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While testifying in California, Musk described such “distillation” techniques as common in AI labs, and acknowledged that xAI had used them “in part.”
The admission comes amid a broader crackdown by leading AI companies, including OpenAI and Anthropic, against third parties that use their models to train competitors’ systems. Distillation typically involves systematically querying advanced chatbots or APIs to extract patterns and replicate their capabilities in smaller or cheaper models.
While much of the recent debate has focused on Chinese developers leveraging distillation to build low-cost, high-performance systems, Musk’s testimony underscores that the practice is not unique to overseas counterparts. Industry insiders have long assumed that US-based labs are quietly using similar tactics to stay competitive in a fast-moving market.
Musk’s statement came as part of his ongoing lawsuit against OpenAI, CEO Sam Altman, and co-founder Greg Brockman. The case centered on claims that OpenAI was deviating from its original for-profit mission by shifting to a for-profit structure, and the trial drew new attention to the company’s evolution and competitive practices.
READ ALSO: AI competition escalates when Elon Musk targets OpenAI in court testimony
The implications of distillation are significant. By lowering the cost barrier to building capable AI systems, these techniques threaten the advantages held by companies that have invested heavily in computing infrastructure and proprietary training pipelines. At the same time, this raises unresolved legal questions, as such methods may violate the platform’s terms of service even if they do not clearly violate existing laws.
In response to growing concerns, major AI developers—including OpenAI, Google, and Anthropic—have reportedly begun coordinating efforts through the Frontier Model Forum to detect and limit large-scale query patterns related to distillation. These steps aim to protect the integrity of the model as competition increases globally.
In his testimony, Musk also considered the competitive landscape and ranked Anthropic as the current AI leader, followed by OpenAI, Google and China’s open source model. He positions xAI as a relatively small player with just a few hundred employees, despite xAI’s ambitions to challenge industry leaders.
