Elon Musk Files Injunction to Block OpenAI’s ‘Frankenstein’ For-Profit Transition

Key Takeaways

• Elon Musk is seeking to prevent OpenAI from completing a for-profit restructuring.
• Musk’s lawyers argued the process should be halted while an ongoing legal dispute is settled.
• Earlier this year, Musk sued OpenAI for reneging on the terms of an agreement to operate the enterprise as a non-profit.

In the ongoing legal battle between Elon Musk and OpenAI, Musk has asked the court to grant an injunction barring OpenAI from completing its conversion to a for-profit company pending the litigation’s resolution.

Musk’s lawyers repeated their argument that OpenAI founders Sam Altman and Greg Brockman broke the terms of an agreement to run the enterprise as a non-profit.

They also called on the judge to halt perceived uncompetitive practices they argue distort the AI market.

OpenAI’s For-Profit Transition

Details of OpenAI’s proposed new structure first emerged in September. Under the plan, the non-profit board that currently oversees OpenAI’s operations will be sidelined.

The core business would then be transformed into a for-profit benefit corporation. The non-profit board would still own a minority stake in OpenAI. However, its role would be severely diminished as other stakeholders, including Altman himself, are granted more sway.

In documents submitted to the court on Friday, Nov. 29, Musk’s attorneys said it was inappropriate for OpenAI to complete such a conversion now, while the very question of the organization’s for-profit status is the subject of ongoing litigation.

The lawsuit takes issue with OpenAI’s original move to set up a profit-making entity under the board’s control in 2019.

Issues With Microsoft

For Musk, OpenAI getting into bed with Microsoft appears to have been a major contributing factor behind his decision to sue.

From his perspective, not only did OpenAI betray its original non-profit mission, but it also did so by partnering with one of the very big tech giants whose influence over AI it was intended to counter.

Back in 2016, when Musk was still involved in the then-recently formed OpenAI, he expressed skepticism that Microsoft could bring anything positive to the table.

Meanwhile, the prospect of Google Deepmind dominating the nascent AI sector caused him “extreme mental distress,” emails recently disclosed as part of the lawsuit revealed.

In the latest filing, the plaintiffs claim that OpenAI and Microsoft, “through a series of exclusive arrangements, interlocking directorates, and predatory practices,” have “seized control of nearly 70% of the market for generative artificial intelligence products.”

Accordingly, “whatever leeway OpenAI might have been due under antitrust law as a purported charity it chose to forego when it subordinated itself to Microsoft for profit,” and now must “play by the same rules as everyone else,” the document stated:

“It cannot lumber about the marketplace as a Frankenstein, stitched together from whichever corporate forms serve the pecuniary interests of Microsoft and Altman at any given moment.”

Antitrust Allegations

Musk’s lawyers also asked for an injunction to halt the implementation of OpenAI’s proposed new structure and called on the judge to halt OpenAI’s practice of asking investors not to back rival startups.

The arrangement, reportedly  included as a provision as OpenAI seeks fresh funding, allegedly targets companies including Anthropic and Musk’s xAI, which is also named as a plaintiff in the ongoing lawsuit.

OpenAI’s “Fund No Competitors Edict” is a direct violation of the Sherman Antitrust Act, the latest motion stated. According to Musk, at least one major investor in OpenAI’s October 2024 funding round subsequently declined to invest in xAI.

Any legal ruling on the matter could be crucial for Microsoft and OpenAI. The two firms have been subject to merger inquiries in the EU and U.K. and will likely be scrutinized by the Federal Trade Commission (FTC) as part of a wider Microsoft antitrust investigation.