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Transformed output _may_ fall under fair use. However - Copilot directly recites code. That is _very unlikely_ to fall under fair use. Redistributing the exact same code, in the same form, for the same purpose, probably means that Copilot, and thus the people responsible for it, are infringing. |
You make that statement as an absolute, but in the interests of clarity, all evidence so far shows that it directly recites code very rarely indeed. Even the Quake example had to be prompted by the specific variable names used in the original code.
In practice, the output code is heavily influenced by your own context — the comments you include, the variable names you use, even the name of the file you are editing — and with use it’s obvious that the code is almost certainly not a direct recitation of any existing code.