Elon Musk Sues OpenAI and Its CEO in New Lawsuit Challenging Microsoft Partnership

Elon Musk is reigniting a legal battle against OpenAI over its for-profit pivot, this time looking to void the company’s partnership with Microsoft.

The lawsuit, filed in the Northern District of California on Monday, alleges fraud and breach of contract over claims that the Tesla founder was swindled when he invested roughly $45 million into the AI venture, which he says betrayed its original mission to safely develop the technology “for the benefit of humanity.” In Musk’s telling, chief executive Sam Altman illegally partnered with Microsoft to establish a web of illicit affiliates and plunder its nonprofit arm of assets and staff in violation of their deal.

Musk seeks a court order invalidating OpenAI’s exclusive license with Microsoft giving it unique access to the underlying code of GPT-4, as well as treble damages and disgorgement of profits attributed to his investments in the company. It names Altman, president Greg Brockman and dozens of subsidiaries.

In Hollywood, utilization of AI tools in the production pipeline is positioned to be the next battleground between creators and studios. With the introduction of Sora, capable of creating hyperrealist videos with a prompt of just a couple sentences, OpenAI is courting the industry amid the rise of the technology.

Marc Toberoff, a lawyer for Musk who regularly sues studios on behalf of creators to claw back the copyrights to their works, stresses that AI tools — if controlled by a handful of companies, like OpenAI and Microsoft — threatens talent. “This case is about far more than money, the future of AGI lies in the balance,” he says.

AI is increasingly being adopted in concept art, visual effects and postproduction amid belt-tightening, displacing some workers.

Musk’s ties to OpenAI can be traced back to 2015, when he cofounded the company among a group of other prominent Silicon Valley investors. The lawsuit points to messages from Altman as proof that he defrauded Musk, who was told in an email, “The technology would be owned by the foundation and used ‘for the good of the world.’”

Per its certificate of incorporation, a legal document relating to the formation of a company, OpenAI said it “will seek to open source technology for the public benefit.” It adds that that company will “not be organized for the private gain of any one person” and that “no part of the net income or assets of this corporation shall ever inure to the benefit of any director, officer or member.”

The lawsuit details Microsoft’s early courtship of OpenAI while Musk was still with the company. In 2016, the Satya Nadella-led firm offered to sell “Compute” to the company at a steep discount if it’d agree to publicly promote Microsoft’s products, according to the complaint.

“This actually made me feel nauseous,” he wrote to Altman, the lawsuit states. “It sucks and is exactly what I would expect from them.”

Later that year, the two companies announced a partnership giving OpenAI access to Microsoft’s latest technology for running large-scale AI training.

But after he left the board in 2018 due to a potential conflict of interest with Tesla, which he owns and was ramping up its focus on AI, Musk claims Altman directed the company to form numerous for-profit entities. This includes OpenAI, L.P., which was established as a “capped-profit company.”

And with the creation of a for-profit arm, Altman allegedly transferred the nonprofit division’s staff and assets to the new company. OpenAI’s dozens of other affiliates were woven into its “corporate web for the purpose of profiting from the nonprofit’s assets” as part of a “shell game,” the lawsuit says.

“Just follow the money,” states the complaint. “The nonprofit’s 2022 IRS tax return showed just $44,485.00 in revenue, but one year later, OpenAI overall reportedly generated hundreds of millions of dollars.”

Musk also alleges that Altman withheld and misrepresented information to the board, going as far as to lie in some business dealings. In discussions with the nonprofit, he allegedly claimed to be an independent board member of OpenAI Startup Fund while omitting that he owns the company. Other instances of alleged self-dealing include OpenAI’s partnership with Reddit in a deal in which the social media platform’s content can be shown on ChatGPT, as well as a $51 million chip deal with Rain, another company in which he’s a significant shareholder, according to the complaint.

“And currently, on information and belief, OpenAI is hammering out a deal with Helion Energy (in which Altman owns a massive stake) for [it] to buy vast quantities of electricity to power its data centers,” the lawsuit states.

On “The TED AI Show” podcast, former OpenAI board member Helen Toner, who was a part of ousting Altman in November before he was reinstated, said: “Sam had made it really difficult for the board to” fulfill its mission to safely develop the technology by “in some cases, outright lying.” The lawsuit claims Musk seized control of the company’s board alongside Microsoft to further undermine safety guardrails, with the goal of maximizing profits.

The filing of the complaint follows Musk in June dropping a similar lawsuit against OpenAI and Altman without explanation. He’s openly criticized the company for abandoning its original structure.

Last year, Musk founded xAI, which has since reached a valuation of $24 billion.

Musk is represented by Toberoff, widely considered among the entertainment industry’s preeminent copyright termination lawyers. He’s brought lawsuits on behalf of the estate of Steve Ditko, who co-created Spider-Man and Doctor Strange, the heirs to the writer of the magazine story that spawned Top Gun and Lance Hill, who wrote the screenplay for Road House.