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One potential regression that I see is that the current generative models are abandoned, after being ruled as "infringing copyrights" by multiple countries. The tech itself won't disappear but it'll be considerably harder to train newer ones.
The most problematic part is however if one of them survives; likely Google. That would lead to a situation as in your second paragraph.
Law makers will start treating the open source community like pirates because they make LLMs freely available for anyone to run at home. And sure you can debate whether it’s theft or not but you know that’s not why regulations go after them. Meanwhile the mass theft of corporations will be deemed „ethical“ use because they „own“ the data they use. Lobbyism will likely make sure of that I‘m afraid.
It would be fair if they at least were free like Stable Diffusion, but both dall-e and midjourney charge fees.