However, where does one draw the line between fair use and derivative works?
Creating something based on other stuff (Google creating AI books from the existing ones for example) would possibly be fair use I think but would it not also be derivative works?
There's no clear line and there can never be because the world is too complex. We leave up determination to the court system.
Google Books is considered fair use because they got sued and successfully used fair use as a defense. Until someone sues over Copilot, everyone is an armchair lawyer.
However, where does one draw the line between fair use and derivative works?
Creating something based on other stuff (Google creating AI books from the existing ones for example) would possibly be fair use I think but would it not also be derivative works?