A recent court decision in the ongoing legal battle between Elon Musk and OpenAI has added a layer of complexity to the tech company’s future. This week, a federal judge denied Musk’s request for a preliminary injunction aimed at halting OpenAI’s transition to a for-profit structure. However, the judge’s remarks during the ruling have given Musk and others who oppose the conversion reason to hope that they may prevail in the long run.
Musk’s lawsuit, which also includes Microsoft and OpenAI CEO Sam Altman as defendants, alleges that OpenAI has strayed from its original nonprofit mission to ensure that AI research benefits humanity. OpenAI was founded as a nonprofit in 2015 but shifted to a “capped-profit” model in 2019. The company is now seeking to restructure further into a public benefit corporation.
U.S. District Court Judge Yvonne Gonzalez Rogers, presiding in the Northern District of California, denied the preliminary injunction but raised concerns about OpenAI’s plans. She stated in her ruling that “significant and irreparable harm is incurred” when public funds support the evolution of a nonprofit into a for-profit entity. The nonprofit currently maintains a majority stake in OpenAI’s for-profit operations, and it anticipates billions of dollars in compensation as part of the transition.
Judge Rogers also highlighted that several founding members, including Altman and President Greg Brockman, made “foundational commitments” not to use OpenAI “as a vehicle to enrich themselves.” Furthermore, the judge has offered an expedited trial, scheduled for the fall of 2025, to resolve the corporate restructuring issues.
Marc Toberoff, representing Musk, indicated to TechCrunch that Musk’s legal team is pleased with the judge’s willingness to expedite the case and intends to accept the trial offer. OpenAI has not yet announced whether it will also accept the offer and declined to respond to a request for comment from TechCrunch.
Judge Rogers’ comments regarding OpenAI’s for-profit conversion are not necessarily good news for the company. Tyler Whitmer, a lawyer representing Encode, a nonprofit that filed an amicus brief in the case arguing that OpenAI’s for-profit conversion could jeopardize AI safety, told TechCrunch that the judge’s decision casts a shadow of regulatory uncertainty over OpenAI’s board of directors. Attorneys general in California and Delaware are already investigating the transition, and the concerns raised by Judge Rogers may encourage them to be more aggressive in their investigations, Whitmer said.
However, the ruling contained some wins for OpenAI. Judge Rogers found that the evidence presented by Musk’s legal team claiming OpenAI breached a contract by accepting approximately $44 million in donations from Musk and then pursuing the for-profit conversion was “insufficient for purposes of the high burden required for a preliminary injunction.” She pointed out that some submitted emails revealed Musk himself considered the possibility of OpenAI’s future as a for-profit entity.
Additionally, Judge Rogers stated that Musk’s AI company, xAI, a plaintiff in the case, did not adequately demonstrate that it would suffer “irreparable harm” if the for-profit conversion was not blocked. Judge Rogers was also unpersuaded by the plaintiffs’ claims that Microsoft would violate interlocking directorate laws and that Musk had standing under a California provision that prohibits self-dealing.
Once a key supporter of OpenAI, Musk has become one of the company’s chief adversaries. xAI directly competes with OpenAI in the development of advanced AI models, and Musk and Altman are now vying for legal and political influence under a new presidential administration. The situation is high stakes for OpenAI. The company must complete its for-profit conversion by 2026 to avoid some of its recently raised capital converting to debt. A former OpenAI employee, speaking on the condition of anonymity to protect their future job prospects, told TechCrunch, the ex-employee believes the company’s conversion could pose a threat to public safety.
The original nonprofit structure of OpenAI was partly intended to ensure that the pursuit of profit would not overshadow its primary goal: ensuring that AI research would broadly benefit humanity. The ex-employee added that OpenAI’s nonprofit structure was one of the main reasons they joined the organization. Whether OpenAI’s for-profit transition can succeed remains to be seen.
In the coming months, the hurdles OpenAI needs to clear to complete its for-profit transition will become clearer. Regulators, AI safety advocates, and technology investors are expected to watch the situation closely.
