When AI Puts You on the Hook for Copyright Theft

In June 2025, Disney, Marvel, Universal and other major studios filed a high-profile lawsuit against AI platform Midjourney. Their claim? That the tool was trained on copyrighted characters, Elsa, Darth Vader, Shrek, Homer Simpson and is now generating near-identical versions without permission. 

It’s the latest in a series of lawsuits pushing one urgent question into the spotlight: 

When AI infringes copyright who’s legally and financially responsible? 

It’s a serious risk that many businesses are underestimating. These legal fights aren’t just targeting the platforms that build AI, they’re starting to drag in the people and companies who use them. That means marketers, design teams, agencies, tech firms, in-house comms and everyone in between. 

This isn’t just a legal issue. It’s a financial, reputational, operational - and yes, insurance - issue. 

So whether you’re just starting to use generative AI, or you’re already deep into it, here’s what you need to know. 

The case, filed in a California court, accuses Midjourney of “calculated and wilful” copyright infringement. The plaintiffs (Disney Enterprises, Lucasfilm, Marvel, Twentieth Century Fox, DreamWorks and more) say the AI tool was trained on millions of copyrighted images scraped from the internet. 

They’ve even shown side-by-side comparisons: 
On one side, famous characters. On the other, AI-generated versions that look remarkably similar. 

Midjourney’s founder has publicly admitted that it’s difficult if not impossible to trace where their training data came from. And that’s exactly the problem. 

Because if your business uses tools like Midjourney, ChatGPT (with image or video add-ons), or other generative platforms without understanding their data sources, you might be unknowingly publishing content that infringes someone else’s IP. 

And if that happens? The blame might not stop at the AI company. 

The rules around AI, copyright, and fair use are still developing but here’s the gist: 

1. Is training AI on copyrighted work allowed? 

AI companies say yes it’s fair use. But recent court decisions are pushing back. Some have ruled that scraping and learning from copyrighted material without permission is not fair use, especially if it results in commercial outputs. 

2. Can AI-generated content be copyrighted? 

In Australia, only humans can own copyright. So unless a person has made significant creative input, you can’t protect AI-only work. And worse you might not even legally own what your AI just created. 

These cases aren't just legal theory they’re creating real-world risk. Here's how it could hit your business: 

• Fines and damages: U.S. copyright law allows up to $150,000 per infringement. 
• Legal costs: IP cases are expensive even if you’re not the primary defendant. 
• Project delays: Injunctions can halt campaigns, apps, or platforms mid-rollout. 
• Reputational damage: No brand wants to be associated with plagiarism or piracy. 
• Client and partner liability: If your AI-generated content causes a problem, you could be liable or be left holding the bag if your vendor isn’t. 

And the deeper your business is embedded in AI workflows, the harder it becomes to back out later. 

Good news: you don’t have to ditch your AI stack. But you do need to get serious about risk. 

1. Interrogate your AI vendors: Ask where their training data came from. If they don’t know, that’s a red flag. 
2. Don’t skip human review: Build in human checks before anything goes live especially external comms or commercial content. 
3. Update your contracts: Make sure your AI providers and creative partners offer indemnity for IP risks. And check that your own client contracts aren’t leaving you exposed. 
4. Reassess your cover: Your existing policies may need adjusting or supplementing. Don’t wait for a claim to find out there’s a gap. 

The gap between fast-moving AI and slower-moving cover options is starting to close. We’re seeing early signs of new, AI-specific insurance products being explored, such as: 

• AI Content Liability: Covering IP claims from AI-generated content. 
• Training Data Risk Cover: Addressing exposure from using models trained on unlicensed material. 
• Indemnity for AI-as-a-Service: Protecting companies building or deploying custom models. 

They’re not widespread yet but the pressure from legal cases like this is speeding things up. 

Generative AI is amazing. It’s efficient, affordable, and endlessly creative. But the speed of adoption has far outpaced the rules and that’s where the real danger lies. 

This isn’t about fear. It’s about responsibility. 
If your business is using AI to produce content, now is the time to ask: 
Do we know where this came from? Do we have the right protection in place? 

If the answer is “not really”, you’re not alone. But you are exposed. 

There’s still time to reset. Start asking better questions. Build guardrails. Close the gaps. 

Because in a world of generative creativity, copyright confusion isn’t just a tech issue - it’s a business risk. 

_{DISCLAIMER: This information is provided to assist you in understanding the risks, implications, and common considerations for your industry.  It does not constitute advice and is not complete. Please contact Knightcorp Insurance Brokers for further information.}

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