On Thursday, US District Judge Yvonne Gonzalez Rogers sustained Elon Musk’s fraud claims against OpenAI, allowing his case to proceed.
Musk can now pursue his allegation that OpenAI fronted itself as a public charity while secretly planning to change to a for-profit business.
The judge, however, dismissed Musk’s claims of racketeering, false advertising, and breach of fiduciary duty against the AI corporation.
Elon Musk sued Altman and OpenAI for leaving behind its initial mission as a non-profit
On February 29, 2024, Elon Musk sued OpenAI and its CEO, Sam Altman, for giving up the startup’s founding mission to create AI for the benefit of humanity and not for commercial gain.
Musk, an early investor and co-founder of OpenAI, claimed that the organization’s planned for-profit restructuring violates the terms of his previous donations to the company, which were about $45 million. He insisted that when Altman and co-founder Greg Brockman approached him, they agreed to build an open-source, non-profit company for the public good, but now the company is after making more money.
He also accused the ChatGPT creator of breaking several antitrust laws like the Sherman Act. He argued that the company’s close collaboration with Microsoft and their exclusive investor agreements to limit funding to other competitors in the AI market have proven harmful to his own xAI and other smaller AI companies.
However, Judge Yvonne Gonzalez dismissed several of Musk’s claims but sustained the fraud claims.
She remarked, “For purposes of the instant motion, Musk adequately alleges that the defendants promised to maintain OpenAI’s non-profit status and structure to obtain his contributions and that they intended to do so to obtain the capital needed to create a for-profit venture to enrich themselves.”
OpenAI’s legal team had argued that the company had disclosed its for-profit status as early as 2019, and therefore, under the three-year statute of limitations, Musk’s fraud claims are time-barred and should not be considered by the court. However, Gonzalez refuted their argument, claiming the submitted email did not relate directly to OpenAI, Inc.
The judge, however, ruled out the contract violation claims Musk had raised, arguing that there wasn’t any evidence of a binding agreement. The Tesla billionaire had previously claimed that the emails he exchanged with the defendants between 2015 and 2019 served as an express contract, but Gonzalez disagreed.
Although Gonzalez did allow the breach of implied-in-fact contract claims, saying Musk sufficiently pleaded that there was an implied-in-fact contract based on the OpenAI defendants’ behavior.
Nonetheless, she quashed the billionaire’s claims that OpenAI and Microsoft had participated in racketeering. She asserted that there was insufficient legal basis for the standards required for a Racketeer Influenced and Corrupt Organizations Act (RICO) claim. Nonetheless, she allowed Musk to amend his claims, but he must show how the defendants clearly violated Section 1962 (c).
Similarly, she dismissed the false advertisement claims against the ChatGPT maker because there was no evidence to show that Musk’s endeavors failed due to public statements made by the AI company.
Open AI countersued Musk this April for derailing its restructuring
Last month, OpenAI filed a lawsuit against Elon Musk, accusing him of intentionally and unfairly stalling their restructuring plans. The company asked a federal judge to charge him for the damages he caused to their AI super lab, harassment, interference, and misinformation.
However, despite those broad accusations, the countersuit focuses majorly on just two legal claims centered around Musk’s February 2024 attempt to buy OpenAI for $97.375 billion.
While Musk’s team says this offer was a legitimate bid, OpenAI’s lawyers disagree, calling it a “sham” made to derail their restructuring. They added that Musk is no longer connected to OpenAI and operates his own AI company, xAI.
The AI corporation also claimed that all the investors mentioned in Musk’s letter of intent to purchase the company had not done any due diligence. One investor even claimed that Musk only intended to acquire internal records of the AI company through legal proceedings.
Open AI is under pressure to complete its restructuring by 2025’s end. Softbank Group, one of its founders, has vowed to pull out at least $10 billion from its promised $30 billion investment if the company does not restructure in time. Open AI would be forced to look for other investors if the group withdraws part of its funding.
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