In Silicon Valley, admiration for the technical prowess of Chinese start-up DeepSeek is quickly giving way to a hardline defensiveness. According to a memo to US lawmakers accessed by Reuters, OpenAI has officially raised the alarm over the methods used by its Hangzhou-based rival. The creators of ChatGPT claim that DeepSeek has not only challenged US dominance, but has done so by systematically draining the intellectual value developed by US-based labs.
The essence of the dispute centres around the distillation process. While this is a familiar technique in the open-source world, OpenAI gives it a predatory character in this context. According to the company led by Sam Altman, DeepSeek employees were said to use extensive infrastructure, including obscure third-party routers, to programmatically circumvent security and extract data en masse from OpenAI models. The aim was to ‘feed’ the company’s own algorithms with responses generated by more sophisticated systems, which in practice dramatically reduces the time and cost of training the model while maintaining high quality results.
For policymakers in Washington and business leaders, the message is clear: Chinese models such as DeepSeek-V3 or R1, which until recently were praised for their cost-effectiveness, may be the product of clever reverse engineering, not just a breakthrough in algorithmics. OpenAI calls this ‘free riding’, suggesting that Chinese competitors are taking shortcuts not only in terms of development, but also in terms of AI security.
From a business strategy point of view, the OpenAI movement – to proactively remove accounts linked to distillation attempts – marks the end of an era of naive openness. If the most powerful models are to serve as free tutors for third-party rivals, the boundary between public APIs and intellectual property will become a major point of legal and political contention. For investors, the key question remains whether DeepSeek’s success is evidence of a waning US advantage, or merely a signal that the barriers to entry into the top AI league are easier to leap over using data developed by competitors.
