Microsoft Sued by Shareholder Over AI Copyright Violations and Copilot Performance
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Summary
A derivative complaint filed in Washington alleges Microsoft executives misled shareholders regarding the legality of AI training data and the actual performance of Copilot products.
Microsoft and its top leadership are facing a shareholder derivative complaint alleging the company built its artificial intelligence business on systemic copyright infringement while lying to investors about the technology's performance. The lawsuit, filed on September 8, 2026, in the U.S. District Court for the Western District of Washington, targets CEO Satya Nadella and thirteen other directors and officers. The complaint was first reported by CourtListener. According to the filing, Microsoft executives caused the company to make false and misleading statements regarding its AI strategy and the "Copilot" family of products. The plaintiff, Katelyn Gray, alleges the company violated federal copyright and intellectual property laws by training AI software on copyrighted works without obtaining lawful licenses. ## Allegations of Systemic Copyright Infringement
The lawsuit claims Microsoft told shareholders it used data sources in a manner consistent with global copyright laws. Specifically, Microsoft stated it did not train on data from "notorious markets" for piracy and instead used negotiated arrangements with publishers. The complaint asserts these statements were false. The filing cites a series of lawsuits brought by authors and publishers starting in September 2023. These include a class action involving novelists George R. R. Martin and John Grisham, a suit by nonfiction authors like Kai Bird, and a June 2026 action brought by nearly 400 U.S. newspaper publishers. The publishers allege Microsoft secretly pulled information from behind paywalls and stripped copyright management information before using the content to train models. ## The Role of Microsoft Infrastructure
The complaint argues Microsoft was not a passive investor in OpenAI. It alleges Microsoft invested more than $10 billion, supplied the Azure infrastructure used to train the models, and directly participated in the development and commercialization of GPT-based systems. By providing the supercomputing infrastructure and integrating GPT into Bing Chat and Copilot, Microsoft allegedly shared in the commercial exploitation of copyrighted works. The lawsuit claims this exposure to liability was concealed from the market. ## Internal Issues with Copilot
Beyond copyright claims, the complaint alleges Microsoft executives hid significant technical and market failures. While publicly touting the success of the Copilot family, the company allegedly dealt with major issues regarding brand positioning, user experience, and data siloing. The filing states Microsoft's proprietary AI models were performing well below competitors on several industry tests. The plaintiff claims that even with the use of unlicensed data, the company's AI products were lagging. The lawsuit cites problems with computational capacity and interoperability that were not disclosed to shareholders during the relevant period starting January 1, 2022. ## Fiduciary Breaches and Damages
The action seeks to hold the board and executive team accountable for breaches of fiduciary duty and violations of Section 14(a) of the Securities Exchange Act of 1934. The plaintiff argues that the misconduct of senior officers has caused and will continue to cause substantial damage to the company. The defendants named include CFO Amy E. Hood, Jared Spataro, Rajesh Jha, and board members such as Reid Hoffman, Penny Pritzker, and Charles W. Scharf. The case is Gray v. Nadella, Case No. 2:26-cv-03215.