Elon Musk Files Injunction Against OpenAI's For-Profit Transition

Legal Challenge to OpenAI: Elon Musk Seeks Injunction

Elon Musk, through his legal representatives, has requested a preliminary injunction against OpenAI, its founders, and investor Microsoft. The aim is to halt actions perceived as anticompetitive.

The injunction motion, submitted late Friday to the U.S. District Court for the Northern District of California, targets OpenAI, CEO Sam Altman, President Greg Brockman, Microsoft, LinkedIn co-founder Reid Hoffman, and Microsoft VP Dee Templeton. It alleges a series of questionable practices.

Specific Allegations Against OpenAI and Microsoft

• Discouraging investment in competing AI companies, including xAI, Musk’s own venture.
• Utilizing competitively sensitive information obtained through the OpenAI-Microsoft partnership.
• Altering OpenAI’s governance to a for-profit structure and transferring assets.
• Engaging in business dealings where defendants have significant financial stakes.

Musk’s legal team contends that failing to grant the injunction will result in “irreparable harm.”

They argue a temporary pause is necessary to preserve OpenAI’s original nonprofit character and prevent self-dealing. Without intervention, the OpenAI initially envisioned by Musk and the public will be lost before a full legal review can occur.

This motion represents the latest development in Musk’s ongoing legal dispute with OpenAI. He accuses the company of abandoning its commitment to open access to AI research.

Musk initially withdrew a similar suit in July, but revived it this summer. An amended complaint earlier this month expanded the list of defendants to include Microsoft, Hoffman, and Templeton, alongside new plaintiffs Shivon Zilis and xAI.

Musk claims he was defrauded of over $44 million in donations to OpenAI, based on concerns about the potential dangers of AI. He left the company in 2018 due to disagreements over its strategic direction.

OpenAI’s Evolution and xAI’s Emergence

OpenAI began as a nonprofit in 2015, later transitioning to a “capped-profit” model in 2019. Currently, the company is moving towards a full for-profit structure, while maintaining a separate nonprofit entity.

In response to OpenAI’s shift, Musk founded xAI last year. The company has since launched Grok, an AI model powering features on his social network, X (formerly Twitter). xAI also provides an API for integrating Grok into other applications.

Musk’s attorneys assert that OpenAI is hindering xAI’s fundraising efforts by requesting investors to refrain from funding competitors. Reports indicate OpenAI demanded this of investors in its recent funding round.

Musk’s counsel confirms that at least one investor who participated in OpenAI’s October funding round subsequently declined to invest in xAI.

Despite this, xAI has successfully secured substantial funding, reportedly closing a $5 billion round with investments from firms like Andreessen Horowitz and Fidelity. With approximately $11 billion in funding, xAI is among the most well-funded AI companies globally.

The injunction motion further alleges illegal sharing of proprietary information between Microsoft and OpenAI, and instances of self-dealing by defendants like Altman. For instance, OpenAI chose Stripe, a payment platform with Altman’s significant financial interest, as its payment processor.

Microsoft’s investment in OpenAI, totaling around $13 billion since 2019, grants it a roughly 49% stake in the company’s earnings. Microsoft also provides OpenAI with crucial cloud computing resources for AI model development and operation, including ChatGPT.

Conflicts of Interest and Governance Concerns

Musk’s attorneys highlight Reid Hoffman’s simultaneous roles on the boards of Microsoft and OpenAI, alongside his partnership at Greylock, as creating a conflict of interest. Hoffman resigned from OpenAI’s board in 2023.

Furthermore, Dee Templeton’s brief appointment as a nonvoting board observer at OpenAI, facilitated by Microsoft, is alleged to have enabled agreements violating antitrust regulations.

Musk’s legal team emphasizes that preserving OpenAI’s nonprofit status and halting self-dealing are vital to upholding its founding mission and ensuring responsible charitable administration.

They warn that without an injunction, OpenAI may lack sufficient funds to cover potential damages if the court ultimately rules in Musk’s favor. They also suggest that reversing OpenAI’s nonprofit transition would be nearly impossible without significant investor losses.

Investors in OpenAI’s latest funding round have a clause allowing them to reclaim their investments if the company doesn’t become fully for-profit within two years.

“Plaintiffs respectfully request that the court maintain the status quo and pause defendants’ worsening behavior until final disposition,” Musk’s attorneys concluded.

OpenAI responded to the motion in an emailed statement, dismissing Musk’s claims as “baseless” and a “fourth attempt” to recycle previous arguments.

This article has been updated to include a statement from OpenAI.