It's definitely real, in the sense that it's a real violation of ToS. It could perhaps be used to guide a few narrow capabilities in very specific domains, given a model that's already most of the way there. But no, it's nowhere near the same as "stealing" a model outright, nor does it replace basic innovation in AI. And it's indistinguishable from practices that have long been common in the industry as a matter of fact, regardless of any ToS requirements.
Oh, I agree distillation isn't stealing "outright" as in it's not theft of 100% of the model. But there's a reason they're doing it. I didn't say anything about Chinese labs innovating -- obviously they are.
What accounts for the difference between your attitude that distillation is no big deal, "common practice," yet Anthropic sees as it as a huge threat?