In just a few days, the long-awaited selection of judges will begin Musk v. Altman the case. At the end of that process, a federal court in Oakland will task nine ordinary people with the task of deciding whether OpenAI deceived Elon Musk when it announced, and recently completed, its restructuring to become a traditional for-profit business. More than just being a place for two billionaires to air their grievances against each other in public, this case has the potential to reshape the AI industry.
How did we get here?
Musk first sued OpenAI in 2024, but the seeds of controversy were planted when Sam Altman sent an email to the billionaire on the night of May 25, 2015. “I’ve been thinking a lot about whether it’s possible to stop humanity from developing AI. I think the answer is absolutely no,” Altman wrote at the time. “If it’s going to happen anyway, it seems like it would be good for someone outside of Google to do it first. Any thoughts on whether it would be good [Y Combinator] to start the Manhattan Project for AI?”
“Maybe it’s worth discussing,” Musk replied a few hours later. That same year, OpenAI announced itself globally, with Altman and Musk as co-chairmen of the new joint venture. “OpenAI is a non-profit artificial intelligence research company. Our mission is to develop digital intelligence in a way that can benefit humanity as a whole, without being constrained by the need to generate financial profit. Since our research has no financial obligations, we can better focus on the positive human impact.”
If we are to believe OpenAI’s statement about subsequent events, in 2017, almost everyone in the company, including Musk, agreed that the for-profit company “had to be part of the next phase of OpenAI,” due to the large amount of investment required to continue its original mission. At one point before Musk left OpenAI’s board of directors in February 2018, OpenAI said it wanted full control of the company, with the goal of eventually merging it with Tesla.
After Musk’s departure, OpenAI created its for-profit arm in 2019, which at the time was organized under a “limited profit” framework designed to limit investors’ returns to 100x, with any excess windfalls flowing to the company’s non-profits. The idea is that if OpenAI achieves mainstream artificial intelligence, its nonprofit organization will benefit greatly. However, after the success of ChatGPT in 2022, that structure became an issue for OpenAI as the company sought to raise more capital, and as part of its $6.6 billion funding in October 2024, it reportedly agreed to a less than two-year deadline to release its profits from control of the nonprofit organization.
“What is at the heart of this research is that OpenAI started as a non-profit organization, then decided that it needed to become a for-profit organization in order to raise the large sums of money needed to develop the technology it wanted to create,” explained Professor Michael Dorff, executive director of the Lowell Milken Institute for Business Law and Policy at UCLA. “That is a very difficult change under the law.”
Earlier this year, following lengthy negotiations with Microsoft (its largest investor) and the state attorneys general of California and Delaware, OpenAI announced a successful restructuring of its corporate structure. As things stand, the for-profit company is now a public good, which makes it more attractive to investors looking for an uncomplicated return structure. Meanwhile, a nonprofit — now known as the OpenAI Foundation — holds an equity stake in the for-profit arm, a stake valued at $130 billion when the deal was announced.
At the end of last year, Musk filed an injunction to prevent the restructuring from going forward but failed. As the first donor of OpenAI, Musk will not see a single cent of money when the company holds an initial public offering, due to the fact that donations are made without expecting any return. So Musk challenged OpenAI’s founding team, including CEO Sam Altman and President Greg Brockman, to blackmail him as a donor.
Determining the exact amount Musk contributed to OpenAI was an early question during the pre-trial acquisition. You see, Musk has greatly exaggerated his financial contributions. The latest is March 2023the billionaire has always said that he donated around 100 million to OpenAI. He later cut that estimate in half, he said CNBC May 2023: “I’m not sure the exact amount but it’s some number on the order of $50 million.” In recent court filings, that figure was revised to $38 million, and that figure currently stands.
What’s at stake for OpenAI?
In his first complaint, Musk’s legal team tried to “throw the kitchen sink” at OpenAI, Professor Dorff said. In subsequent filings, Musk’s attorneys narrowed their client’s desired set of outcomes down to a handful of remedies. If the judge finds in his favor, Musk has asked the court to force Altman and Brockman to step down, and for OpenAI to reorganize as “a bona fide charitable organization operating as the nonprofit it was intended to be, consistent with its charter and mission.” He also made a highly unusual request that any monetary damages awarded to him in the decision be redirected to OpenAI’s non-profit arm.
According to Professor Dorff, it is unlikely that Musk will be able to reverse the restructuring of OpenAI. For one, District Judge Yvonne Gonzalez Rogers has already expressed her reluctance to do just that — and she, not a judge, will be able to decide whether that’s an appropriate remedy. Accordingly, Musk is asking the judge to “egg” the complex corporate restructuring.
“There was a moment when that was possible, when the attorneys general of Delaware and California stepped in and came to the current consensus,” Dorff explained. “Whether you agree or disagree with what the AGs decided to do, I think it’s very unlikely that a court would see fit to reverse that compromise because of all the government officials involved who, in theory, had all the right motives.” When Musk filed his request for a preliminary injunction to stop OpenAI’s conversion into a for-profit company, the judge said the request was “rare and rarely granted.” The fact that Musk is deeply involved with OpenAI competitor xAI “may also weigh in the judge’s mind,” Droff added.
Even more uncertain is how Musk’s other demands might play out, as a judge will decide whether OpenAI is guilty of defrauding him. According to Dorff, many high-profile business cases end when both parties settle because of the risk of involving a judge in the outcome. “I don’t see what is happening here in terms of the conflict,” he said. “It looks like it’s going to be okay for both sides.”
If the case ends with a jury verdict, it will be up to those nine people, with the judge’s guidance, to decide on monetary damages. “That’s going to be very difficult to understand because there’s a maximalist version of this, and a minimalist version of this. They’re very different numbers and the result can be anywhere between the two,” Dorff said. Musk’s legal team is seeking between $65.5 billion and $109.43 billion from OpenAI (and between $13.3 billion and $25.06 billion from Microsoft, a co-defendant in the case). In a worst-case scenario, Professor Dorff suggests that Altman could lose the confidence of OpenAI’s board, causing him to lose his position as CEO. He may be forced to write checks to settle problems.
Dorff suspects that OpenAI would “like” a smaller version when Musk recoups his $38 million donation. In case some disgruntled contributors come forward to sue OpenAI for fraud, the Musk v. Altman The lawsuit will make it easier to prosecute those cases, as it “maps out which legal claims are likely to succeed,” Dorff said. However, those would amount to OpenAI “traffic tickets”.
Whatever happens next, it should be an eventful trial. With public testimony from Microsoft CEO Satya Nadella, former OpenAI board member and Musk confidante Shivon Zilis and possibly even Altman himself, at least we will be treated to the wealth of private communications – and a new piece of vocabulary – among some of the richest people in the technology space.
