It's a rough week to be an AI music company.

Sony pulls a gotcha in new lawsuit against AI music company Udio, bringing their damages from $50M to $4.5B It's a rough week to be an AI music company. I mentioned that leading generative AI music company Suno was hacked. This week, the other one, Udio, got sued for a second time by Sony Music. Suno and Udio are the biggest text to music generators. Back in 2024, the major labels sued both of them for training their models on copyrighted recordings without a license to do so. Various music companies have reached varying degrees of licensing agreements with both Suno and Udio, except for Sony Music. Sony Music is the one company that refuses to drop their lawsuit against Udio (or Suno) or allow them to license their music. And this week, Sony filed a separate second lawsuit against Udio, specifically. During discovery, the phase in which udio was tasked with handing over internal documents to the majors so they could see what music was being used as training data. In actuality, Sony says that it inspected their training data and used audio fingerprinting to find hundreds of thousands of their own tracks in the training data. In the original 2024 complaint, Sony named only about 300 tracks that they suspected were being used as training data. But Sony is now saying that udio concealed the contents of its training data so nobody outside the company would know the real scale. They then tried to add a batch of recordings into that original case, but the judge said, you can't add this so late into the case. You Just have to file a second suit, which is what they have done this week. This new complaint brings in about 30,000 new recordings that Sony is saying that Udio stole from them to train on. And the filing says it represents only a small portion of everything that udio took still. The complaint is talking about three claims. The first is infringing recordings made after 1972, infringing on older recordings from before 1972 that had Protection under a 2018 law (music modernization act) And third is circumventing YouTube's copy Protection. The last one is the piece that I talked about in that Suno video a couple days ago, cause it's something that Suno is also getting in trouble for, which is stream ripping. Sony is saying that Udio is building their training set by stream ripping from YouTube, meaning they're taking content that you're only supposed stream and downloading it to use as training data. In order to do this, they're bypassing YouTube's encryption, their rolling cipher. And it's important because the stream ripping claim forces the AI companies to have to try to come up with another defense for their behavior other than fair use, since fair use is not an excuse for violating that encryption. Sony is asking for up to $150,000 per recording from udio for stealing their content to train their AI models. Plus Up to $2,500 for every act of circumvention, which is that stream ripping YouTube thing. Because this is the second suit, and it takes the recordings at issue from about 300 in the original case to 30,000. It Pushes audios potential damages exposure from around $50 million to about 4.5 billion. The reason that Sony can sue on these grounds and the other majors can't right now is because fair use gets decided on a couple of factors, including whether the copying in question hurts the market for the original work. In this case, courts are going to read that as whether there was a market to license copyrighted music for AI training. For a while, AI companies have been arguing that there wasn't an established market for licensing recordings (for use as) training data, so scraping them wasn't taking money out of anybody's pocket. But that argument has gotten a whole lot weaker this year because udio itself went and built the market for licensing deals for training data. They signed licensing deals with everybody. Universal, Warner, Merlin, Kobalt, Believe, and the Publishers Group to use their catalogs for this exact purpose. Training data. Sony is the only major that refused to settle. And now it's becoming a little bit more clear as to why they're gonna use the existence of everybody else's deal as evidence that udio can't tell a court that there's no market that it's harming while it's out creating the market amongst Sony's competitors. So by signing those deals at All, Udio effectively admitted that this use does require a license, and by signing multiple licenses made clear that there is a market. The filing put it as "udio's belated embrace of licensing only underscores the unlawfulness of taking the music without a license first" It's crazy because those deals also changed udio's core product. As part of the universal agreement, Udio turned its service into what people refer to as a walled garden. They had to switch off exports, meaning you can create anything inside of the udio garden, but you can no longer download those tracks to upload them to DSP's or to TikTok or to YouTube. You can still make all the AI music that you want. It just won't leave their platform. To me, it sounds like udio has signed up for the worst case scenario in every possible outcome. They agreed to very industry favorable terms for their licensing agreements that Suno didn't even take. Suno did not agree to a walled garden. They compromised their core product to appease universal. Likely they've also had to start retraining their models that were originally made on unlicensed music but now have to be rebuilt on all the licensed music they have agreements for. And now because they did what was the right thing, to sign all those licenses with all the different music companies that they did, Sony is finding a way to punish them for that too. And now they're potentially facing a whole new suite of Financial damages for doing the thing that they thought was right.