In the most extreme case depending on how case law shakes out, the use of the models by a third party and distribution of the results will incur statutory damages for each work the model was trained on. This could bankrupt Microsoft for offering indemnification to even a tiny company, but as a response Microsoft could instead breach contract and not provide the indemnification. After the company goes bankrupt shareholders could only sue them for for the damages of not indemnifying you, limiting the liability to the size of the company that was sued into oblivion and not expanding out to unlimited liability for MS.
They probably have wording to prevent a mandatory injunction where you would compel the indemnification before the bankruptcy.
This makes sense. When I read the article I couldn't help but think of the legal fiasco between the IRS and the Church of Scientology.
I wonder if this is part of a broader strategy to get people comfortable with copilot in a similar way to how Uber got people comfortable to their product even though they were operating in a legal grey area. At a certain point the public becomes accustomed to it so the lawmakers just cave in to the demand.
They probably have wording to prevent a mandatory injunction where you would compel the indemnification before the bankruptcy.