Elon Musk Sues OpenAI, Sam Altman in Microsoft Deal Lawsuit

Elon Musk has resumed his legal battle against OpenAI for changing the company’s focus on profit, this time seeking to invalidate the company’s partnership with Microsoft.

The lawsuit, filed Monday in the Northern District of California, alleges fraud and breach of contract over claims that the Tesla founder was defrauded when he invested about $45 million in an AI venture that he says betrayed his original mission of safely developing technology “for the good of humanity.” According to Musk’s account, CEO Sam Altman illegally partnered with Microsoft to create a network of illegal affiliates and plunder its nonprofit arm of assets and personnel in violation of their agreement.

Musk is seeking a court order invalidating OpenAI’s exclusive license, and Microsoft is granting it unique access to the GPT-4 codebase, as well as triple damages and a refund of profits attributed to his investment in the company. It names Altman, CEO Greg Brockman and dozens of subsidiaries.

In Hollywood, the use of AI tools in the production process is being positioned as the next battleground between creators and studios. With the introduction of Sora, which can create hyper-realistic movies with just a few sentences, OpenAI is courting the industry as the technology grows.

Marc Toberoff, Musk’s lawyer, who regularly sues studios on behalf of creators to regain copyrights to their works, emphasizes that AI tools — when controlled by a handful of companies like OpenAI and Microsoft — threaten talent. “This case is about more than money; the future of AGI is at stake,” he says.

AI is being increasingly used in concept art, visual effects and post-production in times of belt-tightening, leading some workers to move away from traditional ways of working.

Musk’s ties to OpenAI can be traced back to 2015, when he founded the company with a group of other prominent Silicon Valley investors. The lawsuit points to Altman’s emails as evidence that he defrauded Musk, who was told in an email: “The technology will be owned by the foundation and used ‘for the good of the world.’”

According to its articles of incorporation, the legal document establishing the company, OpenAI said it would “seek to make open source technology available for the public good,” adding that the company “shall not be organized for the private benefit of any person” and that “no part of the net income or assets of this corporation shall at any time benefit any director, officer, or member.”

The lawsuit details Microsoft’s early courtship of OpenAI while Musk was still at the company. In 2016, the Satya Nadella-led company offered to sell the company “Compute” at a steep discount if it agreed to publicly promote Microsoft products, according to the lawsuit.

“This really made me sick,” he wrote to Altman, the lawsuit states. “It sucks and is exactly what I would expect from them.”

Later that year, the two companies announced a partnership that gave OpenAI access to Microsoft’s cutting-edge technology to enable AI training at scale.

But after he left the board in 2018 over a potential conflict of interest with Tesla, which he owns and was ramping up its AI investments, Musk says Altman ordered the company to create a number of for-profit entities. That includes OpenAI, LP, which was formed as a “limited-profit company.”

And with the creation of the for-profit arm, Altman allegedly transferred the nonprofit arm’s staff and assets to the new company. Dozens of other OpenAI affiliates were woven into the “corporate web to profit from nonprofit assets” as part of a “game of appearances,” the lawsuit says.

“Just follow the money,” the complaint says. “The nonprofit’s 2022 IRS tax return showed revenue of just $44,485.00, but a year later, OpenAI reportedly generated hundreds of millions of dollars.”

Musk also claims that Altman withheld and misrepresented information from the board, including lying about some of his business dealings. During conversations with the nonprofit, he allegedly claimed to be an independent board member of the OpenAI Startup Fund, omitting to mention that he was the company’s owner. Other instances of alleged self-aggrandizement include OpenAI’s partnership with Reddit in a deal in which the social media platform’s content could be displayed on ChatGPT, and a $51 million chip deal with Rain, another company in which he is a significant shareholder, according to the complaint.

“Currently, upon information and belief, OpenAI is in the process of entering into an agreement with Helion Energy (in which Altman holds a large stake) under which it will purchase large amounts of electricity to power its data centers,” the lawsuit reads.

On “The TED AI Show,” former OpenAI board member Helen Toner, who was involved in Altman’s ouster in November before he was reinstated, said, “Single made it very difficult for the board” to fulfill its mission to safely develop technology, “in some cases by lying outright.” The lawsuit alleges that Musk took control of the company’s board along with Microsoft to further undermine security with the goal of maximizing profits.

The filing comes after Musk withdrew a similar lawsuit against OpenAI and Altman in June without specifying why, openly criticizing the company for abandoning its original structure.

Last year, Musk founded xAI, which has since reached a valuation of $24 billion.

Musk is represented by Toberoff, widely regarded as one of the entertainment industry’s top copyright expiration lawyers. He filed the lawsuits on behalf of the estate of Steve Ditko, co-creator of Spider-Man and Doctor Strange, the heirs to the magazine story that spawned Top Gun and Lance Hill, who wrote the script for House by the road.