A federal appeals court has ruled that the First Amendment may protect private possession of AI-generated child sexual abuse material, exposing a critical gap between existing laws and the rapid advancement of artificial intelligence technology. The decision, handed down by Judge John Z. Lee of the U.S. Court of Appeals for the 7th District on August 31, 2026, upheld a lower court's dismissal of possession charges against Steven Anderegg of Wisconsin, who allegedly used Stable Diffusion, an open-source AI image generator, to create thousands of explicit images of children.

The ruling highlights a troubling reality: laws designed decades ago to combat child sexual abuse material (CSAM) involving real children are now being tested by synthetic imagery that never involved an actual victim. Judge Lee acknowledged this tension in his decision, writing that "given the relentless advancement in artificial intelligence models, we have some concerns about the lines these cases draw, but we are not free to redraw them ourselves". The judge urged the Supreme Court to reconsider how virtual abuse material should be regulated in the age of AI.

Judge Lee

What Makes AI-Generated CSAM Different From Traditional Abuse Material?

The legal distinction between AI-generated and real-world child abuse imagery has become increasingly important as the technology improves. In Anderegg's case, the Justice Department charged him under federal obscenity laws, arguing that producing and distributing AI-created abuse material violated the law even though no real child was depicted. However, the lower court disagreed on the possession charge, finding that private ownership of synthetic material without a real victim may fall under First Amendment protections.

The situation becomes more complex when AI tools are used to manipulate existing images. In some cases, innocuous photos of real people as minors are edited using AI to create explicit material bearing the person's actual face. Judge Lee's decision noted that the Supreme Court has already made an exception for "morphing" images of real children into sexual poses, classifying such material as child pornography because it harms real children by exploiting their likenesses.

Eric Goldman, a law professor at Santa Clara University School of Law, emphasized that the ruling does not eliminate prosecution for AI-generated abuse material. "It might be regulated differently or protected by the Constitution differently," Goldman explained, noting that the decision is "a reminder to the world that virtual CSAM may be different than actual CSAM".

How Are Law Enforcement and Tech Companies Responding to the Flood of AI-Generated Reports?

The practical impact of AI-generated abuse imagery is straining the systems designed to combat real-world exploitation. For decades, online platforms have relied on a reporting pipeline run by the National Center for Missing and Exploited Children (NCMEC), a nonprofit that allows companies to automatically compare suspected abuse material against a database of digital fingerprints, known as hashes. However, the organization recently told Congress that it is being overwhelmed by the deluge of reports from tech companies about suspected AI-generated abuse material.

The challenge extends beyond volume. NCMEC reports that many of these submissions lack basic information that law enforcement needs to investigate effectively. In Anderegg's case, law enforcement learned about his activity through a "CyberTip" to NCMEC from Meta, which owns Instagram, after he allegedly sent images via direct message.

• Reporting Pipeline Strain: The NCMEC system, originally designed to identify real abuse material, is now inundated with reports of synthetic imagery, reducing its effectiveness for actual child protection cases.
• Missing Investigation Data: Many AI-generated CSAM reports lack the basic information law enforcement needs, such as details about the source, distribution method, or technical metadata that could help identify perpetrators.
• Distinction Challenges: Law enforcement must now determine whether reported material depicts a real child or is entirely synthetic, a task that requires technical expertise and resources that many agencies lack.

Riana Pfefferkorn, a policy fellow at the Stanford Institute for Human-Centered AI, noted that the ruling does not prevent federal prosecution of people creating virtual abuse material. "If all you can do is privately possess something, well, how do you come into possession of it? Either you produce it, or you receive it from somewhere," Pfefferkorn explained. The decision does not protect acts like downloading images from a third-party site or taking a device storing the images outside the home, she added.

What Steps Could Lawmakers Take to Address the Legal Gap?

Legal experts believe the Supreme Court is likely to take up this case, given the constitutional questions it raises and the growing urgency of the problem. Daniel Lyons, a law professor at Boston College, noted that "there is a decent chance the Supreme Court will take up the case," particularly because the Court recently revisited early-internet-era speech and pornography decisions affecting children. Last year, the Supreme Court upheld Texas's right to require pornography websites to verify a user's age before granting access, signaling willingness to address evolving technology and child protection.

Lyons emphasized that tightening restrictions on AI-generated child sex abuse material is necessary because the growing number of synthetic images is straining a system originally created to combat explicit imagery of real children. The current legal framework, built on precedents from 1969 and 2002, was not designed to address a world where realistic abuse imagery could be created without any real victim.

Stability AI, the company behind Stable Diffusion, stated that it "is committed to preventing the misuse of AI technology, particularly in the creation and dissemination of harmful content, including CSAM". However, the open-source nature of models like Stable Diffusion means that once released, developers have limited control over how the technology is used.

The case underscores a broader challenge facing regulators and lawmakers: artificial intelligence is advancing faster than the legal system can adapt. As Judge Lee wrote, the courts are "not free to redraw" the lines themselves, leaving the responsibility to Congress and potentially the Supreme Court to update laws for an era where synthetic imagery can be indistinguishable from reality.