News Corp lawsuit may hinder Perplexity’s valuation and growth

AI startup faces legal challenge over content usage: News Corp has filed a lawsuit against Perplexity AI, alleging copyright infringement and revenue diversion through the unauthorized use of content from its media outlets.

• Dow Jones & Company and NYP Holdings, both owned by News Corp, are the plaintiffs in the lawsuit filed in New York against Perplexity AI.
• The media companies claim that Perplexity is illegally copying copyrighted works and redirecting customers and revenues away from copyright holders.

Core allegations and arguments: The lawsuit contends that Perplexity AI’s practices constitute copyright violations and unfair competition, potentially damaging the reputation of established news outlets.

• News Corp argues that Perplexity is creating a “substitute product” by repackaging content, sometimes verbatim, from original sources.
• The media conglomerate asserts that even if AI outputs differ substantially from source material, the ingestion and storage of data still represent copyright infringement.
• The lawsuit expresses concern over AI hallucinations potentially tarnishing the reputation of well-established news outlets by associating them with incorrect information.

Industry context and precedent: News Corp’s legal action follows similar moves by other media companies, highlighting growing tensions between AI companies and content creators.

• Prior to the lawsuit, News Corp sent a legal letter to Perplexity demanding cessation of its activities, to which the AI startup allegedly did not respond.
• The New York Times, Conde Nast, and Forbes have also taken legal actions against AI companies over content usage.
• News Corp has previously struck usage deals with OpenAI, suggesting a preference for negotiated agreements over litigation.

Perplexity’s business model and defense: The AI startup positions itself as an “answer engine” and justifies its content usage through fair use arguments.

• Perplexity offers AI-generated summaries of news stories and provides links to original sources, though critics argue these are not prominent enough.
• The company maintains that news articles, including copyrighted material, are simply web content falling under fair use rules.
• Perplexity asserts that no single organization owns copyright over facts, which it claims allows for an open information ecosystem.

Financial implications and industry impact: The lawsuit comes at a critical time for Perplexity, potentially affecting its valuation and growth prospects.

• Reports suggest Perplexity could soon double its valuation to $8 billion, underscoring the high stakes of the legal challenge.
• The outcome of this lawsuit could set important precedents for how AI companies interact with and use content from traditional media outlets.

News Corp’s stance and broader implications: The media conglomerate’s aggressive legal approach signals a turning point in the relationship between AI companies and content creators.

• News Corp CEO Robert Thomson emphasizes the company’s willingness to pursue legal action against AI companies that abuse intellectual property.
• The lawsuit reflects growing concerns in the media industry about the impact of AI on journalism, copyright, and revenue models.

Looking ahead: Balancing innovation and intellectual property rights: This legal battle highlights the need for clearer guidelines and potential regulations governing AI’s use of copyrighted content.

• The case may prompt discussions about fair compensation models for content creators in the age of AI.
• It also raises questions about the future of journalism and how traditional media can coexist with AI-powered information services.
• The outcome could influence how other AI companies approach content licensing and partnerships with media organizations.