Microsoft’s Nadella calls out Big AI for hypocrisy — but what about his own company?

Microsoft CEO Satya Nadella called out Big AI companies for hypocrisy, arguing they claim fair use to train on copyrighted public data but then restrict smaller AI firms from using their models via distillation. Nadella's own company, Microsoft, has invested heavily in OpenAI, which uses copyrighted material without permission, raising questions about his stance.

The 19th-century French novelist Honore de Balzac is believed to have said that behind every great fortune lies a great crime. That’s even more true today than it was 200 years ago — just look at how Big AI, including Anthropic, OpenAI, Google, and others have built their trillion-dollar fortunes. They all use vast amounts of copyrighted material to train their large language models LLMs without paying the copyright holders. In other words, they steal it. They don’t call it stealing, though. They call it “fair use,” which in this case amounts to the same thing. Generative AI genAI training requires massive amounts of text. The better-written and more information-dense that text is, the more it helps. AI gets a lot smarter a lot faster when it’s trained on well-written books and magazine and newspaper articles than when it’s trained on social media banter or most everything else you find on the internet . Since the dawn of AI, companies have been hoovering up copyrighted material wherever they find it https://www.computerworld.com/article/3992196/ai-vs-copyright.html — on the open web, behind paywalls, even in manually scanned books — and then used the scanned text. And they do it all without asking authors’ or publishers’ permissions, and without paying them. It’s the greatest intellectual property theft in history by a long shot — billions and billions of dollars worth. Books, articles, music, photographs, artwork, you name it. If a human being has created it, Big AI has likely grabbed it and ingested it without asking, then made big profits off it. I know this from personal experience; I’ve got skin in the game. Big AI companies have used at least 30 of my books to train their models without asking. And that’s only what I’ve confirmed. Big AI might well have stolen even more. And it also might have stolen many of the thousands of articles I’ve written through the years. For the AI bigwigs, it’s standard operating procedure. So it was surprising to see Microsoft CEO Satya Nadella calling out Big AI for its hypocrisy in using other people’s intellectual property without paying, then crying foul when small AI companies use Big AI’s work to train their own models using a technique called distillation. He wrote on X: https://x.com/satyanadella/status/2076323181154230284 “While the great innovation that comes from model providers having fair use rights to train models on public data is needed, I find it ironic that the status quo is to then turn around and impose restrictive terms on distillation, and to reserve the right to learn from customer usage and interaction data.” One important note here: Nadella believes Big AI should be allowed to steal copyrighted material for training purposes. He makes that clear by his mention of “fair use.” His issue is that he believes smaller AI companies should be able to use Big AI’s work to train their models — and Big AI doesn’t want to let them do it. Alistar Barr, in Business Insider , makes a related point https://www.businessinsider.com/ai-giants-learn-hard-truth-modern-internet-anthropic-openai-google-2026-7 : “Anthropic, OpenAI, and Google are discovering what the rest of the internet has already learned through painful experience: once you put something online, people will find ways to use it in ways you don’t like and can’t stop.” Before we look at whether Nadella is right in calling Big AI’s actions hypocritical, let’s examine the technique at the heart of the issue: distillation. Distillation refers to an AI training technique in which you take outputs from one AI model, such as the answer to a prompt, and use that output to train your own model. AI companies do that quite frequently and have been doing so for a long time. Barr explains distillation this way: “Distillation looks an awful lot like what AI companies have been doing to the rest of the internet. Scrape web content for free and without permission. Turn it into a product you sell. Argue it’s fair use. Hope the lawyers sort out the details later.” Elon Musk has admitted his company xAI used distillation techniques to take output from competitor OpenAI to train xAI’s Grok chatbot https://techcrunch.com/2026/04/30/elon-musk-testifies-that-xai-trained-grok-on-openai-models/ . He explained, “Generally AI companies distill other AI companies.” Analysts point out the AI industry is built on distillation. Neil Shah, vice president of research at Counterpoint Research says, “The reality is none of the models is an island and the entire industry has mostly evolved based on recursive learning. The newer entrants are in many instances going through the same routes of ‘distillation’ and ‘optimization.’” It’s only become an issue now because Chinese AI companies have been using distillation techniques to catch up to American AI companies. OpenAI CEO Sam Altman has been pressuring the US to take legal action against the Chinese companies. https://www.reuters.com/world/china/openai-accuses-deepseek-distilling-us-models-gain-advantage-bloomberg-news-2026-02-12/ Anthropic has piled on as well, saying the fight against distillation requires a coordinated response across the AI industry, cloud providers, and policymakers. https://www.bloomberg.com/news/articles/2026-02-23/anthropic-says-deepseek-minimax-distilled-ai-models-for-gains So are OpenAI, Anthropic and other big US AI firms hypocritical, as Nadella claims? Absolutely. They’ve built their businesses on the theft of billions of dollars of stolen intellectual property and call it fair use. Now, they’re playing the victims when competitors do the same to them. They’re also in some cases paying up; Anthropic just last week settled a copyright suit https://www.computerworld.com/article/4199581/anthropic-pays-billion-dollar-settlement-in-copyright-case.html , paying out $1.5 billion. It’s good to see Nadella call out their hypocrisy. But Microsoft is as guilty of intellectual theft as the others — its AI Copilot is powered by OpenAI’s and Anthropic’s chatbots. The company faces major lawsuits for intellectual property theft. Among them is one by the New York Times, New York Daily News, and Center for Investigating Reporting https://en.wikipedia.org/wiki/The New York Times v. Microsoft and OpenAI , another by So, don’t praise Nadella for speaking out. Criticize him and other AI tech leaders for stealing billions of dollars in intellectual property from countless writers and publishers and calling it fair use.