Elon Musk Faces Long Court Battle Over Falling Out With OpenAI

(Bloomberg) -- Elon Musk’s move to immediately block Sam Altman from restructuring OpenAI faltered in federal court, with a judge saying she was reluctant to issue such an order in a case pitting “billionaires versus billionaires.”

The world’s richest person presented his request in filings as an emergency, telling the court the startup he helped found a decade ago needs to be stopped from carrying out what he’s described as a quest by Altman and Microsoft Corp. to dominate the generative artificial intelligence industry.

US District Judge Yvonne Gonzalez Rogers told Musk’s attorney at the outset of a three-hour hearing Tuesday in Oakland, California, that she rarely issues injunctions in disputes that are bound to take many months to play out. She added that she isn’t inclined to freeze OpenAI’s plans for that long. Rogers called Musk’s argument that he faces “irreparable harm” a “stretch.” Musk didn’t attend the hearing.

While Rogers issued no formal order, she said she’ll probably let Musk take OpenAI to trial — and require him to testify — over at least some of his claims. He alleges that the startup betrayed its charitable mission and acted anticompetitively after he left its board in 2018 and it received $13 billion in funding from Microsoft. Attorneys said the case may not be ready for trial until late 2026 or 2027.

The injunction Musk asked for would freeze OpenAI’s transformation to a more conventional, public benefit for-profit company, just as it’s in talks to raise as much as $40 billion in a funding round led by SoftBank Group Corp. The ChatGPT maker has said shifting from a non-profit charity to a commercial business is critical to securing the vast amount of funding it needs to fulfill its mission of creating artificial general intelligence — or AGI — that will benefit humanity.

OpenAI has argued that Musk’s claims are without merit and amount to harassment. As the months-long feud escalated, OpenAI publicized a slew of emails and messages indicating the billionaire originally supported a more traditional corporate structure for the startup.

If Rogers rejects the injunction, it be might be harder for Musk’s own xAI startup — which has attained a valuation of $50 billion since he launched it in 2023 — to catch up to OpenAI’s considerable lead in raising capital, which is critical to developing more advanced AI.

Musk’s attorney, Marc Toberoff, argued the injunction is needed to “preserve the status quo,” in light of “serial self-dealing” by OpenAI’s board, which he alleged is controlled by Altman. He also cited Microsoft’s dominant position in the AI market and concerns raised by the US Federal Trade Commission over the software giant’s relationship with the startup.

OpenAI and Microsoft’s attorneys countered that an injunction would be “drastic” as Musk hasn’t shown any evidence to prove wrongdoing.

Rogers asked whether an injunction is necessary in light of the FTC’s activity as a regulator — and questioned whether monetary damages alone would be enough for Musk.

The judge remarked that Musk was now “running the government” while trying to compete in the AI industry. She also said it’s “interesting” that Musk gave $45 million to OpenAI on a “handshake” with no written agreement over how that money would be used.

The judge described the case as “murky” because Musk didn’t include his AI startup as a plaintiff in the case, even though its interests are clearly involved.

“My job is to make sure my is to make sure that I’m not creating a playing field that’s unleveled,” Rogers said.

In the lawsuit Musk filed in August, he alleged that OpenAI has violated antitrust laws by making its investors agree not to fund rivals, and also by having overlapping board members with Microsoft, including billionaire Reid Hoffman and an executive at the software giant.

Musk garnered support in January from the Biden administration when the Justice Department and FTC said in a court filing that overlapping board directors can harm competition.

Hoffman and Microsoft executive Dee Templeton have defended their conduct as legal, but Rogers said the overlapping directors are problematic.

“Neither of them have any business being on that board. Period,” the judge said.

The judge seemed less sympathetic to the claim by Toberoff, Musk’s attorney, that the “fund no competitor” condition in OpenAI’s investment deals hurts rivals.

“How can I say as matter of law, there’s a restraint on trade when your client has raised $11 billion” for xAI? Rogers said.

The case is Musk v. Altman, 4:24-cv-04722, US District Court, Northern District of California (Oakland).