Fairness isn’t the relevant lens. Copyright isn’t the right lens either. This is purely might-makes-right, where the winner is whoever has the best offence and best defence.

It is only hypocritical when they bitch about things being unfair, or try to use copyright arguments in the court system.

Well their justification is that distillation is bad because it means baddies can get their own models without their safeguards and then make anthrax nukes or whatever. Even though it's self serving, it's at least self-consistent.