Understanding California’s AI Transparency Act: What You Need to Know Before 2026

Starting January 1, 2026, California’s AI Transparency Act (SB 942) will usher in a new era of legal guidelines governing the use of generative artificial intelligence in the United States. As the first law of its kind nationwide, it demands that companies developing generative AI systems for multimedia content provide built-in disclosures and detection tools. While the prospect of compliance may sound daunting, not every business will be impacted by this groundbreaking legislation.

Who Does the Law Affect?

To determine whether your organization falls under the purview of SB 942, three essential criteria come into play:

1. Generative AI Systems: Your organization must be developing a generative AI system capable of creating multimedia content, such as audio, video, or images. If your AI exclusively generates text, such as chatbots or email tools, it won’t be subject to this law.

2. Public Accessibility: The generative AI system must be publicly accessible from California. This means that even if the majority of your user base resides outside of California, as long as Californians can interact with your system, the law could apply to you.

3. User Threshold: Your system must attract over one million monthly users or visitors. If your audience is below this threshold, you are exempt from compliance requirements.

It’s essential to note that incidental access by Californians doesn’t give companies a "pass." Whether intentionally or unintentionally accessible, if your system meets these criteria, it’s wise to start preparing for compliance.

Why the Focus on Multimedia?

California’s AI Transparency Act specifically emphasizes multimedia due to the heightened risk of deception associated with formats like audio and video. With the rise of deepfake technology and hyper-realistic digital content, the potential for misinformation and manipulated media is significant. Systems that generate synthetic voices, deepfake videos, or realistic artworks pose particular risks, making compliance even more pressing for developers in this space.

Licensing Considerations

If your company licenses a generative AI system to others, you’ll need to ensure that contracts stipulate the preservation of watermarking features required by the law. If your licensees do not maintain these features, you are legally obligated to revoke their access within a tight window: 96 hours. This aspect places additional responsibility on those who either modify existing platforms or share their technology with third parties.

Detailed Disclosure Requirements

For companies caught by the law, specific disclosure standards must be adhered to:

• User Tool: You must provide a user-friendly, publicly available tool enabling users to check whether any multimedia content was generated by your system.

• Visible Labeling and Watermarks: The law mandates two forms of disclosure: a visible label that users can opt to include, and a hidden watermark embedded automatically within the generated content. This watermark should feature your company’s name, information about the AI system utilized, a timestamp of creation, and a unique identifier.

Enforcement Mechanisms

Unlike some privacy laws that might lack stringent penalties, SB 942 contains provisions that can have serious implications for noncompliance. Companies may face civil penalties of up to $5,000 per day for each violation. The enforcement of this law will be under the jurisdiction of the California Attorney General and local prosecutors. Notably, individuals cannot bring personal lawsuits under this law as there is no private right of action, meaning enforcement will be state-led.

Preparing for the Future

As the AI landscape evolves, businesses must be proactive about understanding their compliance obligations under SB 942. Should your company develop multimedia-generating AI tools with a significant user base in California, it’s essential to consider the necessary steps toward compliance. While those focused solely on text-based applications are currently in the clear, regulatory pressures across the country are shifting rapidly.

The AI Transparency Act is the first of many anticipated regulations aimed at governing artificial intelligence. By starting the conversation now and assessing the potential impacts of this law, you position your organization to navigate the complexities of AI regulation successfully. If there’s any ambiguity about your system’s classification or compliance obligations, now is the time to ask the crucial questions rather than waiting until the deadline approaches.