But distillation is not theft. They are paying for the usage of the API. It is also not copyright infringement, as AI companies do not hold the copyright for the output of their models.

> But distillation is not theft.

Legally no, but I think an honest reading of the 'fair use' statute doesn't actually pass the 'doesn't compete with the author's original work' aspect of fair use, even if the use is transformative.