Musk's Last Stand Against OpenAI's Profit Shift

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Elon Musk took a hit in his legal fight against OpenAI this week, but a federal judge's ruling might give him and others who are against OpenAI's shift to a for-profit model some hope. Musk's lawsuit targets OpenAI, along with Microsoft and OpenAI's CEO Sam Altman, claiming that OpenAI has strayed from its original nonprofit goal of making sure its AI research helps everyone. OpenAI started as a nonprofit back in 2015 but switched to a "capped-profit" setup in 2019. Now, they're looking to become a public benefit corporation. Musk tried to get a preliminary injunction to stop OpenAI from going for-profit, but U.S. District Court Judge Yvonne Gonzalez Rogers in Northern California said no on Tuesday. However, she did raise some legal concerns about OpenAI's planned change. In her ruling, Judge Rogers pointed out that "significant and irreparable harm is incurred" when public funds are used to turn a nonprofit into a for-profit. OpenAI's nonprofit still holds a majority stake in its for-profit side and could get billions from the transition. Judge Rogers also mentioned that some of OpenAI's co-founders, including Altman and president Greg Brockman, promised not to use OpenAI to make themselves rich. She said the court is ready to fast-track a trial in the fall of 2025 to sort out these corporate restructuring issues. Musk's lawyer, Marc Toberoff, told TechCrunch they're happy with the judge's decision and plan to take up the offer for a quicker trial. OpenAI hasn't said if they'll do the same and didn't respond right away to TechCrunch's request for comment. Judge Rogers' comments on OpenAI's for-profit move aren't great news for the company. Tyler Whitmer, a lawyer for Encode—a nonprofit that filed a brief in the case arguing that OpenAI's for-profit shift could harm AI safety—told TechCrunch that Judge Rogers' ruling casts a "cloud" of uncertainty over OpenAI's board. Attorneys general in California and Delaware are already looking into the transition, and Judge Rogers' concerns might push them to dig deeper, Whitmer said. There were some victories for OpenAI in the ruling, though. Judge Rogers found that the evidence Musk's team used to show OpenAI broke a contract by taking about $44 million from Musk and then moving toward a for-profit model wasn't strong enough for a preliminary injunction. She noted that some emails showed Musk himself thinking OpenAI might go for-profit one day. She also said that Musk's company, xAI, which is also suing, didn't prove it would suffer "irreparable harm" if OpenAI's for-profit conversion went ahead. Judge Rogers wasn't convinced by the plaintiffs' arguments about Microsoft breaking interlocking directorate laws or that Musk had standing under a California law against self-dealing. Musk, who used to back OpenAI, is now one of its biggest critics. His company, xAI, is in direct competition with OpenAI in developing cutting-edge AI models. Musk and Altman are now fighting for legal and political clout under a new presidential administration. The stakes are high for OpenAI. They reportedly need to finish their for-profit conversion by 2026, or some of the money they recently raised could turn into debt. At least one former OpenAI employee is worried about what the transition could mean for AI governance. Speaking to TechCrunch anonymously to protect their job prospects, the ex-employee said they think the change could put public safety at risk. The nonprofit structure of OpenAI was meant to keep profit motives from overshadowing its mission to benefit all of humanity with AI research. But if OpenAI becomes a traditional for-profit company, there might be nothing to stop it from putting profits first, the former employee told TechCrunch. They also said that OpenAI's nonprofit status was a big reason they joined the company. In just a few months, we'll start to see how many obstacles OpenAI will face in its for-profit transition. Regulators, AI safety advocates, and tech investors will be watching closely.

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