OpenAI faces jury trial after judge sides with Musk over 'ill-gotten gains'
OpenAI and its chief executive Sam Altman will face a jury trial in March after a California judge ruled that there was “plenty of evidence” to support claims from co-founder Elon Musk that he had been duped into making donations on the basis that the organisation would remain a non-profit.
Musk is seeking damages from what he calls “ill-gotten gains” made by OpenAI and Altman after the organisation entered into a for-profit agreement with Microsoft to unlock US$10bn in funding. The agreement was concluded in October, giving Microsoft a 27% stake in OpenAI.
Microsoft will also be a defendant in the trial following accusations that it “aided and abetted” the alleged fraud. OpenAI, Altman and Microsoft reject the allegations. Lawyers for OpenAI pushed for the case to be thrown out but those efforts were rejected at a hearing on Wednesday.
“This case is going to trial,” US district judge Yvonne Gonzalez Rogers said at the hearing. “I think there’s plenty of evidence. It’s circumstantial, but that’s how these things work … There were assurances made, and promises made, that the structure would be maintained.”
The prospect of a public trial – and the possibility that its for-profit restructuring in October might be revisited – is a blow for OpenAI as it courts additional investors to help pay for huge financial commitments it has taken on in the race to develop AI.
While the company’s financials are private, bankers close to the company say OpenAI will need to sell large amounts of equity over the coming years just to pay its bills. Analysts estimate the company could need to raise as much as US$20bn this year – and another US$70bn next year.
Any challenge to its for-profit status could complicate that. When SoftBank Group agreed in March to inject US$40bn into OpenAI, it said the investment was contingent on OpenAI’s planned restructuring. It signed off on the injection last month following the October agreement with Microsoft.
SoftBank shares fell 7.6% on Thursday in Tokyo following the news.
Betrayed
Musk gave more than US$44m to OpenAI between 2015, when the organisation was founded, and 2020. He alleges that Altman preyed on his fears about Google, a for-profit company, developing its own AI – offering to set up a rival that would be run as a non-profit and in the public interest.
“Altman repeatedly assured Musk and regulators that the non-profit structure guaranteed neutrality and a focus on safety and openness for the benefit of humanity, not shareholder value or individual enrichment,” said the complaint filed by Musk’s lawyers.
“But after Musk lent his name to the venture as its co-chairman, invested significant time, tens of millions of dollars in seed capital, and recruited top AI scientists for OpenAI, Musk and the non-profit’s namesake objective were betrayed by Altman and his accomplices.”
Months after OpenAI's successful launch of ChatGPT in November 2022, Musk launched his own AI company xAI. The two companies are now competitors – not just in the race to develop the leading AI, but also to attract investors to fund that development. xAI completed a US$20bn funding round last week.
Musk previously tried to block OpenAI’s restructuring from going through, applying for a court injunction in March to halt the process. That application was rejected.
Lawyers for OpenAI say the current lawsuit is part of Musk’s efforts to undermine OpenAI as a competitor to xAI.
“This lawsuit was filed with maximum press fanfare and the promise of proving up an egregious series of misrepresentations,” they said in a motion to the court. “The evidence shows that promise to be empty. And it confirms that this suit is about a frustrated commercial competitor seeking to slow down a mission-driven market leader.”
OpenAI said in a statement: “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.”