If you take a step back, you can see that there are different ways to frame what is happening. One frame is: “Defendant built an algorithm that memorized features of Plaintiff’s IP. Defendant’s algorithm recombines parts of those features in order to produce works in the same domain that compete with Plaintiff’s work, all without Plaintiff’s consent.”
Bear in mind that copyright holders are among the most litigious out there. If generative art becomes as big a deal as some people expect, they will have every incentive to use their huge litigation budgets to claim a piece of the action.
Because the law develops very slowly, the legal process has not yet had the occasion to really evaluate what transformative use means in this novel context. I’m personally interested in seeing where things go, but it’s going to be a while before we know where the law is headed.