Elon Musk has initiated a legal battle against OpenAI by filing for a preliminary injunction in federal court, aimed at preventing the AI organization from fully transitioning into a for-profit entity. Musk, along with his AI company xAI and former OpenAI board member Shivon Zilis, alleges that OpenAI is compelling its investors to abstain from funding competitors, including Musk’s own startup. This injunction is a key component of a broader legal fight that Musk began earlier this year, culminating from escalating tensions between him and various stakeholders within OpenAI, including CEO Sam Altman and notable investors like Reid Hoffman and Microsoft.
The legal proceedings took a more serious turn when Musk initially filed a lawsuit against OpenAI in March 2024 in a San Francisco state court. Following the withdrawal of this complaint, Musk refiled in federal court, where his legal team, led by attorney Marc Toberoff, contended that OpenAI has engaged in violations of federal racketeering laws. The complaint was later amended to bring antitrust allegations against both Microsoft and OpenAI, accusing them of colluding in ways that directly inhibit competition. This includes claims that OpenAI has sought commitments from investors to refrain from financially supporting rival companies such as Musk’s xAI.
Amidst this legal exercising, OpenAI has maintained its status as one of the most innovative and recognized AI entities, primarily propelled by the massive success of its AI chatbot ChatGPT. This success has triggered a surge of corporate interest in large language models and the broader field of AI. Conversely, Musk’s xAI, which launched in July 2023, introduced its own Grok chatbot and is currently pursuing a significant fundraising endeavor, aiming to secure up to $6 billion at a projected valuation of $50 billion, partly to fund the procurement of 100,000 Nvidia chips vital for its operations.
Musk’s legal team contends that OpenAI’s practices regarding investor agreements amount to a “group boycott,” essentially stifling xAI’s ability to access necessary capital for its growth. They argue that OpenAI cannot operate in the marketplace as a conglomerate of corporate entities tailor-made for the financial interests of Microsoft. Meanwhile, Microsoft has distanced itself from OpenAI’s board—giving up its observer seat—although regulatory scrutiny continues as the FTC monitors the intricate ties between major AI developers and cloud services.
Originally founded as a non-profit organization in 2015, OpenAI’s transformation into a capped-profit model in 2019 marked a significant shift in its operational philosophy. The ongoing attempt to fully migrate into a profit-focused public benefit corporation aims to enhance its allure for investors while allowing a non-profit parallel to coexist. This restructuring drive comes amid Microsoft’s substantial financial involvement, which totals nearly $14 billion in investments, although the tech giant has recently indicated a noteworthy projected loss due to its association with OpenAI.
As of October 2023, OpenAI secured its latest funding round, raising its valuation to an impressive $157 billion with contributions from influential investment partners, including Microsoft and Nvidia. Nevertheless, the legal implications of Musk’s injunction request and related lawsuits could significantly alter the landscape for OpenAI and its competitors. Ongoing regulatory scrutiny might also reshape how this industry evolves, particularly in terms of competition, investment, and the intricate interplay of interests that characterize modern AI development.