Nadella says Musk never asked him about the Microsoft deals

Microsoft CEO Satya Nadella ruled in Musk v. Altman on Monday, where he testified that Elon Musk had never contacted him with concerns that Microsoft’s investment in OpenAI violated any terms or exclusive commitments.

Nadella, wearing a navy suit and blue tie, concluded his testimony in federal court in Oakland, California, after several hours of questioning. He answered questions about the early days of Microsoft’s strategic partnership with OpenAI, his understanding of the company’s relationship and his role during the tumultuous few days Sam Altman was briefly fired as CEO of OpenAI.

Altman’s testimony is expected to begin Tuesday, according to his attorneys.

In 2024, Musk sued OpenAI, Altman, and the company’s president, Greg Brockman, saying they went back on their oath to protect the non-profit intelligence company and follow its philanthropic mission. Microsoft is named as a defendant in the lawsuit, as Musk accuses the company of aiding and abetting the breach of OpenAI’s alleged charity trust.

Microsoft has been one of OpenAI’s biggest supporters since 2019, years before the company entered the mainstream with the launch of its ChatGPT chatbot in late 2022. Microsoft has invested more than $13 billion in OpenAI, including a $1 billion investment in 2019, a $2 billion investment in 2021 and a $1 billion trial in 2020.

Nadella said he was “very proud” that Microsoft took the risk to invest in OpenAI when “no one else was willing” to bet on the fledgling lab.

Musk, who testified late last month, said Microsoft’s $10 billion investment was the tipping point that led him to believe OpenAI was violating its nonprofit mission. He stated that the level of investment worries him, and has led him to open a legal investigation into OpenAI.

“I was concerned that they were really trying to steal from charities,” Musk said on the stand.

Nadella said in this post that he does not believe that Microsoft’s investment in OpenAI was a donation, and that there was a clear commercial element to their relationship from the beginning.

He said that in the early years of the partnership, Microsoft offered OpenAI sharp discounts on computing resources, and Microsoft believed it would gain marketing benefits by doing so.

During a separate video presentation that aired Monday morning, Michael Wetter, Microsoft’s chief business development officer, said the company has seen an estimated $9.5 billion in revenue so far through its partnership with OpenAI.

Musk founded OpenAI along with Altman, Brockman and a handful of other executives and researchers in 2015. After many disagreements about OpenAI’s direction, including a failed attempt to merge it with its automaker. TeslaMusk left the OpenAI board in 2018. He went on to start a competing AI startup, xAI, which he co-founded with SpaceX earlier this year.

OpenAI launched a for-profit company in the months following Musk’s departure, which allowed the company to raise external funding more easily. Investors, including Microsoft, have since poured billions of dollars into OpenAI’s for-profit arm, and the company’s value has risen to more than $850 billion.

In November 2023, Altman was summarily fired from his role at OpenAI after the board found that he was “not consistently successful in communications.” He was reinstated a few days later, after several days of heated negotiations.

Nadella said he was “very surprised” by the board’s decision, and that his top priority is trying to figure out how to keep Microsoft’s customers going. After Altman was fired, Nadella said he made efforts to learn more about what happened, adding that he blamed jealousy and miscommunication.

In conversations with OpenAI board members after the firing, Nadella said he was just trying to understand the language in OpenAI’s statement about Altman “not speaking consistently” when speaking to the board.

That language, Nadella said, “is not enough, because this is the CEO of a company that we have invested in and we have a lot of cooperation with, so I felt that they could have told me that they could have explained to me what the incidents are or what the information behind it is.”

There must have been incidents of jealousy or miscommunication that could have been the reason for firing Altman, Nadella said. He said he wanted more depth from the board members after the frank speech, but there was none, he said.

“It was an uneducated city, in my opinion,” Nadella said.

In October, OpenAI completed a recapitalization that cemented its structure as a non-profit organization with an equity stake in its for-profit business. As part of that announcement, Microsoft disclosed that it holds approximately 27% of OpenAI’s revenue share valued at approximately $135 billion.

The relationship between OpenAI and Microsoft has shown signs of strain in recent months, as both companies continue to position it as a strategy and backbone to their businesses. Late last month, on the same day that jury selection began in Musk v. Altman, the companies announced a modified partnership agreement that allows OpenAI to handle revenue share payments and serve customers on any cloud provider.

OpenAI said in its release that the agreement aims to “simplify our relationship and the way we work together.”

Musk testified that he was not completely opposed to OpenAI having a for-profit unit, but said it was “the tail wagging the dog.” He has repeatedly accused Altman and Brockman of enriching themselves through charity while favoring the good organizations that come from running a nonprofit.

“Microsoft has its own motivations, and that will be different from what the charity is motivated by,” Musk told the station. “With all due respect to Microsoft, do you really want Microsoft to control digital intelligence?”

During a video deposition shown in court last week, former OpenAI director Tasha McCauley recalled a conversation with Nadella and his fellow board members after the 2023 decision to dismiss Altman as CEO of OpenAI.

“What I remember, Satya wanted to bring things back to the way they were,” said McCauley. Board members didn’t think that was the right move, he said.

But as a court witness on Monday, Nadella said he never wanted the board to reinstate Altman as OpenAI CEO.

Musk’s attorney, Steven Molo, showed Nadella screenshots of messages Nadella exchanged with Kevin Scott, Microsoft’s chief technology officer, about potential candidates to join the OpenAI board.

Among those who were called to the discussion were Coinbase Chief Operating Officer Emilie Choi, former Eventbrite CEO Julia Hartz, former Gates Foundation CEO Sue Desmond-Hellmann, former Klein Perkins Caufield & Byers investor Bing Gordon, former CEO. Xerox CEO Ursula Burns, former LinkedIn CEO Jeff Weiner and ex Alphabets director Diane Greene.

In 2015, Google bought Greene’s company Bebop, and took over part of the Google cloud. In 2019, he left Google and Alphabet’s board.

Nadella said “no” in a text message about Greene taking the OpenAI board seat. On Monday, he said he objected because Greene, at the time, was connected to Google or had been until recently.

“I thought there would be arguments because of our intense competition with Google,” he said.

Nadella said that when he became CEO of Microsoft in 2014, Google was the company’s biggest competitor in AI, following the acquisition of AI lab DeepMind.

OpenAI announced the appointment of Desmond-Hellmann to its board in March 2024.

“I’ve known him for a long time,” said Nadella.

Molo also questioned an email Nadella sent in 2022 to several Microsoft executives about terms that would favor the company when it partnered with OpenAI.

“I don’t want to be IBM and OpenAI to be Microsoft,” Nadella wrote.

In 1980, IBM signed a non-exclusive agreement to distribute Microsoft’s DOS operating system for IBM computers. The deal allowed Microsoft to do business around DOS with several other PC makers, resulting in the software becoming more widespread. Later, Microsoft sold licenses of its Windows operating system to device manufacturers, strengthening its role in information technology.

“In the end Microsoft grew into a more prominent and important company than IBM, didn’t it?” Molo asked.

“Of course,” said Nadella.

As of Monday’s market close, Microsoft’s market capitalization stood at $3 trillion, while IBM’s was worth $210 billion.

After Nadella concluded his testimony, Ilya Sutskever, the former founder of OpenAI and a well-known AI researcher, was called to the courtroom. Sutskever wore a blue button-down shirt, and answered questions about his decision to join the company, his connection with Musk and his involvement in Altman’s ouster.

Sutskever worked at Google, and testified that the company offered to pay him up to $6 million a year to try to keep him from joining OpenAI. He was one of the employees who eventually raised concerns about Altman’s behavior on the board, in part because he said he felt “too much ownership” when he started.

“I was just taking care of it, and I didn’t want it to be destroyed,” Sutskever said.

Bret Taylor, chairman of the board at OpenAI, followed Sutskever to the stand. He explained the structure of OpenAI to the judges, and also talked about the “difficult” time when Altman was removed as CEO.

Taylor did not finish his testimony before Monday’s hearing, so he will return to the courtroom on Tuesday at 8:30 am PT.

— CNBC’s Lora Kolodny contributed to this report.

WATCH: The Musk vs. OpenAI continues — here’s where things stand