July 7, 2026

Will Hollywood Studios Lose Even if They Win Against Hailou AI?

By Emily Poler

A couple of months ago, I wrote about a case brought by big movie studios, including Disney, against Nanoble Pte. Ltd. over its Hailou AI app, which allows users to generate short videos in response to prompts. The media empires’ problem with Hailou AI, which Nanoble markets as “a Hollywood studio in your pocket,” is that it can be used to generate videos featuring Star Wars, Marvel, and other well-known, copyrighted characters — videos like the ones Plaintiffs themselves created with Hailou AI to submit as evidence with their filing. And that’s where things suddenly get interesting. 

Recently, Nanoble answered the studios’ complaint with an unexpected salvo: a counterclaim alleging the studios breached Nanoble’s terms of service by creating those sample videos and, thus, to the extent Nanoble is found liable for copyright infringement, the studios themselves will have to pay Nanoble’s damages and its attorneys’ fees. In other words, in this seemingly bizarre scenario, if the studios win, they themselves could be liable for any monetary judgments against Nanoble. Talk about hoisted by their own petard! (I think I finally understand what that expression means, even if I still don’t know what a petard is).

How does this make sense? Well, as is generally stated by the terms of service for the apps and websites we all routinely and thoughtlessly sign, by using that service, a user accepts its terms. Here, Hailou AI’s terms of service say users will not use the app in a way that violates applicable law or may expose Nanoble to liability. Notably, Hailou AI’s terms of service provide that if a user violates its terms, that user has to “defend, indemnify, and hold harmless Nanoble against claims, losses, costs, expenses, and fees, including reasonable attorneys’ fees, arising out of or relating to the user’s violation . . . .” In plain English, Nanoble is saying that, because the studios used Hailou AI to create outputs that infringe on their own copyrights, the studios violated Nanoble’s terms of service and are responsible for any monetary judgments against Nanoble. 

The studios have responded with a bunch of arguments that amount to saying, in a variety of different ways, that Hailou AI’s terms of service are unenforceable because it would be dumb to allow someone to escape any responsibility for their own actions in this way. They’ve raised a whole host of defenses, including that the counterclaims fail because they violate the California Civil Code which states that “contracts which have for their object, directly or indirectly, to exempt any one from responsibility for … violation of law, whether willful or negligent, are against the policy of the law.” They also assert the counterclaims fail because “Nanoble’s interpretation of its Terms of Use is contrary to the public policies behind Federal Rules of Civil Procedure Rule 11 for pre-lawsuit investigations and the Copyright Act’s policy against copyright infringement and internet service providers interfering with standard technical measures to police infringement online.”

Interestingly, the studios are not claiming that the outputs they created in their Hailou AI videos are not, in fact, infringing, since they own the copyrights to the characters they generated; there are prior decisions holding that a copyright owner can’t infringe on its own copyrights. Going this route could get the studios out of any claim that they breached Nanoble’s terms of service by creating infringing works. However, it would also mean that they couldn’t use the works they generated as a basis for a claim of copyright infringement, which is at the heart of their case. There is also precedent recognizing that the use of copyrighted work in litigation is fair use, but again, doing so could lead a court to hold that since there is no infringement, the studios have no case. See how tricky this is?

One obvious question I have: Couldn’t the studios have found user-generated infringing videos produced using Hailou AI to enter as evidence? Don’t people make Darth Vader videos and post them on YouTube or TikTok? (According to my 14-year-old, yes, duh.) 

So where is all this going? Well, Nanoble’s argument is certainly creative. However, I think it’s going to be hard for a court to swallow the idea that a party can basically remove itself from any possibility of liability by a contract. With that said, Nanoble’s arguments significantly increase the studio’s potential exposure, since even if they win, they face the prospect of having to pay Nanoble’s damages and its legal fees. The risk of this may well give the studios incentives to settle and walk away from the whole mess, which seems unfair but may well be better than what would amount to a very 21st-century Pyrrhic victory.