> I wonder does OpenAI has permission from all authors of works it "inappropriately distilled"?

The rulings are leaning towards it being transformative enough to be fair use, so permission may not be required [1]. We'll have to see how it goes with Disney vs Midjourney.

> I think there should be a system that if country A illegally uses works of country B for developing an AI, it loses copyright protection in country B.

This would be pointless with China, since it's already how they operate, as continuously reported by the WTO.

But, I see your point.

[1] https://www.whitecase.com/insight-alert/two-california-distr...