Is that fair use, or is that compression of the verbatim source?
You can't in particular iterate it sentence by sentence; you're unlikely to go past sentence 2 this way before it starts giving you back it's own ideas.
The whole thing is a sleigh of hand, basically. There's 42% of the book there, in tiny pieces, which you can only identify if you know what you're looking for. The model itself does not.
No, it really couldn't. In fact, it's very persuasive evidence that Llama is straight up violating copyright.
It would be one thing to be able to "predict" a paragraph or two. It's another thing entirely to be able to predict 42% of a book that is several hundred pages long.
Copyright takes into account the use for such the copying is done. Commercial use will almost always be treated as not fair use, with limited exceptions.
Copyright is quite literally about the right to control the creation and distribution of copies.
The creation of the unzipped file is not treated as a separate copy so the recipient would not be violating copyright just by unzipping the file you provided.