Big questions raised by Elon Musk’s lawsuit against OpenAI
WASHINGTON: From Silicon Valley to Wall Street to Washington, the blockbuster case that Elon Musk filed against OpenAI and its CEO, Sam Altman, has become Topic A. It is the business world’s hottest soap opera.
But among lawyers, the case has become something of a fascination for a different reason: It poses a series of unique and unusual legal questions without clear precedent. And it remains unclear what would constitute “winning” in a case like this, given that it appears to have been brought out of Musk’s own personal frustration and philosophical differences with Open AI, a company he helped found and then left.
The lawsuit — which pits one of the wealthiest men in the world against the most advanced artificial intelligence company in the world, backed by Microsoft, one the world’s most valuable companies — argues that OpenAI, a nonprofit organisation that created a for-profit subsidiary in 2019, breached a contract to operate in the public interest and violated its duties by diverging from its founding purpose of benefiting humanity.
Musk’s lawyers — led by Morgan Chu, a partner at Irell & Manella who is known as the “$5 billion man” for his win record — want the court to force OpenAI to open its technology to others and to stop licensing it to Microsoft, which has invested billions in its partnership with the start-up.
Among the questions that lawyers and scholars are asking after poring through Musk’s 35-page complaint:
■ Does Musk even have standing to sue? “One of the differences with nonprofits compared to other companies is that, generally, no one other than the state attorney general has standing to sue for the kind of stuff that he’s complaining about, like not following your mission,” Peter Molk, a professor of law at the University of Florida, said of Musk’s lawsuit. That’s most likely why Musk’s lawyers are presenting the case as a breach of contract instead of attacking the company’s nonprofit status.
Musk also alleges that OpenAI has breached its fiduciary duty, but that charge has its own challenges, lawyers said, given that such claims are traditionally handled in Delaware, not California, where the lawsuit was filed.
■ Was there actually a contract to breach? The lawsuit puts forth a sprawling agreement that is made up of conversations and documents, and that makes it harder to show whether there was a binding contract — and what it might have involved.
■ What was required of OpenAI? Noah Feldman, a professor at Harvard Law School who advised the AI company Anthropic on its corporate governance structure, said the contract Musk claims OpenAI and Altman breached contains “a hole you can drive a truck through.” OpenAI’s certificate of incorporation, which Musk’s lawyers claim is part of the deal, says the AI maker will seek to open its work to the public for its benefit “when applicable” — and OpenAI can easily argue that it is adhering to this term, which is vague.
■ Can a jury determine what is ‘artificial general intelligence’? The suit asks the court to determine that OpenAI’s latest artificial intelligence model constitutes AGI, or a machine that can match what the human brain can do, which would put it outside the scope of OpenAI’s licensing agreement with Microsoft. There is no legal criteria for defining an AGI.
■ Will this case help catch the attention of the California attorney general? OpenAI’s new board was appointed after the previous board briefly removed Altman as the company’s CEO. The short-lived mutiny raised questions over whether the company’s corporate structure allowed OpenAI’s for-profit arm to creep away from the parent company’s nonprofit obligation to focus on civic duties over shareholders. Progressive consumer rights advocacy group Public Citizen has already petitioned California’s attorney general, seeking OpenAI’s dissolution for failing to “carry out its nonprofit purposes.”
“That petition and Musk’s lawsuit have a more than trivial overlap,” said Joseph Grundfest, a corporate governance expert at Stanford Law School and a former Securities and Exchange Commission commissioner.
■ What would damages look like? “The usual remedy for breach of contract — if you can quantify it — is money damages,” said Eric Talley, a professor of corporate governance at Columbia University.
■ In this case, he believes the damages are easily quantifiable: the $44 million that Musk put into the company.
Legal experts said the court could issue an injunction, ordering Microsoft and OpenAI to change the nature of the relationship, but it would be unlikely. “That just sets up a multiyear babysitting relationship,” Talley said.
■ What would happen if the case goes to trial? OpenAI, which did not respond to a request for comment, is likely to move to have this case dismissed.
■ If Musk’s lawyers, who declined to comment, succeed in bringing the case to trial, the discovery process could leave some of OpenAI’s internal workings exposed to wider scrutiny — though its most closely held secrets would probably be deemed privileged or kept under seal.
Whatever happens, the case shines a spotlight on a split over the responsibilities companies that develop these powerful tools should have.