The issue with distillation is: one lab spends $$$ on bleeding edge R&D and expensive RL runs to improve capabilities, and other labs just yoink the raw reasoning traces and mid-train/post-train on them to get 90% of the way there for a small fraction of the cost.
An even smaller fraction of the cost if they do it by buying AI access at as much of a discount as they can find, including black market resellers, and then reselling that access to paying users again with a proxy. As is common.
This gives ruthless "fast followers" an economic edge over the innovator that's putting in the real work.
The dynamics are very much alike to what patents and copyright law are supposed to prevent. Same type of "we took the products of your work and used them to undercut you". Except there are no laws against distillation - so most of the enforcement happens on model provider level.
An even smaller fraction of the cost if they do it by buying AI access at as much of a discount as they can find, including black market resellers, and then reselling that access to paying users again with a proxy. As is common.
This gives ruthless "fast followers" an economic edge over the innovator that's putting in the real work.
The dynamics are very much alike to what patents and copyright law are supposed to prevent. Same type of "we took the products of your work and used them to undercut you". Except there are no laws against distillation - so most of the enforcement happens on model provider level.