As noted in OP, this is an outstandingly bad definition of Deep-Neural-Networks, and the lawsuit should fail when the court hears an explanation from any competent practitioner.
However, a correct definition would make the lawsuit far more interesting, imo. Diffusion models can be compared to a superhumanly talented artist that can be cloned in unlimited fashion by anyone having the software and hardware means. How does this entity affect social well-being, how should existing laws be modified--if at all-- with the welfare of humanity in mind, etc?