Musk Sues to Block OpenAI From Converting to For-Profit

OpenAI’s co-founders secured funds from Musk by promising they would run it as a nonprofit, the complaint alleges.

A frame of a video generated by a new artificial intelligence tool, dubbed 'Sora,' unveiled by OpenAI, in Paris, on Feb. 16, 2024. Stefano Rellandini/AFP via Getty Images

Elon Musk filed a lawsuit against Microsoft-backed OpenAI to prevent the nonprofit entity from transitioning to a for-profit enterprise, claiming that this would contradict his agreement with the company.

OpenAI was co-founded by Musk, along with current CEO Sam Altman and President Greg Brockman. In 2015, Altman approached Musk with plans to form an artificial intelligence (AI) charity, making “express, repeated promises that OpenAI would be and remain a nonprofit dedicated to the development and broad distribution of open and safe AI for the public benefit, not concentrated for shareholder profit,” said the Nov. 29 lawsuit filed at the U.S. District Court for the Northern District of California.

“To ensure safety remained the primary focus, Altman also promised that the technology developed by the nonprofit would be owned by it,“ the lawsuit states. ”Based on these commitments, Musk agreed to co-found and fund OpenAI, lending his name and credibility to help attract the talented AI scientists necessary to make OpenAI a success.”

Altman and Brockman later proposed turning OpenAI into a for-profit entity. In September 2017, Musk clarified that he would stop donations if the change were made. Altman and Brockman subsequently made a “firm commitment” that OpenAI would remain a nonprofit, according to the suit. Based on these assurances, Musk then invested an additional $10.27 million.

Microsoft invested $1 billion in the nonprofit in 2019, which started a series of “increasingly problematic” changes at OpenAI, the suit said.

The complaint accused Microsoft and Altman of siphoning off the nonprofit’s staff and intellectual property to for-profit entities that Altman started in which Microsoft secured a “massive stake.”

In November 2023, OpenAI’s board of directors fired Altman from his position after becoming aware of “numerous conflicts of interests and deceptions.”

However, Microsoft used its influence in the company to force board members to reinstate Altman and made them resign from their posts, the lawsuit claimed. Microsoft eventually got access to all of OpenAI’s proprietary information, it said.

The complaint claims that OpenAI and Microsoft prohibit investors from funding OpenAI’s competitors, “specifically naming” Musk’s artificial intelligence company, xAI.

Microsoft and OpenAI now control almost 70 percent of the generative AI market and engage in “anticompetitive conduct.” The lawsuit said OpenAI is now looking to convert to a for-profit entity, which would contradict the repeated commitments it made to Musk and the public.

“OpenAI and Microsoft together exploiting Musk’s donations so they can build a for-profit monopoly, one now specifically targeting xAI, is just too much,” the complaint said.

“OpenAI’s path from a nonprofit to for-profit behemoth is replete with per se anticompetitive practices, flagrant breaches of its charitable mission, and rampant self-dealing. Allowing this course of conduct to continue until final disposition will seriously harm plaintiffs and the public at large.”

The lawsuit asked the court for a preliminary injunction “to preserve what is left of OpenAI’s nonprofit character.”

The Epoch Times reached out to OpenAI and Microsoft for comment but received no response by publication time.

OpenAI Stance

On its website, OpenAI said it started with the aim of collecting $1 billion in donations but was able to raise only about $130 million.

After it became “increasingly clear” that the company could not move forward with donations alone, it decided to create a new for-profit subsidiary that would run at the direction of the OpenAI nonprofit parent company.

While the for-profit entity can raise capital from investors, it is “legally bound to pursue the Nonprofit’s mission, and carry out that mission by engaging in research, development, commercialization and other core operations,” the company claims.

“Throughout, OpenAI’s guiding principles of safety and broad benefit would be central to its approach,” it stated.

In accordance with the law for nonprofits, no directors on the board of the OpenAI nonprofit have any equity in OpenAI, the company notes. Altman’s “only interest is indirectly through a Y Combinator investment fund that made a small investment in OpenAI before he was full-time.”

The profit made by the for-profit subsidiary disbursed to employees and investors, including Microsoft, is capped, the company says.

“All residual value created above and beyond the cap will be returned to the Nonprofit for the benefit of humanity,” it states.

The current board of the OpenAI Nonprofit comprises independent directors Bret Taylor (chair), Sam Altman, Adam D’Angelo, Sue Desmond-Hellmann, Ret. U.S. Army Gen. Paul M. Nakasone, Nicole Seligman, Fidji Simo, Larry Summers, and Zico Kolter.

Preventing Absolute Control Over OpenAI

This isn’t the first time that Musk has filed a lawsuit against OpenAI. In February, for example, he sued the company, and the complaint was dropped without explanation in June, only to be subsequently revived in August.

That lawsuit made similar allegations about Altman’s violation of an agreement to keep OpenAI a nonprofit. It also alleged breach of contract, fraud, and violation of federal civil racketeering laws.

OpenAI dismissed Musk’s claims in a March blog post.

“In late 2017, we and Elon decided the next step for the mission was to create a for-profit entity. Elon wanted majority equity, initial board control, and to be CEO. In the middle of these discussions, he withheld funding,” the nonprofit said.

“We couldn’t agree to terms on a for-profit with Elon because we felt it was against the mission for any individual to have absolute control over OpenAI. Elon soon chose to leave OpenAI, saying that our probability of success was zero, and that he planned to build an AGI [artificial general intelligence] competitor within Tesla.”

Meanwhile, Musk’s xAI has been growing since its introduction. In May, xAI raised $6 billion in funding, and it is now valued at $24 billion. xAI introduced its Grok-1 AI model on social media platform X in November 2023 and has followed it up with multiple updates.

Musk has said he also intends to build a supercomputer to support xAI’s development, which is expected to become operational by next fall.

The industrialist had earlier called for restricting AI. In May 2023, Musk warned that there is a chance that AI could end up destroying humanity. He called for taking “whatever actions we can think of” to minimize such risks.