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I’m pretty sure that he wanted to go this route so he could have automatic copyright ownership of literally anything people using his AI generator prompted from it. There’s already ways that artists can take AI output and pretty easily make it something that can get copyright protection. It really seems like he was just angling to own by default anything that is generated using his AI.
Yeah you’re right about the derivative works thing. I glossed over it mostly because that seemed pretty much useless to me in the realm of visual art. But I suppose there are a few scenarios where that ability to get protection is meaningful.
Either way, I can’t see a way that this would have been good for anyone if this guy got what he wanted.