A new lawsuit brought against the startup Perplexity argues that, in addition to violating copyright law, it’s breaking trademark law by making up fake sections of news stories and falsely attributing the words to publishers.

Dow Jones (publisher of The Wall Street Journal) and the New York Post—both owned by Rupert Murdoch’s News Corp—brought the copyright infringement lawsuit against Perplexity today in the US Southern District of New York.

This is not the first time Perplexity has run afoul of news publishers; earlier this month, The New York Times sent the company a cease-and-desist letter stating that it was using the newspaper behemoth’s content without permission. This summer, both Forbes and WIRED detailed how Perplexity appeared to have plagiarized stories. Both Forbes and WIRED parent company Condé Nast sent the company cease-and-desist letters in response.

A WIRED investigation from this summer, cited in this lawsuit, detailed how Perplexity inaccurately summarized WIRED stories, including one instance in which it falsely claimed that WIRED had reported on a California-based police officer committing a crime he did not commit. The WSJ reported earlier today that Perplexity is seeking to raise $500 million is its next funding round, at an $8 billion valuation.

Dow Jones and the New York Post provide examples of Perplexity allegedly “hallucinating” fake sections of news stories. In AI terms, hallucination is when generative models produce false or wholly fabricated material and present it as fact.

In one case cited, Perplexity Pro first regurgitated, word for word, two paragraphs from a New York Post story about US senator Jim Jordan sparring with European Union commissioner Thierry Breton over Elon Musk and X, but then followed them up with five generated paragraphs about free speech and online regulation that were not in the real article.

The lawsuit claims that mixing in these made-up paragraphs with real reporting and attributing it to the Post is trademark dilution that potentially confuses readers. “Perplexity’s hallucinations, passed off as authentic news and news-related content from reliable sources (using Plaintiffs’ trademarks), damage the value of Plaintiffs’ trademarks by injecting uncertainty and distrust into the newsgathering and publishing process, while also causing harm to the news-consuming public,” the complaint states.

Perplexity did not respond to requests for comment.

In a statement emailed to WIRED, News Corp chief executive Robert Thomson compared Perplexity unfavorably to OpenAI. “We applaud principled companies like OpenAI, which understands that integrity and creativity are essential if we are to realize the potential of Artificial Intelligence,” the statement says. “Perplexity is not the only AI company abusing intellectual property and it is not the only AI company that we will pursue with vigor and rigor. We have made clear that we would rather woo than sue, but, for the sake of our journalists, our writers and our company, we must challenge the content kleptocracy.”

OpenAI is facing its own accusations of trademark dilution, though. In New York Times v. OpenAI, the Times alleges that ChatGPT and Bing Chat will attribute made-up quotes to the Times, and accuses OpenAI and Microsoft of damaging its reputation through trademark dilution. In one example cited in the lawsuit, the Times alleges that Bing Chat claimed that the Times called red wine (in moderation) a “heart-healthy” food, when in fact it did not; the Times argues that its actual reporting has debunked claims about the healthfulness of moderate drinking.

“Copying news articles to operate substitutive, commercial generative AI products is unlawful, as we made clear in our letters to Perplexity and our litigation against Microsoft and OpenAI,” says NYT director of external communications Charlie Stadtlander. “We applaud this lawsuit from Dow Jones and the New York Post, which is an important step toward ensuring that publisher content is protected from this kind of misappropriation.”

Some legal experts are unsure that the false designation of origin and trademark dilution charge will be fruitful. Intellectual property lawyer Vincent Allen, a partner at Carstens, Allen & Gourley, believes that the copyright infringement claims in this lawsuit are stronger, and that he will “be surprised” if the false designation of origin charge stands. Both Allen and James Grimmelmann, a professor of digital and internet law at Cornell University, believe that the landmark trademark case, Dastar v. Twentieth Century Fox Film Corp., could stymie this line of attack. (In that ruling, about a dispute over old World War II footage, the Supreme Court held that “origin” doesn’t apply to authorship for trademark law, but is instead limited to tangible goods—like a bootleg purse—rather than counterfeit creative work like films. Further, Grimmelmann is skeptical that the trademark dilution claim will hold water. “Dilution involves the use of a trademark on ones own goods or services in a way that impairs the distinctiveness of a famous mark. I … just don't see that here,” he says.

If publishers prevail in arguing that hallucinations can violate trademark law, AI companies could face “immense difficulties” according to Matthew Sag, a professor of law and artificial intelligence at Emory University.

“It is absolutely impossible to guarantee that a language model will not hallucinate,” Sag says. In his view, the way language models operate by predicting words that sound correct in response to prompts is always a type of hallucination—sometimes it’s just more plausible-sounding than others.

“We only call it a hallucination if it doesn't match up with our reality, but the process is exactly the same whether we like the output or not.”