Posting individual paragraphs verbatim is still ok. An individual paragraph(s) is not a replacement for the whole book. Websites post extracts of books all the time (like the google example in the article), that is not enough of a bar for copyright infringement.
Yes the plaintiff's disagree but just because they disagree does not make them right. I simply explained why, even if it outputs who whole paragraphs of the copyrighted work, it can still be considered as free use. If I cite a paragraph of an article in my youtube video, I can claim fair use.
I do not know if the judge will see it this way of course and I am not a lawyer.
OpenAI's business is not based on regurgitating the work. It is based on providing output derivated from those works. No buys an OpenAI subscription to get the AI to give you an existing book. People buy it to have OpenAI generate the next original book.
But what about the images. The italian plumber who looks very much like SuperMario mentioned in the article. How would a judge not punish a company selling visual representations of a character that is copyright owned by someone else?
That looks indeed like a case where any regurgitation becomes a problem in my opinion. I think the closest thing to this would be Fan-art. If I draw a picture of Mario for fun and post it online, it remains fair use as long as its not commercial or used for promoting a product (from my limited understanding). In the OpenAI case they sell subscriptions to their service. You can therefore make the case that they are selling Fan-art for profit.
This leads me to think companies that own this kind IP have a more solid case against OpenAI. It is entirely possible that New York Times loses the lawsuit but Nintendo wins if they sue.