practices. 

Why are AI-related healthcare breaches unique?

A standard healthcare breach analysis often focuses on whether names, medical records, insurance information, or other identifiable patient information was exposed. These concerns are highly important and sensitive. But as artificial intelligence becomes more integrated into healthcare, it creates additional risks because AI tools rely on large volumes of sensitive data that may also be tied to valuable research and business information.

For example, an AI model used in drug development may involve clinical trial data, molecular research, imaging data, prompts, outputs and other model training information. If these systems are accessed by an unauthorized actor, the incident may raise privacy concerns and may also create IP and competitive risks. 

This means healthcare AI security should not only focus on protecting patient records. Companies should also consider whether their AI models, training datasets, research systems, and vendor environments are adequately secured.

Why does de-identification matter?

De-identification can be key when healthcare data is used with AI. In simple terms, de-identification means removing information that could identify a person up to a certain legal standard. This matters because companies may want to use patient data or clinical data to train, test or improve their models. 

If health data is properly de-identified before being used with AI, the company may reduce privacy risks. However, if the data is not properly de-identified, several questions remain. The company may need to ask whether its privacy notices clearly explained that health data could be used for AI training or analysis. State privacy laws may also require clear disclosures about how personal information is collected and used. For example, California’s CCPA requires covered businesses to provide notice about the categories of personal information collected and the purposes for which that information is collected or used. This is especially important when health-related data is later used in a way that patients or consumers may not have expected. 

The company may also need to consider whether protected health information was shared with an outside AI vendor, whether a business associate agreement was required, and whether patient authorization was needed.

What happens if PHI may have been compromised? 

Breach response is also an important issue. If a healthcare company experiences a ransomware attack or an unauthorized access incident, they may need to assess whether protected health information (PHI) was compromised, This may include reviewing what information was involved, whether it could identify an individual, who accessed it, whether it was viewed or acquired and if the risk was mitigated or not.

The Novo Nordisk incident highlights why this analysis matters. Novo Nordisk stated that the clinical trial information involved was not directly linked to patient names or other direct identifiers. However, the incident still raised questions about patient-related data, de-identification, and whether any protected health information may have been compromised. This is why companies should be able to document how health-related data was stored, protected, and separated from information that could identify individuals.

What should companies take away? 

For healthcare and life science-related companies, the key takeaway is that AI governance should include privacy and cybersecurity from the start. Before using health-related data with AI, companies should ask:

  • What data goes into the AI system?
  • Is the data identifiable or properly de-identified?
  • Who can access the data, prompts, outputs, or model?
  • Are outside vendors involved?
  • Can the vendor use the data to train or improve its own models?
  • What security controls apply if the system is breached?

Companies should also treat AI models, training datasets, prompts, outputs, and research tools as sensitive assets as well since they can carry PHI and may lead to inadvertent disclosures. Vendor contracts should address confidentiality, data retention, security controls and model training. 

AI may help healthcare and life science companies innovate and operate faster, but innovation cannot replace privacy and regulatory accountability. Companies using AI with health-related data need to confirm de-identification practices, strengthen vendor contracts, and properly prepare for responses before incidents occur.

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