I often ask Claude to reason out loud, and this indicates that instead of explicitly blocking flagged requests the model output will be purposefully degraded.

Apparently not. (Or not anymore.)

It's not like they can actually prevent distillation anyways even by hiding the thinking output, since you can just turn extended thinking off and all current Claude models will switch to thinking in the open (non-reasoning output) instead whenever it encounters a hard agentic task. So all it takes for distillation to continue to happen is for some real users to sell a competing AI lab their real usage trajectory data which is entirely undetectable by definition, and many people would probably be glad to do it.

We're obviously nowhere close now, but if we get to a world AI becomes powerful, and powerful AI can be used to create misaligned powerful AI, you may have to start regulating powerful AI like refined uranium processing tech, which is regulated more heavily than refined uranium itself.

And they say: "This includes detection of chain-of-thought elicitation used to construct reasoning training data." ... "We are developing Product, API and model-level safeguards designed to reduce the efficacy of model outputs for illicit distillation, without degrading the experience for legitimate customers."

It's going to be very hard to generate outputs that people need but that also can't be used for distillation. For example, it's a good practice for many reasons including audibility to ask for the chain of thought. In fact, I'd argue it's essentially impossible to modify the outputs in a way that makes them less useful for distillation without degrading quality for legitimate users.

So then their only viable option is to try to identify the traffic. However, that is very hard because: "In one case, a single proxy network managed more than 20,000 fraudulent accounts simultaneously, mixing distillation traffic with unrelated customer requests to make detection harder."