But what an LLM does meets your listed definition of transformative as well
No it doesn’t. Sometimes the output is used in completely different ways but sometimes it is a direct substitute. The most obvious example is when it is writing code that the user intends to incorporate into their work. The output is not transformative by this definition as it serves the same purpose as the original works and adds no new value, except stripping away the copyright of course.
everything it outputs is completely original
[citation needed]
that you can’t use to reconstitute the original work
Who cares? That has never been the basis for copyright infringement. For example, as far as I know I can’t make and sell a doll that looks like Mickey Mouse from Steamboat Willie. It should be considered transformative work. A doll has nothing to do with the cartoon. It provides a completely different sort of value. It is not even close to being a direct copy or able to reconstitute the original. And yet, as far as I know I am not allowed to do it, and even if I am, I won’t risk going to court against Disney to find out. The fear alone has made sure that we mere mortals cannot copy and transform even the smallest parts of copyrighted works owned by big companies.
I would find it hard to believe that if there is a Supreme Court ruling which finds digitalizing copyrighted material in a database is fair use and not derivative work
Which case are you citing? Context matters. LLMs aren’t just a database. They are also a frontend to extract the data from these databases, that is being heavily marketed and sold to people who might otherwise have bought the original works instead.
The lossy compression is also irrelevant, otherwise literally every pirated movie/series release would be legal. How lossy is it even? How would you measure it? I’ve seen github copilot spit out verbatim copies of code. I’m pretty sure that if I ask ChatGPT to recite me a very well known poem it will also be a verbatim copy. So there are at least some works that are included completely losslessly. Which ones? No one knows and that’s a big problem.