Perplexity AI, the ambitious search startup challenging Google’s dominance, finds itself navigating turbulent legal waters even as it pursues a massive $500 million funding round that would value the company at $8 billion—nearly triple its $3 billion valuation from summer 2024. The AI-powered search engine, founded in 2022 by former OpenAI research scientist Aravind Srinivas and his co-founders Denis Yarats, Johnny Ho, and Andy Konwinski, has attracted backing from tech luminaries including Jeff Bezos and chip giant Nvidia.
The company’s meteoric rise has been marked by aggressive fundraising, with this potential fourth raise of 2024 following a trajectory from a $520 million valuation in January to $1 billion in spring and $3 billion after SoftBank’s Vision Fund 2 investment. Perplexity currently generates $50 million in annualized revenue and processes 15 million searches daily, monetizing through subscription sales with plans to introduce advertising soon.
However, Perplexity’s growth has been shadowed by mounting legal challenges. News Corp, owner of The Wall Street Journal and New York Post, filed a lawsuit on Monday alleging the AI startup engaged in a “brazen scheme” of copyright infringement. News Corp CEO Robert Thomson accused Perplexity of copying “copious amounts of copyrighted material without compensation,” harming journalists and publishers in the process. The lawsuit claims Perplexity built its user base “through theft of a massive volume of copyrighted material” and promises a “reckoning” in court.
This legal action follows a pattern of accusations from prominent media organizations. In June, Forbes accused Perplexity of “ripping off” an investigation without proper attribution, while Wired published findings that Perplexity summarized articles inaccurately, failed to provide attribution, and allegedly scraped content websites intended to keep off-limits. The New York Times also sent a cease-and-desist letter demanding Perplexity stop using Times content.
Perplexity has defended its practices, stating it’s “not scraping data for building foundation models, but rather indexing web pages and surfacing factual content as citations.” The contrast with competitor OpenAI is stark—while Perplexity faces lawsuits, OpenAI has secured multi-year licensing deals with News Corp, Axel Springer, and other publishers, earning praise from Thomson for its “principled” approach.
Key Quotes
This suit is brought by news publishers who seek redress for Perplexity’s brazen scheme to compete for readers while simultaneously freeriding on the valuable content the publishers produce.
From News Corp’s lawsuit filing against Perplexity, this statement frames the legal argument that the AI startup is unfairly competing with publishers by using their content without compensation, establishing the foundation for copyright infringement claims.
We are not scraping data for building foundation models, but rather indexing web pages and surfacing factual content as citations to inform responses when a user asks a question.
Perplexity’s defense statement to Reuters attempts to distinguish its practices from training data collection, arguing it functions more like a traditional search engine that indexes and cites content rather than copying it for AI model training.
The questions from WIRED reflect a deep and fundamental misunderstanding of how Perplexity and the internet work.
CEO Aravind Srinivas’s response to Wired’s investigation shows the company’s dismissive stance toward allegations, suggesting critics don’t understand the technical aspects of their operations—a defense that may not hold up in court.
Perplexity was harming journalists and publishers by copying copious amounts of copyrighted material without compensation.
News Corp CEO Robert Thomson’s statement accompanying the lawsuit emphasizes the economic harm to content creators, while simultaneously praising OpenAI’s licensing approach, highlighting the industry divide on how AI companies should access content.
Our Take
Perplexity’s situation exemplifies the growing pains of the AI revolution—a company can simultaneously attract billions in funding while facing existential legal threats. The $8 billion valuation pursuit suggests investors believe either the legal issues are surmountable or that the potential rewards outweigh the risks. However, the mounting lawsuits from powerful media conglomerates like News Corp and The New York Times could fundamentally alter Perplexity’s business model if courts rule against them.
What’s particularly telling is the industry bifurcation: OpenAI’s proactive licensing deals versus Perplexity’s “ask forgiveness, not permission” approach. This may reflect resource differences—OpenAI, backed by Microsoft’s billions, can afford expensive content deals that smaller competitors cannot. If courts mandate licensing, it could create a moat around well-funded AI giants and stifle competition. The outcome will likely determine whether the AI search market remains open to disruptive startups or consolidates around players who can afford content licensing fees.
Why This Matters
This case represents a critical inflection point for the AI industry’s relationship with content creators and publishers. As AI-powered search engines threaten to disrupt traditional media business models, the legal framework governing how AI companies can access and use copyrighted content remains unsettled. Perplexity’s ability to raise funding at escalating valuations despite mounting legal challenges suggests investors remain bullish on AI search, but the lawsuits could establish precedents that reshape the entire sector.
The stark contrast between Perplexity’s legal troubles and OpenAI’s licensing partnerships highlights two divergent paths for AI companies: aggressive scraping versus negotiated content deals. The outcome of these lawsuits could determine whether AI startups must pay for training data and content access, potentially adding significant costs that favor well-funded players like OpenAI and Microsoft. For media companies struggling with declining revenues, these cases represent a crucial battle to maintain control over their intellectual property in the AI era. The resolution will likely influence how future AI applications handle copyrighted material and could accelerate or slow AI innovation depending on the legal boundaries established.
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Source: https://www.businessinsider.com/perplexity-ai-startup-lawsuit-allegations-targets-funding-2024-10