OpenAI says it has uncovered evidence that Chinese AI startup DeepSeek used its proprietary models to train a competing open-source model, potentially violating the company's terms of service.
The discovery centers around a technique called "distillation," where developers use outputs from larger AI models to train smaller ones. The practice is common in AI development, but OpenAI claims DeepSeek crossed a line by using it to build a rival model.
"The issue is when you take it out of the platform and are doing it to create your own model for your own purposes," a source close to OpenAI told the Financial Times.
DeepSeek's R1 reasoning model has attracted widespread attention in the tech industry for achieving comparable results to leading US models at a remarkably low cost. The company claims it spent just $5.6 million on development, which is a fraction of what companies like OpenAI and Google typically invest. The app this week reached the number one position on Apple's App Store free charts in multiple countries, including the US.
Asked about OpenAI's allegations in an interview with Fox News, White House AI czar David Sacks didn't mince his words.
"There's substantial evidence that what DeepSeek did here is they distilled knowledge out of OpenAI models, and I don't think OpenAI is very happy about this," he said.
The controversy has already had market implications. Nvidia saw its shares drop 17% on Monday, wiping a one-day record $589 billion off its market value, as investors questioned whether expensive AI hardware investments might be unnecessary if companies can achieve similar results with fewer resources.
According to Bloomberg, OpenAI and Microsoft reportedly investigated and blocked accounts in August for suspected terms of service violations, and they now believe these accounts were associated with DeepSeek. Both companies have declined to provide specific details about their evidence.
