Musk v. Altman: Satya Nadella worried about Microsoft being the ‘next IBM’ in OpenAI deal

Satya Nadella has drawn a historic parallel to Microsoft’s early PC relationship with IBM as the tech giant prepares to invest $10 billion in OpenAI in April 2022 – writing in an internal email that he didn’t want Microsoft to become IBM while OpenAI became the next Microsoft.

That email, presented as evidence by the lead attorney for Elon Musk’s case, Steven Molo, is one of the new details to emerge from the Microsoft CEO’s response to the channel Monday morning in Musk’s lawsuit against Sam Altman, OpenAI and Microsoft in federal court in Oakland.

Nadella described the decision to invest in OpenAI as a “one-way door,” saying Microsoft couldn’t build two supercomputers — one for itself and one for OpenAI — and had to accept the opportunity cost of diverting scarce computing resources away from its AI teams.

“We’ve been outsourcing most of the core IP development and relying heavily on OpenAI,” said Nadella, explaining that he wanted to ensure that Microsoft had access to the intellectual property generated by the partnership, and continue to build its knowledge and capabilities at the same time.

Board considerations are not fixed: The testimony also provides new information from messages between Microsoft executives and Altman in the days following his brief ouster as OpenAI CEO in 2023. The names of potential candidates for that series are redacted in the civil court records.

In Nadella’s testimony on Monday, it emerged that the two potential candidates for the OpenAI board that he expressed disapproval of were Diane Greene, the former CEO of Google Cloud, and Bing Gordon, a sports veteran and Kleiner Perkins partner formerly on the Amazon board. Nadella said he opposes both as potential candidates because of their ties to companies that compete directly with Microsoft in AI.

He said the discussions were initiated by Altman and others within OpenAI seeking his opinion, and that the board could ignore his suggestions. One person who suggested it, former Gates Foundation CEO Sue Desmond-Hellman, was later appointed to the board.

Musk says Microsoft’s efforts to protect its interests in the OpenAI partnership have come at the expense of the nonprofit OpenAI’s original mission of advancing AI for human benefit. His lawsuit alleges that Microsoft aided and abetted the violation of the charitable agreement that governed the creation of OpenAI, misappropriated its initial investment, estimated at $38 million to $44 million.

Empowering a great nonprofit: Nadella offered a different perspective on the stand, describing a partnership built on mutual benefit when Microsoft took a huge risk to fund a fledgling AI lab that no one else was willing to fund. He said the partnership has created “one of the largest nonprofits in the world,” enabling products like ChatGPT and Copilot that put AI tools in the hands of millions of people.

Under questioning, however, Nadella admitted that he was not aware of any full-time employees of the non-profit organization OpenAI before March 2026, or of any grants, research, or open technology it produced.

Microsoft’s lead attorney, Russell Cohen, also sought to undermine Musk’s position in the case. He walked Nadella through the three major stages in the Microsoft-OpenAI relationship – the 2019 announcement, the 2020 exclusive license to GPT-3, and the 2023 $10 billion investment – and asked each time if Musk had reached objections.

Each time Nadella said no. He and Musk have each other’s phone numbers, he added.

Microsoft estimates the return of OpenAI: Musk’s lawyer, in cross-examination, wanted to show the benefits that Microsoft received from the partnership. Nadella left with a January 2023 memo from Microsoft President Brad Smith to the company’s board, outlining a $92 billion return on Microsoft’s combined $13 billion investment in OpenAI.

According to the evidence, a footnote in the memo indicated an annual increase of 20% from 2025, which could double the return within four years.

Under the restructured agreement announced last year, the caps on Microsoft’s returns have been completely removed. Microsoft and OpenAI also recently amended the partnership to make Microsoft’s IP license non-exclusive and open all OpenAI products to any cloud provider.

Nadella confirmed these figures but noted that the investment carries real risk, saying the return could easily be zero.

The case, before US District Judge Yvonne Gonzalez Rogers, is expected to continue until May 21, and OpenAI CEO Sam Altman is expected to take the stand this week.

GeekWire reported on today’s court proceedings live audio streaming.