What the judges will really decide in the case of Elon Musk vs. Sam Altman

Nine California judges are now debating the future of OpenAI, the world’s leading artificial intelligence lab.

While the trial examining the case of Elon Musk against the other founders of OpenAI and Microsoft covered the area from the separation of the founders in 2018 to Altman’s firing and re-employment in 2023, the judges will be considering a set of small questions.

• Breach of charitable trust – in fact, did OpenAI and its co-founders Sam Altman and Greg Brockman breach a specific agreement with Musk to use his donations to OpenAI for a specific, charitable purpose and not for general non-profit use?
• Unjust enrichment – did the defendants use Musk’s donations to enrich themselves through OpenAI’s for-profit arm, rather than for charitable purposes?
• Aiding and abetting breach of trust – Did Microsoft, through its partnership with OpenAI, know that Musk had certain conditions on its contributions, and played a significant role in causing Musk harm?

OpenAI also makes three arguments in its defense that the jury will weigh:

• Statute of limitations – the legal deadline by which a lawsuit must be filed. Here, if OpenAI can prove that any harm to Musk occurred before August 5, 2021 in the first instance; August 5, 2022 on the second count; and November 14, 2021 on the first count, then his claims will be moot.
• Unreasonable delay – Musk, by filing his lawsuit in 2024, delayed his claim in a way that made his request for damages unreasonable.
• Dirty hands – a legal doctrine that says Musk’s conduct related to his claims against OpenAI was improper and invalidates them.

If Musk succeeds, it could mean the end of OpenAI as a profitable company, but it’s not clear what the outcome will be. Next week, the judge will begin a new set of hearings in which lawyers for both sides will debate what the consequences of a ruling in favor of the plaintiffs could be. However, that process may be interpreted as a bad decision.

Breach of charitable trust

Musk’s lawyers say the defendants clearly understood that Musk wanted to support a non-profit organization that would ensure the benefits of AI to the world, and prevent it from being controlled by any one organization. In particular, they say the investment of 10 billion from Microsoft in 2023 in the OpenAI for-profit organization – the first to happen after the restrictions system – the event that turned Musk’s concern into a crime.

That deal, Musk’s lawyers said, was different from previous investments and resulted in OpenAI investors being enriched by the company’s commercial products, at the expense of the AI ​​security philanthropy that Musk has promoted.

OpenAI’s lawyers asked every witness to explain the specific restrictions placed on Musk’s money, and there were none, including his financial adviser Jared Birchall, his chief of staff Sam Teller, or his special counsel Shivon Zilis. They said that everyone involved agreed that private fundraising would be needed to achieve its goals, and noted that Musk himself tried to launch a joint venture with OpenAI that he would personally control, and later merged OpenAI with his company Tesla. They also noted that some donors of this organization did not report that their aid fund had been breached.

Importantly, a forensic accountant hired by OpenAI testified that all of Musk’s donations had been used by OpenAI before the key date of August 5, 2021. This is proof that Musk’s donations had already been used for their intended purpose before he brought his case, closing any reliance on aid that may have existed.

In particular, they emphasize that the for-profit affiliate that conducts most of the actual work of OpenAI continues to fulfill the organization’s mission, and has generated about 200 billion in equity value to support the non-profit foundation. Notably, Sam Altman argued that making ChatGPT free helps achieve the goal of sharing the benefits of AI with the world.

Unjust enrichment

Plaintiffs point to the multibillion-dollar stakes held by OpenAI founders like Brockman and Ilya Sutskever, as well as Microsoft itself, as a sign that Musk’s donations were ultimately used for personal gain, rather than to support the charity’s work. They argued that OpenAI’s for-profit work was focused on commerce, while the foundation itself was left idle, had no full-time employees, and, ultimately, could not even control profits.

OpenAI says all of Musk’s contributions were used by the foundation in 2020, and that the distribution of equity came well after he left the organization in 2018. Even before that, evidence shows that key players agreed that being able to compensate researchers with stock was key to developing AGI, a hypothetical form of AI that could perform any intellectual task a human could. OpenAI’s management maintains that the for-profit activity has meaningfully advanced the foundation’s mission, including security activities. They say the nonprofit’s board continues to regulate the for-profit, and put new governance controls in place following the “blip,” when Altman was fired by the nonprofit OpenAI’s board in 2023 for lack of privacy and then rehired a few days later.

Helping and helping

Musk’s case centered on the events of the blip, when Microsoft CEO Satya Nadella, whose company relies on OpenAI technology, was personally involved in helping to replace Altman and create a new board to govern OpenAI. They note that Microsoft executives have questioned whether their commercial agreement might conflict with the nonprofit’s goals, and suggest that Microsoft’s commercial priorities have led OpenAI away from its mission. They focused attention on a clause in Microsoft’s agreement with OpenAI that gave Microsoft veto rights over major business decisions at OpenAI.

Microsoft’s witnesses emphasized that company executives were not aware of any conditions regarding Musk’s contributions despite extensive due diligence, and they never voted on any OpenAI decision. They note that the company’s investment in computing power has allowed OpenAI to achieve its biggest win.

Statute of Limitations

Musk suggested that his doubts about his founders grew over time, until in the fall of 2022 he finally decided that they had betrayed him when he found out about Microsoft’s plans to invest 10 billion new funds that took place in 2023. He would not file his case until mid-2024.

OpenAI’s lawyers said the terms of that deal were outlined in a timeline for a previous fundraising round in 2018, which Musk and his advisers had reviewed, but Musk said he had not read the details. They also note numerous blog posts and other communications over the years that show Musk didn’t know OpenAI was doing well before he brought them to court, including tweets in which Musk criticized the company years before the lawsuit. Zilis, Musk’s mentor, even voted to approve the transaction as a board member of OpenAI.

Finally, OpenAI’s lawyers insist that Musk’s official role in the organization ended in 2018 and his last contributions took place in 2020.

Unreasonable delay

OpenAI’s lawyers say the real reason Musk filed his lawsuit is that he realized he was wrong about OpenAI, after its launch of ChatGPT revolutionized the artificial intelligence business. They argue that OpenAI has operated under its current structure since its initial investment by Microsoft in 2018, and that forcing the organization to restructure eight years later is unreasonable.

Dirty hands

There is evidence that Musk was planning his own competitive AI efforts while chairman of OpenAI, and hired OpenAI employees to work on AI at Tesla. OpenAI’s lawyers say these efforts undermined OpenAI while using Musk’s donations to do its work. They noted that Zilis, the mother of Musk’s three children, had not disclosed her personal relationship to other OpenAI board members for years. And they argue that Musk withheld his contributions in 2017 in an effort to win control of the for-profit organization OpenAI. Ultimately, “Mr. Musk left OpenAI dead in 2018,” Bill Savitt, OpenAI’s lead attorney, told the judge.