A judge in California has permitted fraud allegations against AI startup OpenAI to move forward, stemming from claims that Elon Musk did not uphold his commitment to operate as a public charity when CEO Sam Altman chose to transition the company into a for-profit entity.
In a notable point in the ongoing legal tussle between Musk and OpenAI, US District Judge Yvonne Gonzalez Rogers has allowed the billionaire entrepreneur to pursue his fraud claims against the AI company he helped establish. This ruling was made on Thursday in Oakland, California, amidst Musk’s assertions that OpenAI went against its promise to act as a public charity by planning to become a profit-driven organization.
Judge Gonzalez Rogers streamlined the complaints Musk filed last year, yet she upheld the fraud allegations against OpenAI. Also noteworthy is the dismissal of unfair enrichment charges against both OpenAI and Microsoft, the startup’s major backer. However, claims related to false advertising and fiduciary breaches were not supported for OpenAI.
While both OpenAI and Microsoft successfully dismissed Musk’s assault claims, the judge did allow Musk to amend his complaint. Following the ruling, an OpenAI spokesperson referred to a social media post from the previous month, asserting that Musk’s actions were a dubious attempt to hinder the company’s progress for the benefit of rival startup Xai, launched in 2023.
The ongoing legal conflict between Musk and Sam Altman, who collaborated to create OpenAI a decade ago, unfolds alongside discussions between startups and officials in Delaware and California regarding a restructuring strategy. OpenAI is under pressure to finalize this overhaul by the end of 2025; failing to do so could see SoftBank Group reduce its funding from $30 billion to $20 billion. This would force OpenAI to consider alternative investors.
Musk contends that the partnership formed between OpenAI and Microsoft after Musk left the startup’s board in 2018 signals an attempt to monopolize the generative AI market, potentially harming free market competition. His legal team further argues that Microsoft was aware that OpenAI’s co-founders, Sam Altman and Greg Brockman, were engaged in efforts to deceive Musk regarding his valuable contributions, enriching themselves in the process.
Judge Gonzalez Rogers agreed to dismiss Musk’s fraud claims against OpenAI and Microsoft, but she ruled that Microsoft must respond to allegations of interfering with the contract between Musk and OpenAI, which Musk claims indicated that the startup’s technology was to benefit the public.
In her decision, Judge Gonzalez Rogers noted that Musk asserted that Microsoft was aware of the charitable trust obligations and allegedly took actions that constituted “substantial support or encouragement” in breach of the contract.
The case, Musk v. Altman, 24-CV-04722, is pending in the US District Court for the Northern District of California.
