CALIFORNIA: An Introduction to Technology

Introduction

The technology sector continues to drive global economic growth, with AI at the forefront of innovation. AI’s rapid advancement has transformed it from a niche technology into a practical tool, reshaping business models, investment strategies and regulatory frameworks. Recent headline deals—such as Salesforce’s definitive agreement to acquire Informatica for USD8 billion and OpenAI’s USD6.5 billion purchase of Jony Ive’s hardware start-up io—demonstrate how deals are critical to the competitive AI landscape. This evolution has led to a surge in complex transactions and heightened legal considerations across industries, as well as fundamental questions about how AI will impact the practice of law.

AI-Driven Transactional Activity

The past year has seen a significant uptick in transactions involving AI developers and implementers. Companies are engaging in mergers and acquisitions, joint ventures, substantial financings and strategic collaborations to develop and integrate AI capabilities into their operations. These deals often involve interwoven, complex considerations, particularly around intellectual property rights, information technology and data security, as well as compliance with emerging regulations.

A notable development is the increasing demand for cloud-based AI infrastructure, driving a tidal wave of investment by incumbents, challengers and governments around the globe. The massive scale and cost of these transactions, as well as rapidly changing chip and networking technologies, present high-stakes challenges and opportunities through the supply chain. Legal practitioners in the space must develop and navigate complex contractual structures to enable fast-paced deployments, while balancing risks.

Regulatory and Commercial Trends Shaping the Market

Companies today must make strategic decisions on AI against the backdrop of rapid evolution on several levels: regulation, technology and product-market fit, in each case overlaid by increasingly impactful geopolitical considerations.

Regulation

The EU’s AI Act, adopted in 2024, sets risk-tiered obligations and multimillion-euro fines, reflecting Europe’s consumer-protection ethos. By contrast, the United States has generally emphasized competitiveness and sector-specific oversight. Certain states have passed AI laws in the federal vacuum, including Colorado’s comprehensive AI accountability law, which is due to take effect in 2026. Meanwhile, Congress is considering a moratorium on new state AI statutes, alongside more than a dozen draft federal AI bills that vary widely in scope and approach, none of which have yet gained clear legislative traction. Navigating this complex patchwork already significantly shapes deal certainty, compliance, risk allocation and diligence in domestic deals.

Technology

Model architectures and applications—both proprietary and open source—are evolving rapidly, forcing parties to accommodate ever-changing technological and commercial structures into their business models, technology stacks and agreements.

Market

New use cases are emerging constantly. While corporate senior leadership teams are demanding companies adopt AI for efficiency, cost savings and growth opportunities, companies are intensely evaluating use cases to capture and maintain market share and market-fit of new solutions.

Geopolitics

Governments now widely view AI as a competitive asset not just for the private sector, but at a geopolitical and military level. The U.S. is working to develop rules for the export of GPUs used to train advanced AI models, while countries around the world are evaluating “sovereign” infrastructure and AI solutions.

M&A and Joint-Venture Trends

Those powerful, combined forces have driven technology-intensive transactions of all types to meet the range of strategic needs. These include joint ventures and other collaborative arrangements, investments, M&A, licenses, and strategic supply arrangements.

Investment activity has remained robust in AI-driven M&A and strategic alliances. Dealmakers have used milestone-based earn-outs and staged-equity structures to manage those forces, and to reconcile valuation gaps—for example, Amazon’s staged USD8 billion investment in Anthropic via successive convertible-note tranches that convert into equity, and a growing number of mid-market SaaS acquisitions where up to 25% of consideration is deferred to post-closing annual recurring revenue or feature-delivery milestones.

Sector-Specific AI Adoption and Industry Dynamics

Significant use of AI is not confined to the technology sector; it is reshaping operations and strategy across virtually every industry, from finance and life sciences to retail, energy, logistics, and professional services. Each sector presents unique use cases, infrastructure needs and legal and regulatory regimes.

Finance and fintech

Financial institutions are embedding AI across fraud detection, underwriting, risk modeling, and personalized financial products. These use cases intersect with stringent regulatory frameworks, including the Gramm-Leach-Bliley Act, SEC and Commodity Futures Trading Commission oversight, bank supervisory guidance, and emerging guidance on model governance and explainability.

Life sciences

In healthcare systems, pharma and medtech, AI is powering diagnostics, clinical trial support, patient engagement, electronic health records, genomics research and drug development. But these innovations raise high-stakes regulatory questions, including:

• the FDA’s evolving approach to AI/machine learning-based software as a medical device (SaMD);
• the DOJ’s new data rule restricting bulk transfer of sensitive data;
• compliance with the Health Insurance Portability and Accountability Act for training datasets; and
• state-level privacy constraints.

Consumer products and retail

Companies are adopting AI for customer-service automation, inventory optimization, marketing personalization, and virtual try-ons. Many of these use cases implicate state privacy laws, biometrics statutes (such as Illinois’ Biometric Information Privacy Act) and algorithmic transparency obligations (such as via California’s proposed Assembly Bill 2930).

Counsel must understand the sector-specific dynamics of AI deployment to provide effective, forward-looking advice.

Implications for the Legal Market

The rapidly evolving AI landscape continues to shape legal practice, influencing how firms approach technology-related transactions. Complexities surrounding AI-generated technology and the use of expansive datasets that enable these systems are reshaping standard contractual frameworks, pushing transactional lawyers to develop innovative solutions tailored to AI’s particular operational, ethical and legal risks.

Moreover, the challenge of ensuring compliance with increasingly stringent global privacy regulations, such as GDPR and various U.S. state privacy laws, has elevated data-governance and privacy expertise to central positions within transactional teams. This trend underscores the necessity for integrated legal teams proficient across technology transactions, data protection, and cybersecurity.

Market attention has also intensified regarding liabilities associated with AI agents and autonomous AI systems. Considerations surrounding risk allocation and governance structures have become critical elements in joint ventures, strategic partnerships and transactional negotiations, reinforcing the importance of strategic legal counsel able to foresee and address these emerging issues.

As AI tools become more capable, including by automating document review, surfacing contract anomalies and drafting first-pass agreements, practitioners and clients alike will navigate a legal-services landscape that is being reshaped in real time.

Market Outlook and Strategic Legal Counsel

Looking ahead, transactional activity in the technology practice, particularly centered on AI and related infrastructure, is expected to remain vibrant and strategically critical. However, evolving regulatory developments, continued economic volatility and enhanced antitrust oversight will shape the transactional landscape, placing a premium on sophisticated, multidisciplinary legal guidance. As practitioners, we have been designing our practice to implement these multidisciplinary capabilities and believe the challenges and opportunities will continue to develop rapidly in tandem, requiring counsel that can bridge technology, regulation and corporate strategy.