Elon Musk asks court to block OpenAI conversion from nonprofit to for-profit

Elon Musk on Friday filed a motion for preliminary injunction asking a federal court to block OpenAI's planned conversion from a nonprofit to for-profit entity. The motion in US District Court for the Northern District of California is the latest major filing in a lawsuit Musk initiated against OpenAI and its CEO Sam Altman in August. "There can be no serious question that OpenAI's imminent conversion to a for-profit entity violates the terms of Musk's donations," the motion said, referring to $44 million that Musk says he contributed to OpenAI from 2016 to 2020. Musk's motion makes it clear he is worried that a for-profit OpenAI would spell trouble for his own company, xAI. Musk alleged on Friday that OpenAI and its partner, Microsoft, are "together exploiting Musk's donations so they can build a for-profit monopoly, one now specifically targeting xAI," and that "OpenAI's path from a non-profit to for-profit behemoth is replete with per se anticompetitive practices, flagrant breaches of its charitable mission, and rampant self-dealing." The Musk complaint filed in August objected to the OpenAI structure consisting of a nonprofit and several for-profit affiliates that allegedly "drained the non-profit of its valuable technology and personnel." The lawsuit said Musk agreed to fund OpenAI based on "express promises, representations, and reassurances that the venture would be a non-profit devoted to the open-source development of AI for the benefit of humanity." Musk's new motion alleged that Microsoft and OpenAI "have transformed OpenAI into everything Altman promised Musk it would never be—a closed-source, for-profit monopoly, that rushes unsafe AI products to market for private commercial gain."

Musk’s injunction request

OpenAI previously denied Musk's claims, saying that Musk in 2017 supported the creation of a for-profit entity and that Musk wanted to be the CEO of that for-profit entity. OpenAI also said that "Elon understood the mission did not imply open-sourcing AGI [artificial general intelligence]." In September, details emerged of OpenAI's "plan to restructure its core business into a for-profit benefit corporation that will no longer be controlled by its non-profit board," as reported by Reuters. Musk's motion argues that the conversion should be preliminarily enjoined because it would be difficult to unwind in the event that Musk wins his lawsuit:

For the moment, it is sufficient simply to stop OpenAI's ongoing efforts to convert to a for-profit or to achieve the same end by further transferring OpenAI's intellectual property. While a more detailed order reforming OpenAI's form and practices can come after discovery, preliminary relief to maintain the status quo is appropriate now and makes practical sense. Unwinding OpenAI after its imminent conversion to a fully for-profit enterprise would be grievously costly, complex, and burdensome for the Court, the parties, investors, and other stakeholders. A preliminary injunction staying this conversion curtails these issues, while preserving a just and proper remedy.

The underlying lawsuit seeks financial damages and, among other things, "an order compelling specific performance of Defendants' contractual promises to Musk."

Musk angry about OpenAI funding round

In October, OpenAI raised $6.6 billion in a funding round that valued the company at $157 billion. Investors reportedly have the right to withdraw their money if OpenAI fails to complete its conversion to a for-profit within two years. Musk alleged in his motion and an amended complaint filed last month that OpenAI violated antitrust law during its October 2024 funding round by asking investors not to invest in competitors such as Musk's own xAI. Musk said he "has verified that at least one major investor in OpenAI's October 2024 funding round has subsequently declined to invest in xAI," and that "it is obviously harmful to deprive xAI of investors, particularly during this crucial and formative period of growth in the generative AI market." OpenAI provided a statement to Ars today saying that "Elon's fourth attempt, which again recycles the same baseless complaints, continues to be utterly without merit." OpenAI referred to a longer statement that it made in March after Musk filed an earlier version of his lawsuit. The March statement disputes Musk's version of events. "In late 2017, we and Elon decided the next step for the mission was to create a for-profit entity," OpenAI said. "Elon wanted majority equity, initial board control, and to be CEO. In the middle of these discussions, he withheld funding. Reid Hoffman bridged the gap to cover salaries and operations."

OpenAI cited Musk’s desire for Tesla merger

OpenAI's statement in March continued:

We couldn't agree to terms on a for-profit with Elon because we felt it was against the mission for any individual to have absolute control over OpenAI. He then suggested instead merging OpenAI into Tesla. In early February 2018, Elon forwarded us an email suggesting that OpenAI should "attach to Tesla as its cash cow," commenting that it was "exactly right… Tesla is the only path that could even hope to hold a candle to Google. Even then, the probability of being a counterweight to Google is small. It just isn't zero." Elon soon chose to leave OpenAI, saying that our probability of success was 0, and that he planned to build an AGI competitor within Tesla. When he left in late February 2018, he told our team he was supportive of us finding our own path to raising billions of dollars. In December 2018, Elon sent us an email saying "Even raising several hundred million won't be enough. This needs billions per year immediately or forget it."

Now, Musk says the public interest would be served by his request for a preliminary injunction. Preserving competitive markets is particularly important in AI because of the technology's "profound implications for society," he wrote. Musk's motion said the public "has a strong interest in ensuring that charitable assets are not diverted for private gain. This interest is particularly acute here given the substantial tax benefits OpenAI, Inc. received as a non-profit, the organization's repeated public commitments to developing AI technology for the benefit of humanity, and the serious safety concerns raised by former OpenAI employees regarding the organization's rush to market potentially dangerous products in pursuit of profit."