Microsoft and OpenAI Investigate Potential Data Breach Involving DeepSeek

Hen Nagel
5 Min Read

Microsoft and OpenAI are probing a possible breach of OpenAI’s systems by a group suspected to be linked to Chinese AI startup DeepSeek.

As reported by Bloomberg, the investigation follows unusual data extraction activity detected in late 2024 via OpenAI’s API. This has raised broader concerns over the intensifying global competition in artificial intelligence.

Microsoft, OpenAI’s largest investor, was the first to identify the large-scale data collection and alerted OpenAI about the incident. Sources suggest the activity may have breached OpenAI’s terms of service or exploited loopholes to bypass restrictions on data access.

DeepSeek’s Rise and Controversy

DeepSeek has rapidly gained attention in the AI industry, especially after launching its latest model, R-1, on January 20.

Positioned as a competitor to OpenAI’s ChatGPT but developed at a significantly lower cost, R-1 has disrupted the tech landscape. Its release contributed to a sharp decline in tech and AI stocks, wiping billions off US markets in just one week.

David Sacks, recently appointed as the White House’s “crypto and AI czar,” has raised concerns over DeepSeek’s methods, suggesting the company may have used questionable techniques to develop its AI.

In an interview with Fox News, Sacks pointed to evidence indicating that DeepSeek engaged in “distillation”—a process where one AI system is trained using outputs from another.

There’s substantial evidence that what DeepSeek did here is they distilled knowledge from OpenAI’s models, and I doubt OpenAI is pleased about it

Sacks stated

Model distillation allows AI systems to mimic the functionality of competitors, often at a fraction of the cost.

When done without proper authorization, this method raises ethical and intellectual property concerns—issues that are becoming increasingly contentious as global AI competition intensifies.

OpenAI has not directly commented on the allegations against DeepSeek but acknowledged the broader risks posed by model distillation, particularly from Chinese firms.

“We are aware that PRC-based companies—and others—are continually attempting to distill models from leading US AI companies,” an OpenAI spokesperson told Bloomberg.

Geopolitical and Security Implications

The escalating competition in AI has now become a matter of national security. CNBC reported that the US Navy has officially banned its personnel from using DeepSeek’s products, citing fears that the Chinese government could leverage the platform to access sensitive data.

In an internal email dated January 24, the Navy warned its staff against engaging with DeepSeek AI “in any capacity” due to “potential security and ethical concerns related to the model’s origins and usage.”

Critics have also scrutinized DeepSeek’s privacy policy, which permits the collection of user data, including IP addresses, device details, and even keystroke patterns.

Experts argue that such extensive data collection is excessive and raises serious privacy concerns.

Earlier this week, DeepSeek reported that its systems were facing “large-scale malicious attacks.” A notice on its website informed users of a temporary restriction on new sign-ups.

AI’s Role in the US-China Tech Rivalry

The intensifying race between the US and China in AI development has brought broader concerns to the forefront, including technological control, ethical oversight, and national security.

Experts warn that as AI systems advance and become crucial to economic and strategic planning, disputes over data use and intellectual property will likely escalate.

Allegations like those against DeepSeek further fuel concerns over China’s rapid AI development and its potential efforts to bypass US safeguards through reverse engineering or other means.

While Microsoft and OpenAI continue investigating the alleged misuse of OpenAI’s platform, the case is being closely monitored by businesses and governments alike.

The outcome could set an important precedent for how AI developers enforce terms of service and protect their models from unauthorized use.

For now, the unfolding situation underscores how AI innovation is no longer just a technological race but a high-stakes geopolitical contest shaping global power dynamics in the 21st century.

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