DistillGuard: Evaluating Defenses Against LLM Knowledge Distillation

Knowledge distillation is a widely adopted technique for transferring capabilities from LLMs to smaller, more efficient student models. However, unauthorized use of knowledge distillation takes unfair advantage of the considerable effort and cost put into developing frontier models. We investigate methods for modifying teacher-generated reasoning traces to achieve two objectives that deter unauthorized distillation: (1) anti-distillation, or degrading the training usefulness of query responses, and (2) API watermarking, which embeds verifiable signatures in student models. We introduce several approaches for dynamically rewriting a teacher's reasoning outputs while preserving answer correctness and semantic coherence. Two of these leverage the rewriting capabilities of LLMs, while others use gradient-based techniques. Our experiments show that a simple instruction-based rewriting approach achieves a strong anti-distillation effect while maintaining or even improving teacher performance. Furthermore, we show that our rewriting approach also enables embedding watermarks that can be reliably detected with essentially no false alarms. Our code is available at https://github.com/xhOwenMa/trace-rewriting.

Detecting unauthorized knowledge distillation from a deployed LLM API is hard because the defender controls neither the attacker's training pipeline nor the next-token logits. Existing defenses operate on the teacher's output tokens -- biasing the next-token distribution (green-list watermarks, cryptographic schemes, antidistillation sampling) or rewriting outputs after generation. Recent work shows a paraphrasing attacker can strip these signals without losing the underlying knowledge. We propose interaction-layer antidistillation watermarks, which move the trace one layer higher, into the teacher's interaction behavior: the defender wraps the teacher with a system prompt that intermittently induces a behavioral marker -- an explicit follow-up question, a low-frequency variant, or a declarative restatement. An oblivious distiller inherits the behavior, and the defender audits via black-box queries with a human-validated LLM-as-judge (Cohen's kappa = 0.84/0.78 on strong/style rubrics). Across 63 LoRA-distilled students under a Llama-3.3-70B-Instruct teacher (35,343 judged samples), behavioral watermarks transfer at 88.9% (Gemma) / 80.9% (OLMo) / 45.2% (Qwen) relative fidelity (H1, H2). Under non-adaptive DIPPER paraphrasing, robustness decomposes into a teacher-self ceiling (about 66.4%) and student-relative retention of 21-112%, with OLMo preserving the watermark above the teacher itself (H3, F-Amp). Low-density (about 20%) explicit and implicit declarative variants transfer above per-family baseline (H4, F-Style). An N=20 in-lab study (pre-registered Latin-square) shows all marker variants within 0.22 Likert step of baseline; TOST, Friedman, and Bonferroni-Wilcoxon support H5. The interaction layer is a viable design locus for antidistillation watermarking, complementary to token-, model-, and reasoning-trace-layer defenses.

Black-box LLMs (accessible only via API) are vulnerable to distillation attacks, in which an attacker queries the model and trains a student on its outputs. A recent line of work proposes output perturbation defenses that modify the teacher's output to reduce student performance while preserving utility for legitimate users. As a relatively new family of approaches, output perturbation defenses lack a shared threat model, making it difficult to compare them, reason about composing them with other attacks, or evaluate their robustness against realistic adversaries. This underspecification matters beyond technical evaluation: when defenses are deployed to protect intellectual property or justify regulatory compliance, an imprecise threat model can create a false sense of security. We propose a threat model framework that describes attackers along three dimensions: a query budget, a data budget, and an interface profile that captures how attackers interact with the API. Using antidistillation sampling as a case study, we show that whether the defense is considered effective depends on the assumed threat model. We argue that future work on distillation defenses, along with any governance or policy frameworks built around them, should explicitly specify and stress-test attacker capabilities along our three dimensions.