In a bold move against OpenAI, technology entrepreneur Elon Musk has filed a motion with a federal court to prevent the company from fully transforming into a for-profit entity. The filing, made on November 29, sees Musk, his AI venture xAI Corp., and former OpenAI board member Shivon Zillis pushing to block OpenAI from enforcing its alleged restrictions on investors funding competing AI companies.
This marks the latest chapter in Musk’s escalating legal battle against OpenAI and its leadership, including CEO Sam Altman, major backer Reid Hoffman, and tech giant Microsoft. Musk’s legal team has accused OpenAI of breaching several federal laws, including the Racketeer Influenced and Corrupt Organizations (RICO) Act, and antitrust violations.
The roots of the conflict trace back to March, when Musk initially filed a lawsuit against OpenAI, which was later withdrawn and refiled in federal court. Musk’s team has since expanded the lawsuit, claiming that OpenAI and Microsoft have engaged in anticompetitive practices, such as preventing investors from funding rival companies like Musk’s xAI.
In the latest court documents, Musk’s attorneys argue that OpenAI should be prevented from benefiting from “wrongfully obtained competitively sensitive information” obtained through its collaboration with Microsoft. The legal team contends that the close ties between the two companies, particularly through shared board members, give OpenAI an unfair competitive advantage, potentially damaging the broader AI industry.
An OpenAI spokesperson dismissed the new filing as “baseless,” asserting that Musk’s legal efforts continue to lack merit. The company has steadfastly defended its position, calling Musk’s claims a rehash of previous unfounded allegations.
OpenAI, the developer of the popular AI model ChatGPT, has seen significant growth since its early days as a nonprofit organization. The company has since evolved, first into a “capped-profit” structure, and is now pursuing a full for-profit model to maximize investment opportunities. This transformation is seen as key to OpenAI’s efforts to compete in an increasingly competitive AI market.
Musk’s own AI venture, xAI, launched in July 2023, has emerged as one of OpenAI’s biggest competitors. The company introduced its chatbot, Grok, which is available for free with additional premium features for X subscribers. Valued at $24 billion, xAI is now seeking additional funding to push its valuation to $50 billion, highlighting its growing influence in the AI sector.
Musk’s legal team argues that OpenAI and Microsoft are attempting to cement their dominance by making it harder for competitors like xAI to access essential investment capital. The complaint also accuses OpenAI of forcing investors to agree to restrictive terms that could stifle innovation in the AI space.
The growing tension between OpenAI and its competitors has attracted the attention of regulators. In January, Federal Trade Commission (FTC) Chair Lina Khan announced that the agency would investigate partnerships between cloud service providers and AI companies, including OpenAI and Microsoft. Despite Microsoft’s recent move to relinquish its observer seat on OpenAI’s board, the FTC has vowed to continue monitoring the situation closely.
OpenAI was initially founded in 2015 as a nonprofit organization but has undergone several structural changes since then, with the latest being the push to become a fully for-profit public benefit corporation. This transition would make OpenAI more appealing to investors, including Microsoft, which has already invested nearly $14 billion into the company. However, OpenAI’s financial struggles have been exposed, with Microsoft recently disclosing a $1.5 billion loss related to its investments in the AI company.
The company closed a funding round in October 2023, raising $6.6 billion and securing a $157 billion valuation. The funding was led by Microsoft and Nvidia, further solidifying the financial strength behind OpenAI’s ambitious goals.
Musk’s legal challenge is likely to continue as he pushes to prevent what he sees as monopolistic behavior that could limit innovation and restrict fair competition in the rapidly growing AI industry.
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