In case it's not clear, Kno very likely hasn't committed a terrible crime here. Their Journal feature is a digital alternative to something students have been doing for the longest time. Have you ever photocopied page from textbook? That's all the Journal is doing. What's more, students have to own the textbook before copying parts of it, and it doesn't look like they can export the Journal. This means that the Journal is actually less of an infringement than photocopying a paper textbook.
And do you know the really strange part of this lawsuit? Students copy parts of textbook for academic purposes, and that activity is clearly covered under fair use as well as being quite common behavior. The fact that Cengage objects to it demonstrates a pattern of behavior that verges on the psychotic (in the technical sense of being disconnected from reality).
But since it is so bizarre, one has to wonder what their motive really is. I'm looking over this story now, and I can tell that someone is leaving something out. Either Kno carefully edited their filings, or Cengage has an ulterior motive for breaking the contract.
Part of the reason I know there's more to this story is that Kno's Journal is not the first of its kind. The Kindle has supported exporting highlights for some years now, and Cengage still has textbooks in the Kindle Store. What makes Kno different?
This story is not as simple as it first appears, and that is a good thing. Because if it really gets decided based on students copying parts of textbooks then we could all be screwed.
If Kno loses, the decision could set a legal precedent. Every app or ereader that offers a highlights menu or the ability to export or share highlights would become as much of an infringement as Kno's Journal. We would soon see developers pulling this feature out of a justifiable fear that they might be sued. And that would hurt us all.
But I'm not too worried yet; I don't expect Cengage to continue with this insanity. If anything, the real reason for this fight will eventually be revealed.