The chess match continues. Disney, Universal City Studios, and Warner Brothers filed their answer to the counterclaims raised by defendant Nanoble, provider of Hailuo AI generator.
Nanoble’s Counterclaims v. Movie Studios
Nanoble filed a counterclaim against the movie studios alleging that they violated the Terms of Use of Hailuo AI in generating the allegedly infringing examples of their copyrighted characters included in the studios’ complaint.
This strategy showed some real creative lawyering by Nanoble’s lawyers from Quinn Emanuel. The counterclaim was a first, to my knowledge, in the copyright litigation against AI companies.
Since Hailuo AI’s Terms of Use require a violator to indemnify the company for any resulting liability from the violator’s conduct, the U.S. movie studios would have to indemnify and pay any damages awards resulting from their violation of the Terms of Use. (Yes, indeed, it would be a pretty unusual scenario in which the studios might end up even losing money if they won their copyright lawsuit.)
Here’s what Nanoble’s counterclaims argue: “The Terms impose obligations on all users, including that their prompts and resulting outputs must not infringe intellectual property rights, violate the legal rights of others, contain material that could give rise to civil liability, or violate applicable law. The Terms also prohibit conduct that ‘may harm the Company . . . or expose [it] to liability,’ and require each user to ‘defend, indemnify, and hold harmless’ Nanonoble against any claim ‘arising out of or relating to’ the user’s use of the tool, including prompts, outputs, and information obtained through the tool.” (emphasis added)
The Movie Studios’ Answer
Throughout their Answer, the movie studios repeatedly state: “Plaintiffs deny that the Terms of Use are enforceable here.” The movie studios’ arguments of unenforceability appear to rest on a host of various of defenses they raise, including the following:
The sheer number of defenses the movie studios have raised to invalidate the Terms of Use provisions being invoked by Nanoble indicate, to me, Nanoble’s counterclaims are not to be taken lightly.
The movie studios have to thread the needle if they use the allegedly infringing examples they themselves generated using potentially adversarial techniques on Hailuo AI in alleged violation of Hailuo AI’s Terms of Use. For simplicity, let’s call these AI outputs the “Copyright Holders’ investigatory outputs,” versus outputs that regular users of Hailuo AI generated “in the wild” (a term I borrow from the UK case Getty Images v. Stability AI) or real world usage.
The movie studios potentially seek to simultaneously (i) submit the Copyright Holders’ investigatory outputs as evidence of copyright infringement while (ii) avoiding or voiding the Terms of Use of Hailuo AI, which prohibits infringing and illegal uses of the service, including:
- Infringe any patent, trademark, trade secret, copyright, or other intellectual property or other rights of any other person.
- Violate the legal rights (including the rights of publicity and privacy) of others or contain any material that could give rise to any civil or criminal liability under applicable laws or regulations or that otherwise may be in conflict with these Terms of Use and our Privacy Policy.
The movie studios could have just argued the Copyright Holders’ investigatory outputs are fair uses under the long line of precedent recognizing that the use of copyrighted work for an evidentiary purpose in litigation is fair use. See Jartech, Inc. v. Clancy, 666 F.2d 403, 406-07 (9th Cir. 1982). But arguing fair use in Copyright Holders’ investigatory outputs might have created a tension with using those outputs as evidence of infringement in its case against Nanoble. So would arguing that the Copyright Holders cannot infringe their own copyrights in generating allegedly infringing outputs. (A part of their Answer suggests that they may be arguing that the infringement occurs before the investigator has generated the output.)
(*For the purpose of this analysis, I assume a copyright holder’s own investigatory outputs can be probative of infringement, but also recognize that one court in the UK has called into question how probative they are versus real-world uses of the AI generator by users. The former probably depends on if the copyright holder’s investigator used adversarial techniques instead of normal uses of the AI generator.)
Forgoing fair use, the movie studios were then left with the only option of attacking the validity of the Terms of Use of Hailuo AI.
It’s not everyday that movie studios seek to invalidate terms of use, given their own interest in the enforceability of such terms for their own services. But, in this case, they made an exception.
DOWNLOAD DISNEY’S ANSWER TO COUNTERCLAIM