Big Story: Federal court backs fair use in AI copyright case
A new ruling from a federal court should pave an easier and more certain path forward for AI startups using large training datasets that may include copyrighted content. This week, a federal judge in the Northern District of California ruled that Anthropic’s use of copyrighted content to train its AI models is protected under fair use. The ruling is one in a long list of lawsuits against AI companies for alleged copyright infringement and is likely to influence how other courts approach claims of copyright infringement against AI developers.
In his ruling, Judge William Alsup answers several questions about whether using copyrighted content in AI training data satisfies the copyright law requirements to be protected by fair use, including whether that use is “transformative.” Alsup wrote that training AI models is “among the most transformative many of us will see in our lifetimes,” noting that AI models do not memorize or directly reproduce books but instead learn patterns similar to how humans do. Addressing another key fair use factor of market effect, Judge Alsup rejects the notions raised in the Copyright Office’s draft report on generative AI training that a surge in AI-generated content diminishes the value of original works and that licensing regimes is the solution for regulating AI development.
The ruling has already been referenced in a separate copyright case against Meta, where the court acknowledged the Anthropic decision but left the door open for different outcomes when assessing market effects. While the outcome of the Anthropic case is a win for innovation and should help other courts as they consider infringement claims, getting to the conclusion of a lawsuit like this is time-consuming and expensive, something most startups can’t afford. At the same time, startups are also least equipped—especially compared to large competitors—to identify any potential rightsholders related to individual pieces of content in their vast training data sets and to navigate complex and expensive licensing regimes. This week’s ruling is an important step to defend a balanced intellectual property framework that promotes innovation and competition in AI.
Policy Roundup:
Join us in celebrating Patent Quality Week! The U.S. patent system impacts all innovators, regardless of whether they have or plan to pursue a patent. The entire innovation ecosystem—from startups and large technology companies to retailers, manufacturers, pharmaceutical firms, and financial service providers—are stakeholders in our intellectual property system. With the U.S. Patent and Trademark Office (PTO) preparing to welcome a new director, advocating for a balanced approach that supports and defends high-quality patents is more important than ever, especially amid recent policy changes and PTO reforms. During our annual Patent Quality Week, we’re exploring how high-quality patents help companies bring new ideas to market, while low-quality patents enable bad actors to block innovation, limit competition, and restrict access.
What the Senate’s sweeping tax package means for startups. Last week, the Senate Finance Committee released its version of a sweeping tax code rewrite—which moves through the reconciliation process—that includes measures to support innovation, help startups attract talent, and expand investment opportunities. In a new blog post, Engine explored how the bill would restore immediate expensing of domestic R&D, expand investor and early-employee incentives like Qualified Small Business Stock, and provide support for entrepreneurs through Opportunity Zones, and the Child Tax Credit.
Supreme Court upholds broadband affordability program’s constitutionality. In a 6-3 decision issued Friday, the Supreme Court upheld the constitutionality of the Federal Communications Commission's (FCC) Universal Service Fund, a critical broadband affordability program that supports Internet access for low-income households, rural areas, schools, and libraries. The ruling affirms the FCC’s authority to collect and administer funds to close the digital divide. For startups, and their users, especially those in underserved areas, the decision protects access to affordable, reliable broadband.
House passes capital access bills. This week, the House passed a wide range of bills aimed at improving access to capital, including the Helping Angels Lead Our Start-Ups Act and the Fair Investment Opportunities for Professional Experts Act. Engine has long supported efforts to expand the definition of “accredited investor”—which currently limits who can invest in early-stage companies—and to clarify demo day participant rules, two key changes that would provide opportunities for more early-stage investment.
Senate committee moves bill undermining certainty and incenting age verification. The Senate Committee on Commerce, Science, and Transportation advanced the Children and Teens’ Online Privacy Protection Act out of committee on Thursday without addressing startups’ concerns about costly age verification they’d likely do to comply. In a letter this week, Engine warned that replacing the clear “actual knowledge” standard with a vague “fairly implied” threshold would, in practice, push startups to collect more data to assess user age, rely on expensive third-party tools, and face higher compliance costs, inadvertently diverting resources away from innovation.
Supreme Court says Texas age verification law is constitutional. The Supreme Court ruled 6-3 that the Texas law requiring adult content websites to verify that their users are adults is allowable under the First Amendment because it “only incidentally burdens” the First Amendment rights of adults who want to access “obscene” content. “[N]o person—adult or child—has a First Amendment right to access [obscene] speech without first submitting proof of age,” Justice Clarence Thomas wrote for the majority. While the Court had previously struck down laws prohibiting children from accessing “obscene” content—along with constitutionally protected “harmful” and “offensive” content—the opinion notes that Internet access and age-verification technologies have evolved significantly in recent years. In their dissent, Justices Elena Kagan, Sonia Sotomayor, and Ketanji Brown Jackson point to the high cost of age verification and argue the Court should be weighing more heavily the law’s impact on adults’ access to speech.
On the Horizon:
FRI. 6/27: Join Public Interest Patent Law Institute as well as leading experts from academia and the seed industry for a webinar to explore how U.S. intellectual property laws influence seed diversity, prices, and innovation at 1:00 PM ET.
MON. 6/30: As part of Patent Quality Week and Startup Summer 2025, join Engine for hors d’oeuvres and a panel discussion featuring a startup founder and patent experts to hear why high-quality patents are essential to the innovation ecosystem and how low-quality patents pose challenges to startups and small businesses at 4 PM PT.
TUE. 7/01: Save Our Standards will hold a panel to explore standard essential patent (SEP) holders abuse at 2:00 PM ET.
Startup Roundup:
#StartupsEverywhere: Austin, Texas. As global conflict increases and urbanization continues, there is an increasing need for alternatives to global positioning systems (GPS). Shaun Moore, co-founder at Tern AI, realized the issue, partnered with two other co-founders and decided to use his previous startup experience to help create an innovative solution. We sat down with Shaun to learn more about his journey, product, and more.
