Apparently, MJ is now in conflict with Stable Diffusion developer over image theft. Ironic.
According to a recent tweet shared by AI enthusiast Nick St. Pierre, the alleged theft occurred last Saturday. It is claimed that employees from Stability AI infiltrated Midjourney's database and stole all prompt and image pairs, an action that also caused a 24-hour outage. In response, MJ reportedly banned all Stable Diffusion developers from its services, a move supposedly disclosed internally within the company on Wednesday.
AI generated images are not, and should not be considered copyright able, and they don't own the right to the image they generated, as I understand it.
Otherwise, Midjourney are certainly very welcome to start paying royalties to certain popular celebrities whose images they are profiting off of. You can't have it both ways.
Iirc the only precedent we have is that the AI algorithm itself cannot hold the copyright to what it creates, as one artist wanted it to be. Basically the same thing as the famous monkey selfie.
If the copyright of a generated image can be claimed by the creator of the algorithm, or the user who wrote the prompt, and how much human effort is required for it is still unknown.
The image output themselves might not be protected by copyrights. However, that does not mean that there are no rights over the code (or prompts) used to generate those images or over the database compilations themselves (https://www.copyright.gov/reports/appendix.pdf).
The code is obviously protected by copyright. Not sure why anyone would question that?
If the prompt is protected, then the output image will be too (and by the same owner). I suspect it depends on how detailed the prompt is (just like a tweet might not be eligible for copyright, unless it's a particularly creative joke/haiku/etc).