Again, not a lawyer, just a guy who likes reading this stuff. The devil is usually in the details of copyright cases. The Turnitin case hinged substantially on whether Turnitin's use of copyrighted essays was "fair use". There are four factors[0] which determine fair use; the two more relevant factors here are "the purpose and character of your use" and "the effect of the use upon the potential market". The court found that Turnitin's use was highly "transformative" (meaning they didn't just e.g. republish essays; they transformed the copyrighted material into a black-box plagiarism detection service) and also found that Turnitin's use had minimal effect on the market (this is where "computers don't count" comes in -- computers reading copyrighted material don't affect the market much because a computer wasn't ever going to buy an essay).

I would be shocked if GitHub's lawyers didn't argue that using copyrighted material as training data for an AI model is highly transformative. There may be snippets available from the original but they are completely divorced from their original context and virtually unrecognizable unless they happen to be famous like the Quake inverse square root algorithm. And I think GitHub's lawyers would also argue that Copilot's use does not affect the _original_ market -- e.g. it does not hurt Quake's sales if their algorithm is anonymously used in a probably totally unrelated codebase.

Your counterexample would probably fail both tests -- it's not transformative use if your software hands out complete pieces of copyrighted software, and it would definitely affect the market if Copilot gave me the entire source code of Quake for my own game.

[0]: https://fairuse.stanford.edu/overview/fair-use/four-factors