New York Times Sues Microsoft and OpenAI Over AI Training Data Use

A high-profile legal dispute is underway in Lower Manhattan involving the New York Times and tech giants Microsoft and OpenAI. The lawsuit centers on allegations that these companies used copyrighted material from the Times without permission to train artificial intelligence models. This case could have far-reaching effects on how AI systems are developed and how news organizations protect their content.

Recent court documents have revealed internal statements from Microsoft and OpenAI executives that may complicate their defense under the "fair use" doctrine. One OpenAI executive reportedly described AI chatbots as an "existential threat" to traditional journalism. This is because these bots deliver news summaries and information directly to users, reducing the need to visit original news websites and potentially cutting into publishers' revenue streams.

According to reports from The Wall Street Journal, OpenAI is accused of copying millions of articles protected by copyright, possibly using unauthorized methods to access paywalled content. The Washington Post highlighted comments from Microsoft’s Brent Hecht, who labeled the data collection for AI training as "the largest theft of labor in human history." Internal data from these companies also show a significant drop in click-through rates to the New York Times, indicating the impact on reader traffic.

Back in 2017, OpenAI co-founder Greg Brockman expressed strong financial incentives behind the AI project. The Financial Times reported that Brockman reacted positively when an employee discovered a way to bypass the Times’ paywall, raising questions about the companies’ approach to acquiring content.

These revelations increase the likelihood of a major settlement or a court ruling favoring the Times. Such a decision could result in significant financial penalties for Microsoft and OpenAI, while providing substantial compensation for the news organization. However, the Department of Justice weighed in on September 1st, submitting a statement that supports AI training on copyrighted materials as fair use. The DOJ argued this position partly on national security grounds, warning that restricting AI development in the United States could disadvantage the country if foreign adversaries freely access similar data.

Despite the legal tensions, the New York Times stock price has shown little change so far this year and remained steady on the day the court disclosures became public. However, options trading activity in the stock spiked notably. Approximately 4,400 call spreads with strike prices between $72.50 and $77.50 for October expiration were purchased at a $0.925 debit. This trade risks only about 1.3% of the stock’s closing price but offers potential gains exceeding 4.6% if shares reach the average analyst target of $77.73.

The same trader also sold put options at $62.50 and $65 strikes expiring in October, possibly to offset the cost of the bullish call spreads. The choice of October expiration suggests investors expect the legal case to see resolution or progress within a few weeks, a timeline supported by the recent release of internal emails.

For investors wary of downside risk, call spreads provide a strategic alternative to purchasing shares outright. For example, a 65/77.5 call spread offers more than $7 potential upside for a risk of just over $5, with relatively low premium paid for time value. This approach limits capital exposure while allowing an asymmetric payoff if the stock moves higher.

The ongoing lawsuit highlights the complex intersection of AI technology, intellectual property, and media economics. As AI applications grow, questions over fair use of copyrighted content remain a key issue for publishers and technology firms alike. The outcome of this case will likely influence industry practices and regulatory policies around AI training data in the years to come.

Disclosure: Tidal holds the securities mentioned in this article. The opinions expressed are those of CNBC Pro contributors and do not represent CNBC or its affiliates. This article is for informational purposes only and should not be considered financial advice. Readers should consult their own advisors before making investment decisions.