Christopher Yoo, ‘Market Dilution, Fair Use, and AI’

ABSTRACT
Generative artificial intelligence has brought renewed urgency to the question whether using copyrighted works to train large language models constitutes fair use. A 2025 US Copyright Office Report and dicta in Kadrey v Meta Platforms proposed a broad theory of ‘market dilution’: even when particular outputs are not substantially similar to works in the training data, their aggregate competition may reduce sales of human-authored works. Bartz v Anthropic rejected that form of generalized competition as a cognizable copyright injury. This Article argues that neither the infringing status of an output nor a bare causal connection between training and lost demand resolves the fourth-factor inquiry. Courts should instead ask what feature of the challenged use caused the asserted loss. Market harm is cognizable when it is attributable to protected expression or invasion of a market copyright law reserves to the owner. It is not cognizable when demand is lost solely because follow-on works compete through genre, style at a high level of abstraction, facts, functional information, or other material copyright leaves free. Scale may magnify an injury after a protected market has been identified, but it cannot create an entitlement in an otherwise unprotected basis of competition. This source-of-harm rule preserves conventional claims involving memorization, regurgitation, substantial similarity, direct substitution, and properly defined licensing markets while preventing factor four from becoming a general right against technologically intensified competition.

Yoo, Christopher S, Market Dilution, Fair Use, and AI (September 28, 2026), University of Pennsylvania Law School, Public Law Research Paper No 26-25; Ohio State Technology Law Journal, forthcoming 2027.

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