Elon Musk v. OpenAI

or…Godzilla v. King Kong

by Eddie Garmat

Titans Clash

The richest man in the world sued the company behind a world-changing technology. In August of 2024, Elon Musk filed suit against OpenAI, claiming that he donated about $40 million to OpenAI for charitable purposes. OpenAI’s founders, Sam Altman and Greg Brockman, were alleged to have used this money to enrich themselves without telling Musk, constituting breach of charitable trust and unjust enrichment. In this piece, we’ll look at the background, arguments, discourse between parties, the case itself, and the point of the suit. By the end we’ll answer the question: was a charity robbed?

Background

The Arguments

Breach of charitable trust

• Musk
  • Musk’s investments allowed OpenAI to get to a state where it attracted investment from Microsoft. This investment is what the OpenAI execs used to enrich themselves, not Musk’s donations directly. The enrichment of the execs came at the cost of the charitable mission he donated to support.
  • The investment from Microsoft came in 2023, within the SoL
• OpenAI
  • “OpenAI’s attorneys have asked every witness to describe specific restrictions put on Musk’s donations, and none have, including his financial adviser Jared Birchall, his chief of staff Sam Teller, or his special adviser Shivon Zilis”
  • Musk tried to launch a for-profit himself so he should not feel betrayed by the OpenAI execs being enriched, even if it happened after he left
  • “[OpenAI] also note the organization’s other donors haven’t said their charitable trust was violated.”
  • Musk filed suit on August 5, 2024, meaning the statute of limitations expired for any hardship caused by breach of charitable trust from before August 5, 2021 (meaning the donation[s] must have come after then). A forensic accountant hired by OpenAI found that all of Musk’s donations had been used before then (he split with the company in 2018), therefore even if harm occurred, he has demonstrated unreasonable delay in filing his suit
  • OpenAI Group PBC operates within OpenAI Foundation and the funds generated by the group are used to fund the foundation. The foundation still fulfills its mission of providing the benefits of AI to the world by serving ChatGPT for free. Musk invested in OpenAI Foundation. Because the group funds the foundation which still fulfills its mission, Musk was not misled and did not suffer damages

Unjust enrichment

• Musk
  • The multibillion-dollar valuations of stakes held by OpenAI founders like Brockman and Ilya Sutskever proves Musk’s investments were ultimately used for personal benefit
  • The work done at (now) OpenAI Group PBC was commercially focused, while OpenAI Foundation was essentially dormant
• OpenAI
  • All of Musk’s donations were used by 2020
  • Equity distributions (offering stock to talent employees) came long after Musk left the company in 2018
  • Musk and the rest of OpenAI agreed that stock compensation was required to attract top talent to develop AGI (basically, Musk knew a for-profit was coming)
  • The OpenAI Foundation board still controls the (now) OpenAI Group, and both organizations share the same mission

Aiding and abetting (breach of charitable trust)

• Musk
  • Microsoft’s commercial interests led OpenAI away from its mission. Microsoft CEO Satya Nadella played a significant role in the rehiring of Sam Altman after he was fired from OpenAI in 2023. After Altman’s rehiring, Microsoft had a heavy role in restructuring the board of OpenAI. Microsoft also holds veto rights over major corporate decisions at OpenAI
• Microsoft
  • The company did not know of any conditions on Musk’s donations, even with extensive due diligence
  • Microsoft has never vetoed a decision made by the OpenAI board
  • Microsoft’s investment and computing power has aided OpenAI significantly, but never affected their mission, values, or any other aspect of the company that may have caused Elon Musk damages

Statute of limitations and unreasonable delay

• OpenAI
  • A legal concept that says if a party believes harm is caused, it only has a certain amount of time to sue in order to seek compensation for said damages. Once the statute of limitations expires, the party can no longer pursue compensation for these damages. OpenAI says the specific arguments Musk has made have a 3-year period in which he can sue, meaning in order to seek compensation, the damages must have occurred after (dates vary, but generally) autumn of 2021. OpenAI says all Musk’s arguments relate to damage from 2017 and 2018

The Ugly

According to Jeffrey Kopp from CNBC, William Savitt, an attorney for OpenAI in the case, said “We are here because Mr. Musk didn’t get his way at OpenAI. That’s what happened. He quit, saying [OpenAI] would fail for sure. But my clients had the nerve to go on and succeed without him. Mr. Musk may not like that, but it’s no basis for a lawsuit.”

Sam Altman tweeted, “Really excited to get Elon under oath in a few months, Christmas in April!”

The OpenAI Newsroom says, “This lawsuit has always been a baseless and jealous bid to derail a competitor.”

“Scam Altman and Greg Stockman stole a charity. Full stop.” Elon Musk said on X, formerly Twitter, before speaking about how he founded the company as a non-profit and restating that Altman and Stockman “stole the charity.”

OpenAI filed a countersuit against Musk, focusing on the narrative that Musk was jealous. OpenAI succeeded without him and he is trying to slow down the company. OpenAI stated: “Elon’s nonstop actions against us are just bad-faith tactics to slow down OpenAI and seize control of the leading AI innovations for his personal benefit. Today, we counter-sued to stop him.”

The court sessions of the case had live coverage and hilariously, every time either side defended themselves, their odds of winning the case went down on Kalshi.

The Case and Outcome

On May 18th of this year, the jury ruled against Musk on all accusations after deliberating for less than two hours. The jury cited the statute of limitations as the reason the case was decided in OpenAI, its founders, and Microsoft’s favor. This is probably the most toothless possible outcome of this lawsuit. Some sources suggested a restructuring of OpenAI and a greater emphasis on mission-driven work would have come out of a ruling favoring Musk. This may have made OpenAI so much less competitive that it would have taken them out of the race towards AGI. Musk himself said he wanted to set a precedent with the case about robbing a charity. This does seem a little off-color for Musk, considering the vast majority of his trillion-dollar net worth is made off other people’s labor. Despite his long history of philanthropy, he can hardly be called charitable, only as corporately socially responsible as needed. The preliminary ruling has resulted in just about zero change regarding OpenAI, Microsoft, or the AI industry.

Musk has said he plans to appeal the case because he wants to set a precedent. However, it’s extremely unlikely the Court of Appeals even chooses to hear the case. The statute of limitations is one of those topics in law that’s not really debatable—it’s either expired or not. When an appeal is filed, the filing party is saying to the appellate court ‘We believe the lower court made a mistake in the handling of this case.’ Here, the statute of limitations is clearly expired and the District Court ruled based on that. They clearly did not mishandle the case.

The Point?

Surely Musk knew the statute of limitations had expired before he sued, at least before he sued the second time, considering the number of talented lawyers he has, so why did he bother?

OpenAI framed the suit as a bitter ex who is jealous of the other’s success after a breakup, and I don’t believe that’s too far from the truth. It’s documented that Musk wanted total control of OpenAI if it became a for-profit company. When the foundation created a for-profit company without him at the helm, he said they were doomed. Four months after the release of ChatGPT, Musk created his own OpenAI competitor in xAI. It was only after OpenAI received a $10 billion investment from Microsoft that he sued. It seems that when OpenAI sees monumental success, Musk does something to try to get a piece of it (or else ensure the success is stymied). 

The give or take $40 million Musk donated to OpenAI is so little compared to his net worth. At the end of 2024, when the suit was filed, Musk’s net worth was $400 billion. His net worth now is $1.23 trillion. $40 million to Elon Musk is the equivalent of $10 in 2024 or $3.25 today to a person making $100,000 per year. Even if Musk suffered damages by funding OpenAI, it is such an incredibly small amount to him that suing seems pound foolish. 

Although I don’t think jealousy over success is the only reason Musk sued. It’s no secret that Grok, xAI’s ChatGPT competitor, is a long way behind many frontier models. Suing OpenAI would slow development of ChatGPT and give Musk a better chance at catching up as the executives at OpenAI busy themselves with litigation. Even better for Musk would be if the company was required to restructure to focus more on a mission than AI development. This possibility bears a striking similarity to Graham v UMG Recordings, where after a crushing defeat, one party takes the other to court to ungrease the wheels, instead of battling it out via good old market competition.

Musk himself says he wants to reverse the precedent he believes has been set, which is that “stealing a charity” is legal. It’s difficult to say a charity was even stolen, considering Elon wanted to convert the company into a for-profit; the non-profit still exists and he controls the for-profit. OpenAI says all of Musk’s funds were used to advance the mission of the non-profit, and he is only one of many contributors claiming his funds were used incorrectly. If the OpenAI founders truly did unjustly enrich themselves, using Musk’s funds to attract investment into the for-profit, I would unwaveringly wish for his victory, but I just don’t believe that’s what happened. That’s probably the most shocking outcome of my research on this case. Although the courts didn’t say so explicitly, I don’t think OpenAI did anything wrong, which is the first time I’ve come to that conclusion in years.

Read more in our series on AI and Law…Can AI Own Art? We Are Close to a Definitive Answer and When Nobody Owns Art: Copyright Cracks in the Age of AI

Read more about why the public is primed to trust AI moguls! Know, Like, and Distrust: Why AI is So Unlikable.

In this post, we used AI for polish, not purpose.