Technology entrepreneur Elon Musk has taken legal action to prevent OpenAI from completing its transition into a fully for-profit organization. In a court filing submitted on November 29, Musk, alongside his artificial intelligence startup xAI Corp. and former OpenAI board member Shivon Zillis, is seeking a federal court injunction to block the shift. Additionally, Musk’s team is pushing for a ruling that would stop OpenAI from restricting its investors from supporting competing AI firms.
This filing marks the latest development in Musk’s ongoing legal battle with OpenAI, its CEO Sam Altman, and prominent backers of the company such as investor Reid Hoffman and tech giant Microsoft Corp. Musk’s conflict with OpenAI has been escalating since March, when he initially filed a lawsuit in a San Francisco court, which was later withdrawn and subsequently refiled in federal court. His original complaint accused OpenAI of violating federal racketeering laws (RICO) before expanding it to include allegations of antitrust violations by OpenAI and Microsoft.
Musk’s legal team now argues that OpenAI and Microsoft are attempting to monopolize the AI industry by forcing investors into agreements that prevent them from funding rival companies, including Musk’s own xAI. The filing claims that OpenAI has engaged in unlawful practices, including “wrongfully obtained competitively sensitive information” and improper coordination with Microsoft through “board interlocks,” or shared leadership roles.
In response to Musk’s latest legal maneuver, an OpenAI spokesperson dismissed the claims as “baseless,” calling them part of Musk’s fourth attempt to pursue the same “meritless” allegations.
OpenAI has become a key player in the AI sector, largely due to the success of its ChatGPT model, which has sparked widespread interest in large language models and their potential. Musk’s xAI, launched in July 2023, has emerged as a significant competitor to OpenAI. xAI introduced its own chatbot, Grok, which is offered for free with additional premium features available to X (formerly Twitter) subscribers. With a valuation of $24 billion and more than $6 billion in funding, xAI is reportedly preparing for another funding round that could push its value to $50 billion.
Musk’s legal team argues that OpenAI and Microsoft’s actions are aimed at consolidating their dominance in the AI space by restricting competitors’ access to investment capital. The complaint alleges that OpenAI has forced its investors to agree to terms that constitute a “group boycott,” thereby limiting xAI’s ability to raise funds for its AI development. The filing further criticizes OpenAI’s corporate structure, calling it a “Frankenstein” entity, shaped to serve Microsoft’s financial interests.
The scrutiny of Microsoft’s involvement with OpenAI has intensified in recent months. In January, Federal Trade Commission (FTC) Chair Lina Khan announced an investigation into the relationships between cloud service providers and AI developers, including Microsoft, OpenAI, Alphabet Inc., Amazon.com Inc., and Anthropic PBC. In an effort to mitigate concerns, Microsoft recently stepped back from its direct influence over OpenAI by relinquishing its observer seat on the company’s board of directors. However, the FTC has made it clear that it will continue to monitor Microsoft’s influence in the AI sector.
OpenAI, originally founded as a nonprofit in 2015, transitioned to a “capped-profit” model in 2019. Under this structure, the nonprofit organization governs a for-profit subsidiary. Now, OpenAI is attempting another transformation, this time aiming to become a fully for-profit public benefit corporation, which would make the company more appealing to investors. Despite this shift, OpenAI plans to retain a separate nonprofit entity to oversee its operations.
Microsoft has already invested nearly $14 billion in OpenAI. However, in its October earnings report, the company revealed it expected a $1.5 billion loss for the fiscal quarter, partly due to its stake in OpenAI. Meanwhile, OpenAI recently completed a substantial funding round, raising $6.6 billion at a valuation of $157 billion, with contributions from Microsoft, Nvidia Corp., and other investors.
Related topics:
Phenom to Launch IAMPHENOM INDIA Conference in Hyderabad
Orange Partners with OpenAI and Meta to Develop AI for African Languages
MLPhishChain: A Blockchain-Powered Solution to Combat Phishing Attacks