That is not true. The dataset is needed, the same way that examples are used by a person learning to draw. But the dataset alone is not capable of producing images not derived from any part of it (and there are many examples of SD results that seem so far to be wholly original), so you can’t reduce stable diffusion to being only derived from the dataset. It may “remember” and generate parts of images in the dataset - but that is a bug, not a feature. With enough prompt tweaking, it may even generate a fairly good copy of pre-existing work - which was what the prompt requested, so responsibility should lie on the prompt writer, not on SD.

But the fact that it often generates new content, that didn’t exist before, or at least doesn’t breach the limits of fair use, goes against the argument made in the lawsuit.