Comment by 0xbadcafebee

No, what was proved in court was that they downloaded and trained on millions of pirated books. The court said their use of books is fair use, but stealing them isn't.

I think we're going to see cases that find distillation is also fair use. You're using the competing model like a book. You pay for it, you use it (read it), it informs your model, but you aren't repeating/reselling what the model told you verbatim. Foreign labs may still run afoul of competing labs' Terms of Service, and they may also pay a settlement (or not, it's a different jurisdiction after all), but the damage is already done. Distillation will become uncontroversial when done legally.