What would happen if they mass distilled one of the really large local models like GLM 700b or deepseek 1.6t?

At that point you might as well just host them yourself.

Those already exist.

That's not how the innovation works

Innovation is a pretty neutral concept. It doesn’t care about things like “what if my model learns from other models” as opposed to “what if my model learns from data I painfully curated” if the model progresses the same.

Innovation is teaching your model on stolen data from literally everywhere but other models.