MUNICH (Reuters) -A German court on Tuesday sided with the country's music rights society GEMA in a closely watched copyright case against U.S.-based artificial intelligence firm OpenAI.

The court in Munich ruled that OpenAI could not use song lyrics without a license and presiding judge Elke Schwager ordered the firm to pay damages for the use of copyrighted material.

GEMA had argued OpenAI's chatbot ChatGPT reproduces lyrics from copyrighted German songs without authorisation, and that its AI was trained on protected content from the repertoire of its roughly 100,000 members, who include best-selling musician Herbert Groenemeyer.

OpenAI responded by saying that GEMA's arguments reflected a misunderstanding of how ChatGPT works.

The case could set a precedent for how generative AI systems are regulated in Europe. GEMA is seeking the establishment of a licensing framework that would require AI developers to pay for the use of musical works in both training and output.

The decision can be appealed. OpenAI and GEMA said they would issue statements on the verdict later on Tuesday.