Elon Musk files injunction to block OpenAI's conversion to for-profit company

Nov 30, 2024

Elon Musk's attorneys filed a preliminary injunction in federal court to block OpenAI from converting to a fully for-profit company, naming CEO Sam Altman, President Greg Brockman, Microsoft, and others as defendants. Musk, who co-founded OpenAI in 2015 as a nonprofit but left in 2018, claims he was defrauded of over $44 million in donations and alleges OpenAI discouraged investors from backing his rival company xAI. The lawsuit targets OpenAI's planned transformation from its current capped-profit structure, where a nonprofit governs a for-profit subsidiary, to a fully for-profit corporation. Microsoft has invested approximately $13 billion for a 49% stake in OpenAI's earnings and provided crucial cloud infrastructure, while OpenAI reportedly spends over $5 billion annually without breaking even. Investors in OpenAI's recent funding round can reclaim their money if the for-profit conversion doesn't occur within two years, and at least one major investor subsequently declined to fund xAI.

Musk's injunction to block OpenAI's for-profit conversion

▪Elon Musk withdrew his lawsuit against OpenAI in July, only to revive it late in the summer.
▪Elon Musk, one of OpenAI's co-founders, left OpenAI in 2018 over disagreements about OpenAI's direction.
▪An amended complaint filed by Elon Musk earlier this month named new defendants including Microsoft, Reid Hoffman, and Dee Templeton, and two new plaintiffs: Shivon Zilis and xAI.
▪Attorneys for Elon Musk filed for a preliminary injunction against OpenAI, several of its co-founders, and Microsoft on Friday in the U.S. District Court for the Northern District of California.
▪Elon Musk's preliminary injunction names OpenAI CEO Sam Altman, President Greg Brockman, Microsoft, LinkedIn co-founder Reid Hoffman, and former OpenAI board member Dee Templeton as defendants.
▪Elon Musk argued in previous complaints that Elon Musk has been defrauded out of more than $44 million Elon Musk donated to OpenAI.

Allegations of anticompetitive behavior and self-dealing

▪Sam Altman is said to have made billions from Sam Altman's Stripe holdings.
▪Reid Hoffman stepped down from OpenAI's board in 2023.
▪At least one major investor in OpenAI's October funding round subsequently declined to invest in xAI, according to Elon Musk's verification.

OpenAI's transformation from nonprofit to for-profit entity

▪OpenAI converted into a capped-profit structure in 2019 in which the nonprofit was made the governing entity for a for-profit subsidiary.
▪OpenAI is reportedly spending more than $5 billion and isn't close to breaking even.