Fair Use and AI-Generated Images: Can You Use AI Art Without Legal Issues?

AI-generated images have exploded in popularity – and they’re everywhere, from social media feeds and brand campaigns to Etsy shops. You can create stunning visuals in seconds with just a few typed prompts. It’s fast, affordable, and feels like a creative superpower. But here’s the catch: just because you can use AI art doesn’t always mean you should.

If you’re a content creator, entrepreneur, or small business owner, the legal side of AI art matters more than you might think. It begs the question: Can you use AI-generated images commercially? What if they resemble someone else’s work – or someone else’s face?

In this article, we’ll break down the basics of fair use, copyright risks, and how to navigate the legal gray area of AI-generated content. We’ll also touch on how choosing the right business structure, like forming a Limited Liability Company (LLC), can help protect you if legal issues arise.

Let’s get started.

What is Fair Use?

Fair use is a legal doctrine in U.S. copyright law that allows limited use of copyrighted material without needing permission from the original creator. It’s often misunderstood, especially in the digital era where content is efficiently created, shared – and copied.

Courts look at four main factors to determine if something qualifies as fair use:

Purpose and character of the use: Is it commercial (i.e., profit-driven) or educational, commentary, or parody? Transformative uses (where the original is significantly changed) are more likely to qualify.
Nature of the copyrighted work: Factual content is more likely to be fair use than highly creative works like art or music.
Amount and sustainability: How much of the original work is used? The less, the better. However, even small amounts can be too much if they capture the “essence” of the work.
Effect on the market: Does the use compete with the original or harm its sales potential?

When it comes to AI-generated images, it can be tricky. If your prompt leads to work that mimics existing art too closely, it may not qualify. Ultimately, don’t assume that everything created by AI is automatically fair game.

Who Owns AI-Generated Art?

Here’s where things get legally confusing. The question of who owns AI-generated art is still unsettled – and it matters.

Can an AI model own its output? No. Under current U.S. copyright law, only human creators can hold copyrights. No matter how “smart” they might be, machines can’t own anything. At least for the moment.
So, do you own the image if you typed the prompt? Possibly. You might have a stronger argument if your prompts are highly detailed and creative. But courts haven’t ruled definitively on this yet.

A few real-world examples from as recent as this year (2025) highlight that confusion. The U.S. Copyright Office denied copyright protection for works created entirely by AI, though they’ve allowed partial protection where there’s significant human input.

Another issue? The datasets used to train these AI models. Many include copyrighted images scraped from the Internet – oftentimes lacking permission. That raises legal concerns about whether the final AI-generated image is “clean” or potentially infringing.

Here’s the bottom line: Just because it’s possible to generate AI art easily doesn’t mean that you legally own or are allowed to use it however you want.

Using AI Art in Your Business: What’s Safe?

AI-generated images can be a fantastic tool – but only if you’re careful. Here’s how to navigate the line between smart use and legal risk.

Generally safe uses:

Internal slide decks or mood boards
Temporary placeholders during the design
Heavily edited or transformative works that add original elements

Riskier territory:

Selling products (T-shirts, prints, digital goods) using unlicensed AI images
Marketing material accessed and seen by the public
Client-facing work where you’re liable for copyright violations

Even if the platform where you’re generating AI art says it offers a commercial license, that doesn’t always shield you from problems. Many AI tools are trained on scraped images – some copyrighted – which presents a legal gray area.

It’s key to always read the terms of service. Some platforms limit commercial use or shift liability to you.

And when in doubt, treat AI art the same way you would a stock image. Vet the source, understand the rights, and use it with care.

How Business Structure Helps Protect You

When it comes to legal risk in the area of AI-generated art, your business structure matters more than you might think.

Forming an LLC can help protect your personal assets if a copyright dispute arises.

For instance, consider this scenario: A small design firm is using AI-generated images for client work. If a claim is filed over image ownership, the LLC acts as a legal buffer between your business and your personal finances.

It’s one of the wisest moves small businesses can make.

Business structure rules differ across states, so it’s smart to consult a guide for forming an LLC in Texas (or wherever you’re based). Also, don’t forget this either! You’ll need a registered agent to handle official documents and legal notices.

Setting up the proper structure and processes now can save a lot of stress (and money) later on.

Best Practices to Stay Legally Safe

Using AI-generated art can be a huge creative asset, but you must follow some best practices, too.

Consider the following:

Use trusted platforms that provide clear usage rights or commercial licenses. Look for terms that specify precisely what you can do with the images.
Avoid AI-generated images involving real people, logos, or well-known brands (think Disney, Coca-Cola, the National Football League, and the like). These can all trigger right-of-publicity or trademark claims.
Add your creative touch. Editing or altering AI-generated content with your own personal, human input may strengthen a fair use argument.
Document everything – and we mean everything. Keep records of prompts used, the platform terms and conditions at the time of creation, and any licenses or permissions obtained.

Still, even with these precautions, AI art law is in a constant state of evolution. If you’re using AI content in client work, product packaging, or major ad campaigns, it’s worth consulting with a copyright or intellectual property (IP) lawyer. A little legal guidance from a trusted partner never hurts any business.

Protect Your Art and Your Business

AI-generated art is a fascinating area to work in, but understanding fair use is central to protecting yourself.

Remember, while these tools are powerful and imaginative, legal risks remain.
Make sure you use AI art responsibly, understand the rules around fair use, set up an LLC for protection, and consult legal experts when necessary to safeguard your business interests.

Author Bio

Amanda E. Clark is a contributing writer to LLC University. She has appeared as a subject matter expert on panels about content and social media marketing.