OpenAI feud between Elon Musk, Sam Altman faces federal judge

A federal judge weighed in Tuesday on a long-brewing legal feud between billionaires Elon Musk and Sam Altman over OpenAI, the company they co-founded, suggesting she’s unlikely to halt the company’s plan to restructure for now. 

Musk, a top ally to President Donald Trump and CEO of Tesla and SpaceX, is looking to stop the Microsoft-backed artificial intelligence AI developer from becoming a for-profit company. He has accused OpenAI of becoming a “closed source, profit-maximizer,” and he sued the company last year, first in a California court and later in federal court.

In a courtroom in Oakland, California, on Tuesday, U.S. District Judge Yvonne Gonzalez Rogers said that “it is a stretch [for Musk] to claim irreparable harm in this case,” adding that it’s a battle of “billionaires versus billionaires.” 

Musk is requesting a preliminary injunction, which would stall OpenAI’s conversion. Gonzalez Rogers didn’t immediately rule on the matter.

Musk, who didn’t appear at the hearing Tuesday, was among a handful of co-founders of OpenAI in 2015. He invested $45 million in the startup between then and 2018, his lawyer said Tuesday. But he and Altman had a falling out, with much of their feud publicly playing out online. In 2023, Musk launched xAI — his own rival to OpenAI — further escalating the tension between them. Musk added xAI as a plaintiff in the case last year.

U.S. companies continue to rush to invest in AI infrastructure and development, alongside recent innovations from China that have shaken AI developers and investors alike. Last month, Altman joined Trump at the White House, where Trump announced a $500 billion AI infrastructure project dubbed “Stargate.”

An attorney for Musk accused OpenAI and Microsoft of improperly agreeing to limit competition, effectively creating monopoly-like conditions that would violate the Sherman Antitrust Act. OpenAI’s attorneys denied the existence of any such agreement.

OpenAI is “a charity where a tiny trickle goes to the charity. It all goes to the for-profit enterprise,” Musk’s attorney Marc Toberoff said. “When you look at that, it’s a cumulative effect in a nascent industry where OpenAI — already with 70% of the market, in conjunction with Microsoft — is seeking to strangle their competitors in the crib.”

OpenAI began its operations as a nonprofit research lab before it transitioned to a so-called capped profit model in 2019, which allowed it to function more like a startup, with the nonprofit arm controlling its for-profit arm.

In December, the company announced it would pivot toward a new for-profit structure this year, which entails creating a public benefit corporation — a type of for-profit company that aims to make a “positive impact” on society — to raise more capital to compete with the “hundreds of⁠ billions of⁠ dollars that major companies are now investing into AI development.”

For OpenAI, that “public benefit” mission is the pursuit of artificial general intelligence, or the possibility of building AI that can essentially think for itself.

Still, others in tech have also expressed opposition to OpenAI’s conversion to a for-profit entity. Meta, which owns Facebook and Instagram, reportedly sent California Attorney General Rob Bonta a letter in December asking the state to block it from doing so, according to The Wall Street Journal. In December, the nonprofit AI safety organization Encode backed Musk’s suit in a statement.

Sarah Eddy, an attorney for OpenAI, stood by the company’s decision, telling the judge that it would be “economically irrational for investors to invest only in OpenAI, even if that were happening.” 

“There are plenty of reasons … for investors to be selecting one investment vehicle rather than the other,” she said Tuesday.

OpenAI’s attorneys also argued that Musk previously supported its becoming a for-profit entity. 

Last year, OpenAI alleged that Musk agreed in late 2017 that the “next step for the mission was to create a for-profit entity,” adding that he wanted “majority equity, initial board control, and to be CEO.” Later, when Musk sued OpenAI, it released emails that purport to show Musk telling Altman and several others: “Even raising several hundred million won’t be enough. This needs billions per year immediately or forget it.”

Musk hasn’t publicly addressed OpenAI’s allegations.

Gonzalez Rogers said Musk can present his arguments to a jury when the case goes to trial.

“I don’t know what happened, but I certainly am not throwing something out on a motion to dismiss when it is plausible that what Mr. Musk is saying is true,” she said. “We’ll find out, he’ll sit on the stand, he’ll present it to a jury. A jury will decide who is right. So something’s going to trial.”