Context: In March 2024, Elon Musk filed a suit against OpenAI for breach of contract and fiduciary duty. That case was voluntarily dismissed three months later but soon followed by a fresh complaint in the Northern District of California in August, in which Musk also targeted Microsoft over antitrust allegations. Musk claimed that Microsoft and OpenAI employed both a classic and hub-and-spoke boycott when the latter allegedly asked investors to agree to not invest in rival companies such as xAI. Microsoft and OpenAI have an open partnership, which has been investigated by several competition authorities, but the two have gone to extreme lengths to preserve OpenAI’s autonomy (January 23, 2025 ai fray article). In November, Musk then filed a motion for a preliminary injunction (November 29, 2024 motion), seeking to stop OpenAI from converting to a for-profit entity, and from continuing to engage in allegedly anticompetitive activities with Microsoft. In February, Musk offered to buy control of OpenAI for $97.4 billion – he then offered to withdraw the bid if the company stopped its conversion. But OpenAI’s founder Sam Altman rejected the bid, claiming it was just an effort to “slow down a competitor” (February 11, 2025 CNBC article).
What’s new: Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California yesterday denied Musk’s request for a preliminary injunction, after finding that the plaintiffs had failed to meet their burden of proof. Musk and his co-plaintiffs failed to show that they are likely to succeed on the merits of their antitrust allegations, as well as that OpenAI’s conduct would cause “irreparable harm” to their business, or that emails claiming Musk invested in OpenAI for charitable purposes only justifies blocking the ChatGPT maker from converting to a for-profit company, Judge Rogers found. However, she held, the court is prepared to offer an expedited schedule on the public interest claims driving this litigation. This approach would be more efficient and address the issues which are allegedly more urgent in terms of public, not private, considerations, she stated. A trial based solely on the public interest at stake and the potential for harm if a conversion contrary to law occurred could be held as early as fall 2025 – while the full case will not be heard until 2027 or 2028. The parties have until March 14, 2025 to respond.
Direct impact: If the parties agree to proceed with a trial on the public interest claim, this could put a significant wrench in the works for Altman’s for-profit conversion plans.
Wider ramifications: If it is to move forward, this public interest claim could also impact a separate lawsuit brought by the New York Times in December 2023 against OpenAI over copyright infringement (December 27, 2023 ai fray article). In that case, the plaintiff also raised Musk’s issues around OpenAI’s transition to a for-profit company in June last year (June 12, 2024 ai fray article). The ChatGPT maker allegedly refused to answer its request for information concerning the transition, the New York Times claimed, and this issue is relevant in connection with the fair use defense (which ai fray has previously reported it considers to be the single most critical part of the case).
Musk’s complaint against OpenAI and Microsoft has claimed that Altman (in concert with the other defendants) “intentionally courted and deceived Musk, preying on Musk’s humanitarian concern about the existential dangers posed by artificial intelligence (AI).”
He claims that Altman “took advantage” of his “altruism to lure him into funding the venture”:
“[The defendants] solicited millions in donations from Musk to build OpenAI on the promise that the organization would put people over profit and serve as a counterweight to the other dominant players in the AI space. With full knowledge that Musk’s money was contingent upon using his money charitably, defendants set about building a for-profit behemoth contrary to their original promises.”
This is yesterday’s order denying the preliminary injunction:
Judge Rogers rejected all four grounds for a preliminary injunction. Her conclusions included the following:
- Antitrust infringement allegation: the plaintiffs provided no direct evidence of a horizontal agreement to boycott and Microsoft and OpenAI’s close business relationship cannot by itself “impute the one’s behaviour to the other”. News articles submitted by the plaintiffs also only made passing reference to Microsoft as an investor without any indication of an agreement.
- Irreparable harm to xAI allegation: the company failed to show irreparable harm – it did not deny OpenAI’s argument that it has demonstrated “remarkable fundraising success by raising over $11 billion”, including from some of the ChatGPT maker’s investors. xAI’s proffer of a single reference via declaration to one investor’s decision is also “insufficient”.
- Musk’s $44 million donations created an enforceable contract/charitable trust allegation: there was no contract or gifting document with terms and conditions and it is “debatable” whether Musk’s emails and social media posts constitute a writing sufficient to constitute an actual contract or charitable trust between the parties. The exchanges between the parties did convey early communications regarding the altruistic motives of OpenAI’s early days. But, on balance, the emails are “insufficient for purposes of the high burden required for a preliminary injunction”.
- Public interest allegation: a preliminary injunction may be issued where the plaintiff also shows that “the injunction is in the public interest”. And if a trust was indeed created, then preventing or remedying a breach would be in the public interest. OpenAI’s certificates of incorporation in both Delaware and California stated that the company was “organized exclusively for charitable and/or educational purpose” and “not organized for the private gain of any person.” The documents read: “[t]he specific purpose of this corporation is to provide funding for research, development and distribution of technology related to artificial intelligence. The resulting technology will benefit the public and the corporation will seek to open source technology for the public benefit when applicable.” The plaintiffs also claimed that “people shouldn’t be able to take a tax deduction from a nonprofit who then can convert that money for for-profit enterprises.” Significant and irreparable harm is incurred when the public’s money is used to fund a non-profit’s conversion into a for-profit.
Counsel
Elon Musk is being represented by Marc Toberoff and Jaymie Parkkinen at Toberoff & Associates.
Meanwhile, OpenAI and Aestas are being represented by Jordan Eth and David J. Wiener at Morrison & Foerster LLP, as well as William Savitt, Sarah K. Eddy, and Nathaniel Cullerton at Wachtell, Lipton Rosen & Kratz. Microsoft is being represented by Dechert LLP’s Russell P. Cohen, Howard Mark Ullman, and Nisha Patel.