Associate Jennifer Scott, in our Corporate & Commercial team, discusses the key takeaways for owner managed businesses and SMEs on the Government's recent Copyright and AI Report.
Artificial intelligence is no longer the preserve of large technology companies. Owner‑managed businesses and SMEs are increasingly using AI tools to generate marketing content, analyse data, design products, and automate everyday tasks. At the same time, many SMEs are themselves creators of valuable intellectual property; from written content, know-how and software to branding and training materials.
Against that backdrop, the UK Government’s long‑awaited Report on Copyright and Artificial Intelligence, published on 18 March 2026, is essential reading for any business using, developing or licensing AI in the UK. While the headline message is one of no immediate legislative reform, the report sets clear expectations that businesses should act responsibly now and be prepared for change.
What does the report mean in practice for owner-managed businesses and SMEs?
No sudden change in the law, but no “free pass” either
One of the most important outcomes of the report is confirmation that the government will not introduce new copyright legislation at this stage. Proposals allowing AI training on protected works under a copyright exception have been dropped for now, as the report states: ‘a broad copyright exception with opt-out is no longer the government’s preferred way forward’. This was due to the majority of respondents to the government’s consultation on copyright and AI rejecting this proposal.
For SMEs, this means:
- Existing copyright law continues to apply;
- Using copyright protected material to train AI systems without permission still carries legal risk; and
- Courts remain the primary forum for resolving disputes.
In other words, there is no sudden regulatory shock, but nor is there legal certainty. Businesses cannot assume that content found online is free to use for AI purposes simply because it is accessible and doing so risks litigation, as seen in the rise in disputes around AI use of protected works in the USA.
Licensing remains central, even for small businesses
The government’s report places strong emphasis on licensing as the preferred mechanism for balancing creators’ rights with AI innovation, while stopping short of intervening directly in the licensing market.
For SMEs, this cuts both ways.
If you own valuable content (for example training materials, specialist databases, images, videos, or software), licensing arrangements may become an increasingly important revenue stream as AI developers look for lawful data sources.
If you use AI tools, particularly bespoke or internally‑trained systems, you should assume that:
- Training data needs to be licensed unless a clear exception applies; and
- ‘Off‑the‑shelf’ AI tools should come with contractual assurances about lawful training.
The report also references the possible development of a ‘Creative Content Exchange’, designed to help rights holders and users license content more efficiently in future. While this remains conceptual, it signals the direction of travel.
Transparency and AI labelling expectations are rising
Although no new statutory transparency obligations have been introduced yet, the government is clear that greater transparency is expected, particularly around:
- What data is used to train AI systems (‘input transparency’); and
- Whether outputs are generated by AI (‘output labelling’).
For SMEs, this has practical implications:
- Businesses deploying AI‑generated content in marketing, client deliverables or internal tools should start thinking about clear labelling and factoring this into contracts;
- SMEs developing AI solutions may come under pressure from customers to explain training data sources; and
- Lack of transparency may increase reputational and contractual risk, even if legal enforcement lags behind at this stage.
In commercial terms, transparency is fast becoming a competitive differentiator, not just a regulatory concern. The report stated that there was a consensus amongst respondents in favour of labelling content that has been generated using AI and this could develop into an area of consumer rights as the report states how labelling can help people make informed choices.
The report also states that ‘our approach must promote clarity and enforcement for right holders, without disproportionate effects on AI development or deployment in the UK’. Time will tell whether the UK will adopt similar transparency regulations adopted by the EU and other countries.
Computer‑generated works: a shift in direction
A notable proposal in the report is the government’s intention to remove copyright protection for wholly computer‑generated works, while maintaining protection for works created with human involvement using AI assistance.
For owner‑managed businesses, this reinforces an important message, copyright is still about protecting human creativity. If your business relies on AI tools to generate content, designs or code, maintaining meaningful human input and oversight will be key to preserving intellectual property protection in future reforms.
Digital replicas and brand risk for SMEs
The report highlights growing concern around AI‑generated digital replicas, including realistic impersonations of individuals or brands, and confirms further work is underway, including consideration of new rights protections.
SMEs are often particularly vulnerable to:
- Brand impersonation using AI‑generated voices or images;
- Fake endorsements or misleading content; and
- Misuse of founders’ or directors’ likenesses.
Some legal protections have been introduced but the report concedes that these do not cover all situations where consent has not been sought in creating digital replicas. The report suggests this is an active policy area. SMEs should ensure brand protection strategies (trade marks, passing off, contractual controls) are robust in the meantime.
What should SMEs do now?
Although the government is ‘playing the long game’ on reform, the report is clear that businesses should not sit back and wait and there are clear areas of policy that are being considered.
Practical steps for owner‑managed businesses and SMEs include:
- Audit AI use: understand where and how AI tools are used in your business.
- Check contracts: ensure AI suppliers provide warranties on lawful training data.
- Protect your IP: monitor whether your content is being scraped or reused.
- Document human input: especially where AI is used to create protectable works.
- Plan for change: expect increased transparency, labelling and licensing expectations over time.
Final thoughts
For SMEs, the government’s March 2026 report offers stability rather than certainty. The absence of immediate reform avoids disruption, but the direction of travel is clear: responsible AI use, respect for copyright, and greater transparency will define best practice.
Owner‑managed businesses that engage with these issues early will be better placed to manage risk, unlock value from their intellectual property, and adopt AI confidently as the legal framework continues to evolve.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
