A US appeals court upheld the dismissal of a possession charge against Steven Anderegg, 44, of Wisconsin, who was accused of creating and storing thousands of AI-generated images depicting minors in sexually explicit situations. The Seventh Circuit Court of Appeals ruled Anderegg could not be prosecuted for privately possessing the AI-generated images because they did not involve real children, relying on existing US Supreme Court precedent on private possession of obscene material and fictional depictions of children. The decision applies within the Seventh Circuit, covering Illinois, Indiana and Wisconsin. Court documents alleged Anderegg used the AI model Stable Diffusion to generate thousands of realistic images of minors, with many depicting nude or partially clothed minors displaying or touching their genitals or engaging in sexual intercourse with men; investigators also found sexually explicit text prompts relating to minors on his electronic devices. Anderegg allegedly communicated with a 15-year-old boy and sent him several AI-generated images via Instagram direct messages. The case reached law enforcement after Instagram reported his account to the National Center for Missing and Exploited Children following a CyberTip. Anderegg was charged with producing, distributing and transferring obscene visual depictions of minors, as well as possessing obscene AI-generated images; the appeal dealt only with the possession charge, and other charges remain pending. The judges acknowledged concerns about advances in artificial intelligence, noting AI-generated child sexual abuse images can now be highly realistic and difficult to distinguish from images.