OpenAI, Microsoft lose last chance to avoid trial with Elon Musk

By Robert Burnson, Bloomberg

OpenAI Inc. and Microsoft failed to escape a trial over Elon Musk’s claims that Sam Altman’s startup betrayed its founding mission as a public charity when it took billions in funding from the software giant and made plans to operate as a for-profit business.

A federal judge in Oakland, California, on Thursday rejected requests by OpenAI and Microsoft to dismiss claims by Musk and ordered the case to proceed to a jury trial set for late April. Musk helped Altman and others launch OpenAI in 2015 and went on to found his own artificial intelligence company in 2023.

“Mr. Musk’s lawsuit continues to be baseless and a part of his ongoing pattern of harassment, and we look forward to demonstrating this at trial,” OpenAI said in a statement. “We remain focused on empowering the OpenAI Foundation, which is already one of the best resourced nonprofits ever.”

In her ruling, US District Judge Yvonne Gonzalez Rogers refused to throw out Musk’s accusation that OpenAI breached its promise to operate as a charitable trust.

She wrote that while the evidence is unclear, Musk claims that his contributions to OpenAI “had a specific charitable purpose and that he attached two fundamental terms to it: that OpenAI be open source and that it would remain a nonprofit — purposes consistent with OpenAI’s charter and mission.”

Rejecting an argument by OpenAI, the judge found that Musk’s use of an intermediary to donate $38 million in seed money to the startup doesn’t strip him of legal standing to try to enforce those conditions.

“Holding otherwise would significantly reduce the enforcement of a large swath of charitable trusts, contrary to the modern trend,” she wrote.

The judge also refused to toss out Musk’s fraud allegations, pointing to internal communications involving OpenAI co-founder Greg Brockman in 2017. In an email that September that was cited by the judge, fellow board member Shivon Zilis told Musk that Brockman would “like to continue with the non-profit structure” of OpenAI.

According to the ruling, two months later, in a private note, Brockman wrote: “cannot say that we are committed to the non-profit. don’t want to say that we’re committed. if three months later we’re doing b-corp then it was a lie.”

Marc Toberoff, a lawyer for Musk, said in an email that the ruling confirms “there is substantial evidence that OpenAI’s leadership made knowingly false assurances to Mr. Musk about its charitable mission that they never honored in favor of their personal self-enrichment.”

“Now their ‘false faces must hide what their false hearts doth know’ and the stakes could not be higher,” Toberoff wrote.

Gonzalez Rogers said it will be up to the jury to decide whether Microsoft helped OpenAI breach its responsibilities to donors, like Musk.

“Here, Musk identified considerable evidence raising a triable issue of fact that Microsoft had actual knowledge beyond vague suspicion of wrongdoing,” she wrote.

But the judge rejected Musk’s claim that Microsoft “unjustly” enriched itself at his expense. In order to do so, Musk would have had at least a “quasi-contractual relationship” with Microsoft, she said.

“Nor did Musk cite any evidence or allege any facts to support finding that Microsoft’s retention of any benefit was unjust,” the judge wrote.

Representatives of Microsoft didn’t respond to a request for comment.

OpenAI, the maker of ChatGPT recently valued at $500 billion, announced its restructuring in October. It said at the time that it had given a 27% ownership stake to its longtime backer Microsoft in a transition that will keep the startup’s nonprofit arm in control of its for-profit operations.

The transition of OpenAI to a public benefit corporation fulfilled Altman’s long-held objective as its chief executive officer.

Musk and Altman, one-time business partners turned bitter foes, have feuded in court over the future of OpenAI since 2024. Musk’s xAI has become one of OpenAI’s main rivals. Last year, OpenAI rejected Musk’s unsolicited bid to acquire the assets of the nonprofit that controls the company for $97.4 billion.

Altman has denounced Musk’s lawsuit challenging the OpenAI restructuring as a weaponization of the legal system to slow down a competitor.

–With assistance from Shirin Ghaffary, Madlin Mekelburg and Matt Day.

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