Elon Musk takes legal action to stop OpenAI from becoming a for-profit

Elon Musk wants OpenAI to hit pause. He’s asking a federal court to stop the AI giant from switching into full-for-profit mode.

Elon’s lawyers, joined by his AI company xAI and former OpenAI board member Shivon Zilis, filed for a preliminary injunction on Friday. The filing accuses OpenAI of playing dirty, allegedly pressuring its investors to avoid backing competitors like xAI. Elon says this isn’t just unfair—it’s illegal.

He first sued the company in March 2024 in San Francisco state court. That case was dropped and refiled later in federal court. Now, Elon’s legal team, led by Marc Toberoff out of Los Angeles, is turning up the heat. They say OpenAI’s actions violate federal racketeering (RICO) laws and antitrust regulations.

OpenAI’s alleged investor blockade

At the core of Elon’s case is the claim that OpenAI and its backer Microsoft have created a “group boycott” to block funding for competitors. According to the complaint, OpenAI has required its investors to sign agreements that prevent them from supporting rivals, including xAI.

Elon’s lawyers call this an antitrust violation, accusing OpenAI of cutting off essential capital for up-and-coming AI startups. “Microsoft and OpenAI now seek to cement this dominance by cutting off competitors’ access to investment capital,” Elon’s team argued.

The filing also claims OpenAI is benefiting from sensitive information shared during its earlier years, giving it an unfair edge while shutting out competition. An OpenAI spokesperson dismissed Elon’s efforts, calling the claims “recycled complaints” that lack merit.

The bigger picture

OpenAI wasn’t always the tech juggernaut it is today. The company launched in 2015 as a non-profit, promising to advance AI for the benefit of humanity. That mission took a turn in 2019 when OpenAI adopted a capped-profit model.

Under this structure, its non-profit arm oversees a for-profit subsidiary, allowing OpenAI to attract investment while maintaining some ties to its original mission. Now, OpenAI is going even further, transitioning into a fully for-profit public benefit corporation.

This, according to Elon’s legal team, is all about boosting its appeal to investors while consolidating its power. Reports indicate that OpenAI’s valuation hit $157 billion in October, with Thrive Capital leading a major funding round that also included Microsoft and Nvidia.

Microsoft, which has poured nearly $14 billion into OpenAI, has played a critical role in its rise. The tech giant, however, revealed a $1.5 billion loss in its fiscal first quarter, largely tied to its partnership with OpenAI.

While it gave up its observer seat on OpenAI’s board in July, the Federal Trade Commission (FTC) is still keeping a close eye on the relationship.

FTC Chair Lina Khan announced a probe earlier this year into partnerships between AI developers and cloud service providers. Companies like OpenAI, Amazon, Alphabet, Microsoft, and Anthropic are all under scrutiny.

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