This piece has been updated to add additional context and clarify some details.
Anthropic, the AI startup that’s long presented itself as the industry’s safe and ethical choice, is now facing legal penalties that could bankrupt the company. Damages resulting from its mass use of pirated books would likely exceed a billion dollars, with the statutory maximum stretching into the hundreds of billions.
Last week, William Alsup, a federal judge in San Francisco, certified a class action lawsuit against Anthropic on behalf of nearly every US book author whose works were copied to build the company’s AI models. This is the first time a US court has allowed a class action of this kind to proceed in the context of generative AI training, putting Anthropic on a path toward paying damages that could ruin the company.
The judge ruled last month, in essence, that Anthropic's use of pirated books had violated copyright law, leaving it to a jury to decide how much the company owes for these violations. That number increases dramatically if the case proceeds as a class action, putting Anthropic on the hook for a vast number of books beyond those produced by the plaintiffs.
The class action certification came just one day after Bloomberg reported that Anthropic is fundraising at a valuation potentially north of $100 billion — nearly double the $61.5 billion investors pegged it at in March. According to Crunchbase, the company has raised $17.2 billion in total. However, much of that funding has come in the form of Amazon and Google cloud computing credits — not real money.
Santa Clara Law professor Ed Lee warned in a blog post that the ruling means “Anthropic faces at least the potential for business-ending liability.” He separately wrote that if Anthropic ultimately loses at trial and a final judgment is entered, the company would be required to post a surety bond for the full amount of damages in order to delay payment during any appeal, unless the judge grants an exception.
In practice, this usually means arranging a bond backed by 100 percent collateral — not necessarily cash, but assets like cloud credits, investments, or other holdings — plus a 1-2 percent annual premium. The impact on Anthropic’s day-to-day operations would likely be limited at first, aside from potentially higher insurance costs, since the bond requirement would only kick in after a final judgment and the start of any appeals process.
Lee wrote in another post that Judge Alsup “has all but ruled that Anthropic’s downloading of pirated books is [copyright] infringement,” leaving “the real issue at trial… the jury’s calculation of statutory damages based on the number of copyrighted books/works in the class.”
While the risk of a billion-dollar-plus jury verdict is real, it’s important to note that judges routinely slash massive statutory damages awards — sometimes by orders of magnitude. Federal judges, in particular, tend to be skeptical of letting jury awards reach levels that would bankrupt a major company. As a matter of practice (and sometimes doctrine), judges rarely issue rulings that would outright force a company out of business, and are generally sympathetic to arguments about practical business consequences. So while the jury’s damages calculation will be the headline risk, it probably won’t be the last word.
On Thursday, the company filed a motion to stay — a request to essentially pause the case — in which they acknowledged the books covered likely number “in the millions.” Anthropic’s lawyers also wrote, “the specter of unprecedented and potentially business-threatening statutory damages against the smallest one of the many companies developing [large language models] with the same books data” (though it’s worth noting they have an incentive to amplify the stakes in the case to the judge).
... continue reading