Yeah but they were still vulnerable to obscenity charges- in the case you cite Handley took a plea deal and served six months in jail because he was certain that the jury would find him guilty of obscenity (the deal kept him from having to register as a sex offender).

Obscenity has no 1st Amendment protections. As defined by the Supreme Court the standards for it are they are relative to the community around you, n.b. the physical community not the virtual one. So, when a victim of a non-consensual generated CSAM image sues a company in her (99% of such victims are women) locale, who would the jury rather vote for, the underage victim of a non-consensual generated CSAM image, or the company that generated the image?