The emergence of DeepSeek AI, a significantly cheaper alternative to Western AI models, has sparked intense debate and concern within the U.S. tech industry. The suspicion that DeepSeek may have utilized OpenAI's data through distillation—a technique that involves training AI models by extracting data from larger, more capable ones—has raised alarms about intellectual property rights and the integrity of AI development. This method is explicitly prohibited by OpenAI's terms of service, prompting OpenAI and its partner Microsoft to investigate the allegations.

The impact of DeepSeek's launch has been felt across the stock market, with Nvidia experiencing a historic 16.86% drop in its share value, resulting in nearly $600 billion being wiped off its market value. Other major players like Microsoft, Meta Platforms, and Google's parent company Alphabet also saw declines ranging from 2.1% to 4.2%, while Dell Technologies, an AI server maker, fell by 8.7%. The sudden market reaction underscores the perceived threat DeepSeek poses to established AI companies and their substantial investments in the technology.

DeepSeek's R1 model, built on the open-source DeepSeek-V3, claims to require far less computing power and was reportedly trained for just $6 million. This stark contrast to the billions spent by American tech giants has not only questioned the financial models of AI development but also led to a surge in DeepSeek's popularity, propelling it to the top of the most downloaded free app chart in the U.S.

In response to these developments, OpenAI has emphasized its efforts to protect its intellectual property and has hinted at closer collaboration with the U.S. government to safeguard its technology from foreign competitors. Donald Trump's AI czar, David Sacks, has also voiced concerns, suggesting that leading U.S. AI companies will take steps to prevent distillation in the coming months.

The irony of OpenAI's situation has not gone unnoticed, with critics pointing out that the company itself has been accused of using copyrighted material from the internet to train its ChatGPT model. In January 2024, OpenAI acknowledged that training AI models without copyrighted material was "impossible," arguing that such data is essential to meet the needs of modern AI systems. This stance has fueled ongoing legal battles, such as the New York Times' lawsuit against OpenAI and Microsoft for the "unlawful use" of copyrighted content, and a separate lawsuit by 17 authors, including George R. R. Martin, alleging "systematic theft on a mass scale."

The debate over the use of copyrighted material in AI training continues to be a contentious issue, with OpenAI defending its practices as "fair use" and supporting journalism and partnerships with news organizations. Meanwhile, legal rulings, such as the U.S. Copyright Office's stance on AI-generated art, further complicate the landscape of AI development and intellectual property rights.

DeepSeek is accused of using OpenAI’s model to train its competitor using distillation. Image credit: Andrey Rudakov/Bloomberg via Getty Images.

As the AI industry grapples with these challenges, the actions of companies like DeepSeek serve as a wake-up call for the U.S. tech sector to reassess its strategies and safeguard its innovations against emerging global competitors.