Elon Musk vs OpenAI: When You Can’t Innovate, Litigate
Back when I worked at a big Wall Street bank this happened all the time: smaller market participants would file lawsuits to shake our money tree, hoping a few bucks would fall to the ground. They wanted to slow us down and distract us from our mission.
Elon Musk may be one of the richest people in the world, but when it comes to artificial intelligence he’s comparatively small. There is nothing unique about his xAI product, Grok. Which basically bills itself as a sassier version of ChatGPT with the added “benefit” of Elon Musk as its founder.
xAI has no other offerings. Grok does not have a standalone interface. It relies completely on X (Twitter), but users must pay some $16 monthly to use it.
“What’s publicly available about xAI makes it seem like Musk showed up to the generative AI party late, and without any beer. This is 2024. The party is crowded now. xAI doesn’t seem to have anything that would let it stand out beyond, well, Musk.”
– Alex Heath, The Verge
When you show up to the party late with no beer, how do you get in?
You could start your own party with Grok. Although it may be hard to convince people who are already cooling on ChatGPT and Google’s Gemini. Both of which have free versions and standalone interfaces, two core attributes Grok lacks.
Alternatively, you could disrupt the current party. Try to shut it down. Or at least, slow it down. Force a name change.
Distraction is what Elon Musk’s lawsuit against OpenAI is all about. It’s an attempt to distract OpenAI from their larger mission, so Musk can score some points for Grok and maybe get some marketing in the process.
There’s something even more fundamental (and sinister) that Elon Musk wants, however. Before we get there, let’s quickly review what Elon Musk is arguing, the clever OpenAI response, and whether the OpenAI non-profit and for-profit structure is even legal. We’ll conclude with Elon Musk’s true motivations and the odds of him winning this lawsuit.
The Elon Musk complaint against OpenAI, Sam Altman, and others
The complaint starts with the recent history of artificial intelligence since Google purchased DeepMind in 2014. It reads less like a complaint and more like a recitation of history according to Elon Musk.
“But where some like Mr. Musk see an existential threat in AGI, others see AGI as a source of profit and power.”
The actual legal claims focus primarily on the alleged breach of the OpenAI Founding Agreement. Elon Musk is accusing OpenAI, Sam Altman, and others of breaching this agreement by creating a for-profit arm of the original non-profit and not open-sourcing all of their tech.
Musk argued that he was a “moving force behind the creation of OpenAI” and contributed “a majority of its funding for its first several years”, while also “recruiting some of the world’s leading scientists and engineers to work at the non-profit venture.”
The defendants allegedly set this Founding Agreement “aflame” when they launched ChatGPT-4, according to Musk. He filed this case to achieve the following:
Compel OpenAI to adhere to the Founding Agreement and return to its mission to develop AGI for the benefit of humanity, not to personally benefit the individual Defendants and the largest technology company in the world (i.e., Microsoft).
OpenAI strikes back
OpenAI came armed with primary source documents.
One of the most powerful pieces of evidence against any plaintiff – using their own words against them. And that’s exactly what OpenAI has done here by publishing emails to and from Elon Musk that directly contradict some of his claims.
One email from Musk in particular from February 2018 suggested that OpenAI “attach to Tesla as its cash cow.” He thought Tesla was the only path to even holding a candle to Google’s dominance in artificial intelligence at the time. When Elon Musk left OpenAI in 2020, he said he was going to create a relevant competitor to Google himself and that he was supportive of OpenAI finding its own path.
Musk even understood that as OpenAI got closer to artificial general intelligence, OpenAI couldn’t afford to be as open given the safety concerns.
“As we get closer to building AI, it will make sense to start being less open. The Open in openAI means that everyone should benefit from the fruits of AI after its built, but it’s totally OK to not share the science…”, to which Elon replied: “Yup”.
Musk then told OpenAI he was leaving and that they were destined to fail.
Elon Musk criticizes OpenAI’s legal structure as a non-profit, but is it legal?
This is obviously not legal advice, but as I explained in this article about how I think Sam Altman could become the world’s first trillionaire (even though he doesn’t have equity in OpenAI), creating a for-profit arm from a non-profit is legal. At least in the United States (I’m not sure about other jurisdictions).
There are a number of important rules and caveats. The millions donated by Musk to the non-profit arm of OpenAI could not be used to commercialize ChatGPT-4, for example. There’s no evidence OpenAI has violated any laws.
So why don’t all companies start as non-profits then? Why not enjoy the tax benefits of a non-profit while creating a for-profit subsidiary to commercialize your dreams?
Elon Musk has argued that all startups and companies should have their cake and eat it too if OpenAI is permitted to operate with this structure.
Musk should note, however, that other mission-driven companies do use this hybrid structure or have chosen to operate as non-profits. See Patagonia for example.
The hybrid approach that OpenAI has chosen – while legal – is very complicated. As we witnessed with the drama from the recent OpenAI board saga that resulted in Sam Altman’s brief firing, there are two distinct teams with clearly separated duties and multiple governing boards in hybrid organizations (that have non-profit and for-profit arms).
It’s messy. It can be legally problematic. Shareholders and/or donors might sue (as Elon Musk has here!).
Therefore, it’s unlikely that startups or more mature companies would ever opt to go the route OpenAI has chosen. Most companies want a clear and simple governance structure. They don’t want to deal with headaches from competing boards and goals even if a hybrid or non-profit structure comes with tax benefits.
“From an investment perspective, competing against an entity employing the new OpenAI business model would be like playing a game of basketball where the other team’s baskets are worth twice as many points.”
– Elon Musk
Musk and his legal team are oversimplifying the business model. It’s simply not practical or realistic for most companies to structure their organizations in this messy way. Which is why almost no companies do it.
Elon Musk will likely lose against OpenAI
When you can’t beat your competition with innovation, go the path of litigation. It’s a strategy as old as the common law itself. There are a few fatal flaws with Elon Musk’s case, not to mention the (likely) sinister motives behind his claims.
First, the story he tells about OpenAI breaching the Founding Agreement is in stark contrast to what was said via email. Musk had the understanding – and agreement – that OpenAI may have to close source its tech the closer it came to developing artificial general intelligence. There was also a common understanding that the company needed a lot more funding than it was getting at the time, which makes the for-profit arm a reasonable evolution for the firm.
Second, Musk left. How he has legal standing to even bring this suit is questionable. He’s no longer affiliated with OpenAI and doesn’t argue that he has any sort of equity or ownership stake. How has he been harmed?
Unless he can demonstrate that the funds he donated in the past were misused or misappropriated by the for-profit arm of OpenAI, he doesn’t have a very good claim here.
Musk and his lawyers conclude their lawsuit by comparing donating to OpenAI to donating to an Amazon rainforest charity that suddenly turns into a logging company, but this analogy is misplaced. Logging is a well-known and ancient practice that’s at diametrical odds with preserving rainforests. The pursuit of artificial intelligence is not, and even for profit ventures can have significant societal benefits (look at many other pieces of technology for examples). And we’re likely not even in the first inning of the artificial intelligence boom.
Accordingly, it’s completely reasonable that OpenAI chose to evolve its legal structure to raise more funding. It’s also understandable that they chose to partner with a big tech company like Microsoft to support their mission.
Elon Musk doesn’t like it because it wasn’t him. He didn’t have this problem in late 2020 or the subsequent years that followed. It was only after ChatGPT-4 experienced commercial success and shocked the world that Musk suddenly took notice. This was after he left OpenAI for dead, telling them that they would fail.
Elon Musk simply wants control. He sees artificial intelligence in the same way he sees electric cars and making humans a multi-planetary species. He wants to be at the forefront of the industry that could demonstrably change – and hopefully improve – the lives of humanity.
By forcing OpenAI to open its books and reveal its secrets, Musk is hoping to catch up to their (and Google’s) head start. Perhaps he’s hoping to get the chance at extensive discovery through this lawsuit.
He even makes bold tangential claims accusing Sam Altman of self-dealing (highlighting a 2019 deal between a chip-making startup Altman invested in that finalized an agreement with OpenAI). Perhaps he learned that type of self-dealing from Elon Musk himself.
So much of this lawsuit is grounded “on information and belief” and speculation. It’s debatable that Elon Musk doesn’t even have legal standing any longer to bring this claim against a private non-profit company he donated to years ago.
Companies change strategies and policies all the time. When pursuing a mission as complex and uncertain as artificial intelligence, it’s perfectly reasonable to change the approach.
Elon Musk is simply mad he didn’t create generative AI like ChatGPT first. He’s upset he doesn’t control it any longer. He regrets that he walked away.
Elon Musk can’t out-innovate OpenAI, so he’s hoping to out-litigate it. But that’s unlikely to work either.
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