Artificial intelligence (AI) is fundamentally reshaping many industries. AI will have many benefits, but it's also likely to produce the law of unintended consequences. One of those consequences centers around copyright protection.  

The proliferation of digital content creates concerns about who owns the content if it's being generated, in part, using generative AI tools. That's an issue that Adobe Inc. (NASDAQ: ADBE) is working to address. And a recent announcement shows how the company continues to take a leadership position in defining and establishing copyright protection in AI.  

Is Any of This Legal?  

A grey area that critics of AI point out centers around copyright law. If you use AI to generate content anywhere, any time, for any reason, you would be making a mistake if you believe this can't affect your business. There are three core legal issues that AI is raising. 

The first issue is who owns the copyright of AI-generated work? If an individual uses prompts to guide AI, can that person take ownership of the work? And what happens when, as is true in some cases, AI programs create new works with no human involvement? 

In 2022, the U.S. Copyright Office ruled that a work of art created by artificial intelligence is not subject to copyright protection. The ruling is based on the idea that the work in question can't be classified as intellectual property.  

Copyright infringement is another big concern with AI. Can an AI-generated image or bit of content violate an existing copyright or trademark?  

There have already been several instances where AI has produced work similar to or identical to existing works that are still protected by copyrights. The concern here is that an AI system cannot incur liability; therefore, if the wronged party cannot sue the AI, who can they sue? 

This raises the third key legal issue of how authorship and, therefore, ownership of AI output is determined.  

Adobe is Leading the Way 

These issues are not going to get resolved quickly. However, Adobe is leading the way in terms of copyright infringement. This makes sense because Adobe launched the beta version of Firefly, its family of creative generative AI models, in March 2023.  

In the company's second-quarter earnings report in June, Adobe reported, "Firefly has captured the imagination of the world with over half a billion generations..." The company plans to roll out Firefly for enterprise use later this year.  

It must be considering this issue because it announced that it will provide limited indemnity for Firefly users against copyright infringement. Specifically, the company wrote: "...enterprises also have the opportunity to obtain an IP indemnity from Adobe for content generated by certain Firefly-powered workflows." 

It's a start. But it's not surprising. Adobe has been taking a leadership role in considering the role of "Copyrights in the Era of AI" since at least 2020. This included the company setting a series of AI ethics principles in 2021.  

Is Adobe Stock a Buy on This News?  

Adobe stock is up over 52% in 2023. So if you're looking for a reason to buy ADBE stock, this isn't it. But it can give you confidence that copyright issues surrounding generative AI should now affect the company's revenue, which continues to grow sequentially and year-over-year.  

Thomas Hughes recently pointed out that ADBE stock was on the verge of a breakout. At that time, the stock was meeting resistance around $515. Shares have since pushed past that. However, with earnings coming up in September, Adobe looks like one for the watchlist until you get confirmation from analysts about future price targets