Something which is a “derivative work” is still copyrighted. In fact, by definition, a “derivative work” is copyrightable. It’s the minimum threshold at which something, based on something else, gets its own, new copyright.

The algorithm is not copyrighted, but the source code of the function is copyrighted. You could learn how the algorithm works by reading the function, and then write your own function that implements the same algorithm. Algorithms are not copyrightable, they are not subject to copyright. Source code is copyrightable.

Copilot is not reproducing just the algorithm, it is spitting out large chunks of the copyrighted source code, verbatim.