Technology entrepreneur Elon Musk filed a petition in federal court to prevent OpenAI from fully transforming itself into a profit-oriented company.
In a request for injunctive relief on Nov. 29, Musk, his artificial intelligence startup xAI and former OpenAI board member Shivon Zillis also demanded that the company not be allowed to prevent its investors from investing in competing AI companies. This writes SiliconAngle.
Multiple lawsuits
This is Musk’s latest move in his ongoing legal battle against OpenAI. And against its CEO Sam Altman. However, it also goes against other longtime backers of the company, such as investor Reid Hoffman and Microsoft Corp.
Musk first filed a lawsuit against OpenAI in March in a San Francisco court. The case was later withdrawn, only to be refiled in federal court a few months later. In that lawsuit, Musk’s lawyers, led by Marc Toberoff, complained that OpenAI violated several federal laws.
Antitrust laws violated
Last month, Musk’s legal team expanded on this complaint. It alleged that OpenAI and Microsoft violated antitrust laws by forcing investors to sign agreements prohibiting them from funding rival companies, including xAI.
In the latest petition, Musk’s lawyers argue that OpenAI should not derive business benefits from “wrongfully obtained competitively sensitive information or coordination via the Microsoft-OpenAI board interlocks.”
A spokesperson for OpenAI told TechCrunch that “Musk’s fourth attempt, which again recycles the same baseless complaints, continues to be utterly without merit.”
Unprecedented hype
OpenAI grew to become the darling of the AI industry. This is thanks to the success of its ChatGPT model. That unleashed unprecedented hype around large language models and their capabilities.
Musk’s xAI is one of OpenAI’s most prominent rivals. Since its launch in July 2023, the company has announced an alternative chatbot called Grok, which is available for free and has additional premium features for X subscribers. xAI has already raised more than $6 billion at a valuation of $24 billion. It is reportedly seeking a new round of funding to increase its value to $50 billion.
Is OpenAI consolidating dominance?
In the complaint, Musk’s lawyers argue that OpenAI and Microsoft are trying to solidify their dominance in the AI industry. And they do so by “taking away competitors’ access to investment capital.”
They claim that OpenAI forces investors to agree to terms that amount to a “group boycott,” limiting xAI and other AI companies’ ability to attract investment. They also argue that OpenAI should not be allowed to “lumber about the marketplace as a Frankenstein, stitched together from whichever corporate forms serve the pecuniary interest of Microsoft.”
Microsoft under magnifying glass
Microsoft’s support of OpenAI is under a magnifying glass. In January, Lina Khan, chairman of the Federal Trade Commission (FTC), said her agency would investigate investments and partnerships between cloud service providers and AI developers. It cited companies such as OpenAI, Microsoft, Alphabet, Amazon.com., and Anthropic.
In response, Microsoft tried to cut some of its ties with OpenAI. And it recently renounced its observer seat on the company’s board of directors. However, the FTC continues to monitor Microsoft’s influence in the AI industry.
Profitable subsidiary
OpenAI was founded in 2015 as a nonprofit, but four years later, it transformed into a “limited profit” structure, with OpenAI’s nonprofit becoming the lead entity of a for-profit subsidiary.
Now, OpenAI is trying to transform again into an entirely for-profit company as a public utility, making it more attractive to investors. OpenAI plans to maintain a separate nonprofit entity as part of that plan.
Unexpected losses
Microsoft has already invested nearly $14 billion in OpenAI. However, in its October quarterly results, the company reported a $1.5 billion loss due to unexpected losses related to its AI partner.
That same month, OpenAI closed a new funding round, raising $6.6 billion at a valuation of $157 billion, with participation from Microsoft, Nvidia and others.
Tip: Elon Musk implicates Microsoft and xAI in lawsuit against OpenAI