Microsoft Probes DeepSeek's Alleged Misuse of OpenAI APIs

Microsoft Corp. (MSFT) and OpenAI are investigating whether a group linked to Chinese AI startup DeepSeek improperly accessed OpenAI's technology through its application programming interface (API), Bloomberg reported on Jan. 29. The probe comes as DeepSeek's rapid rise in the AI market has raised concerns about intellectual property protection and competitive dynamics.

Microsoft's security researchers detected suspicious data extraction from OpenAI's API in the fall of 2024, with individuals believed to be connected to DeepSeek allegedly exfiltrating a large amount of data. Microsoft, OpenAI's largest investor, notified the AI company of the activity, which could potentially violate OpenAI's terms of service or indicate an attempt to remove restrictions on data access.

DeepSeek, founded by hedge fund High-Flyer, released its latest AI model, R1, in January 2025. The model has outperformed leading US developers' products on various benchmarks, including mathematical tasks and general knowledge, and was built for a fraction of the cost. The emergence of DeepSeek has sent technology stocks tied to AI tumbling, erasing almost $1 trillion in market value.

David Sacks, President Donald Trump's artificial intelligence czar, suggested in a Fox News interview that DeepSeek may have used OpenAI's model outputs to train its own AI through a process called distillation. "There's substantial evidence that what DeepSeek did here is they distilled knowledge out of OpenAI models, and I don't think OpenAI is very happy about this," Sacks said.

OpenAI acknowledged general concerns about Chinese companies attempting to distill US AI models but did not directly address DeepSeek. An OpenAI spokesperson emphasized the company's countermeasures to protect its intellectual property and the importance of working closely with the US government to safeguard advanced AI models.

The investigation into DeepSeek's alleged misuse of OpenAI's API has significant implications for the broader AI industry. If proven, the incident could lead to stricter intellectual property protection measures, increased scrutiny of AI companies' competitive practices, and potential regulatory responses from both the US and Chinese governments.



Potential Regulatory Responses and Their Impact on AI Development and Competition

1. US Government Response:
- Enhanced data protection measures for AI companies, including OpenAI and Microsoft.
- Investigations and penalties for DeepSeek if found guilty of violating OpenAI's terms of service or US laws.
- Tighter export controls on AI technologies to protect US intellectual property and maintain a competitive edge.
- Collaboration with industry to develop best practices for data security, intellectual property protection, and ethical AI development.

2. Chinese Government Response:
- Investigations and penalties for DeepSeek if found to have violated any laws or regulations.
- Strengthened data localization requirements to maintain control over AI data and technology.
- Support for domestic AI companies, including funding, tax incentives, or other forms of assistance.
- International cooperation on AI regulation to address concerns about data security and intellectual property theft.

In conclusion, the alleged misuse of OpenAI's API by DeepSeek has raised serious concerns about intellectual property protection and competitive dynamics in the AI industry. The investigation into the incident may lead to regulatory responses from both the US and Chinese governments, shaping the future of AI development and competition. By working together and with industry partners, the US and Chinese governments can help ensure that AI development is conducted responsibly and ethically, while also protecting intellectual property and maintaining a competitive edge in the global AI market.