Disney Enterprises, Inc. v. Midjourney, Inc., No. 2:25-cv-05275-JAK-AJR,
2026 WL 2055488 (C.D. Cal. Jun. 15, 2026)

This is what seems like a significant discovery dispute; I’m
not an evidence scholar, but there’s interaction with the fair use analysis
that copyright folks should attend to.

Plaintiffs sued Midjourney over its image and video
generation “diffusion models,” arguing that they infringed both by copying their
characters in training and by distributing copies of those characters in images
and videos to Midjourney subscribers.

Midjourney sought to compel plaintiffs to produce: “(1)
documents concerning their development, use of, and policies regarding
generative artificial intelligence (‘AI’) tools for image and video creation,
and (2) the complete set of Midjourney prompts and outputs that Plaintiffs (or
their agents) used” for the operative complaint. The court granted the request
in part for (1) but found (2) was privileged.

Plaintiffs objected to producing documents about third-party
datasets they used in connection with any AI tool and similar documents. They
agreed to produce nonprivileged responsive documents “sufficient to show
instances in which [Plaintiffs] authorized its employees or contractors to use
generative AI to generate images and/or video outputs intended for consumers,
featuring the asserted works.” As for the prompts, they agreed to produce
nonprivileged responsive documents “sufficient to identify the prompts used to
create the image[s] generated by Midjourney shown in the complaint and put at
issue in this action, and the side-by-side outputs contemporaneously generated
in response to such prompts,” but not the prompts that they didn’t choose to
include.

Midjourney argued that these discovery requests were
relevant to both its defense of fair use, as well as its equitable defense of
unclean hands.

Fair use: Midjourney argued that its requests bore on
multiple elements of fair use, including transformativeness. But the court didn’t
buy its argument that, “if Plaintiffs are developing and deploying diffusion
models (employing the same technology, training techniques, and public data as
Midjourney), that is a powerful concession that such models produce something
fundamentally new and useful—relevant evidence of the transformative nature of
that (and Midjourney’s) technology.” After all, Warhol says “the same
copying may be fair when used for one purpose but not another.” [But this would
be the same purpose, just a different user, no?] The SDNY has agreed that “the
relevant inquiry under the first fair use factor concerns a defendant’s use of
a plaintiff’s copyrighted material, not a downstream use of defendant’s
allegedly infringing material by a copyright-holder plaintiff.” In re OpenAI,
Inc., Copyright Infringement Litig., 800 F. Supp. 3d 602, 608 (S.D.N.Y. 2025). Likewise,
New York Times Co. v. Microsoft Corp., 757 F. Supp. 3d 594 (S.D.N.Y. 2024),
held that the fair-use factors “do not require a court to examine statements or
comments a copyright holder may have made about a defendant’s general industry,
whether the copyright holder has used tools in the defendant’s general
industry, whether the copyright holder has admitted that other uses of its
copyrights may or may not constitute fair use, or whether the copyright holder
has entered into business relationships with other entities in the defendant’s
industry.”

Public benefits (part of factor four after GvO): But GvO
“made clear” that balancing the public benefits against the losses to copyright
owners would not “always [be] relevant to the application of fair use,” and focused
on the consequences of Google’s copying, not anything that the plaintiff
(Oracle) did in its own business.

Nor was this evidence relevant to market harm. Relevant
discovery would include the loss to plaintiffs and how the challenged use might
“kill demand for the original,” as well as discovery directed to Midjourney concerning
the public benefits from the copying.

What about industry custom and practice? Wall Data Inc. v.
Los Angeles Cnty. Sheriff’s Dep’t, 447 F.3d 769, 778 (9th Cir. 2006), says that
courts “should bear in mind that fair use is appropriate where a reasonable
copyright owner would have consented to the use, i.e., where the custom or
public policy at the time would have defined the use as reasonable.” But that’s
dicta. [This is contrary to what one might have thought was happening two
decades ago.] Sure, “industry custom and practice may be relevant to the
analysis of fair use in a particular case,” but “courts consistently reject the
argument that ‘everybody else is doing it’ as a defense to copyright
infringement.” This is really about the (narrower) defense of unclean hands.

But the equitable defense of “unclean hands is recognized
only rarely, when the plaintiff’s transgression is of serious proportions and
relates directly to the subject mater of the infringement action.” Indeed, “the
alleged wrongdoing of the plaintiff does not bar relief unless the defendant
can show that he has personally been injured by the plaintiff’s conduct.”

Thus, plaintiffs’ development, use of, and policies
regarding generative AI were not relevant to the defense of unclean hands
because none of the discovery would establish inequitable conduct that is both
directly related to plaintiffs’ claims and injured Midjourney. [Other than through
preventing competition with this lawsuit.]

Still, the requested discovery was potentially relevant to
establishing: (1) the potential market for or value of the copyrighted work;
(2) industry custom and practice; and (3) the defense of unclean hands. But plaintiffs
agreed to produce documents sufficient to show their business plans, roadmaps,
research reports, other studies, and approvals of their actual or proposed
development or training of generative AI intended for consumers, including
their contractors’ authorized use of generative AI intended for consumers, as
well as documents about some related matters. That was enough. Documents
related to the actual or proposed development of generative AI not intended for
consumers were not relevant, or not enough to be proportional. However, the
court granted the motion to compel plaintiffs to also produce documents sufficient
to show plaintiffs’ approval of the use of generative AI to generate images
and/or video outputs intended for consumers, featuring the asserted works,
which is relevant to the market-harm factor.

Requests for training-related documents had some relevance
to establishing industry custom and practice, but had to be narrowed to focus
on actual or proposed development of generative AI intended for consumers. “By
contrast, Plaintiffs’ training of generative AI tools not intended for
consumers would not provide evidence of industry customs and practices that
would be relevant to Defendant’s defense of fair use,” or, if relevant, not enough
to justify the burden of production. Thus, plaintiffs needed to produce
non-privileged responsive documents sufficient to show their “development,
training, or contemplated development or training of any generative AI to
generate images and/or video outputs intended for consumers, featuring the
asserted works, including training datasets, datasources, or model weights.”

Midjourney prompts: Plaintiffs agreed to produce documents
sufficient to identify the prompts used to create the images generated by
Midjourney shown in the operative complaints, as well as the side-by-side
outputs contemporaneously generated in response to such prompts.

Midjourney argued that “withholding prompts and outputs
related to images not used in the operative complaints would allow Plaintiffs
to artificially inflate the universe of allegedly infringing outputs, distort
the damages calculus, or misrepresent their own engineered images as examples
of third-party infringement.” But “the volume of prompts and outputs related to
images generated for potential use in the operative complaints, but not
actually used, is infinitesimal compared to the true scope of this case which
involves tens of millions of subscriber prompts associated with Plaintiffs’
copyrighted works.” Given the current statistical sampling protocol that the
parties are finalizing, withholding the prompts wouldn’t distort a damages award.

The non-used prompts and outputs were protected work
product.  The work-product doctrine
protects “from discovery documents and tangible things prepared by a party or
his representative in anticipation of litigation.” This was “classic” pre-suit
investigation and efforts to prepare the operative complaints. Such unused prompts
and outputs were “core” work product because they necessarily reveal counsel’s
“mental impressions, conclusions, opinions, or legal theories developed in
anticipation of litigation.” This kind of opinion work product “is virtually
undiscoverable.” 

Midjourney argued that plaintiffs waived protection by
submitting prompts to Midjourney in the first place because Midjourney’s Terms
of Service make prompts and outputs public by default and grant Midjourney a
license to reproduce, prepare derivative works of, publicly display, publicly
perform, sublicense, and distribute their inputs. But “waiver of attorney
work-product protection requires more than the disclosure of confidential
information, it requires an act inconsistent with the adversary system.” Pre-suit
investigation was not inconsistent with the adversary system. Nothing stops
Midjourney from conducting its own investigation of prompts submitted by plaintiffs
and their counsel, though.

“Accepting Defendant’s view of selective disclosure would
virtually eliminate the protection for attorney work product in the context of
any court filing because every court filing inherently reflects strategic
choices of counsel in what facts to include and even what legal arguments to
make.”

Comment: If you believe, as many people seem to, that “how
hard was it to get the model to generate an allegedly infringing output?” is a
relevant question, then the rulings here make it harder to conduct that
inquiry. I’m no evidence expert, but the ruling seems to make
probabilistic/guardrails inquiries off-limits to fair use, which seems
directionally wrong to me. (Burden-shifting might help—one could say that if
the defendant puts in evidence that it tried to make it hard to generate
infringing outputs, then the plaintiff has to do more to show that those
guardrails didn’t work, which wouldn’t necessarily require disclosure of
attorney work product. This is my optimistic reading of the reference to the
millions of prompts at issue in this case.)

from Blogger https://tushnet.blogspot.com/2026/08/midjourney-cant-force-disney-to.html