A California judge has ruled that Elon Musk can proceed with fraud claims against AI startup OpenAI as part of his lawsuit alleging the company broke its promise to operate as a public charity when CEO Sam Altman decided to become a for-profit enterprise.
Bloomberg reports that in a significant development in the legal battle between Elon Musk and OpenAI, US District Judge Yvonne Gonzalez Rogers has allowed the billionaire entrepreneur to pursue fraud claims against the AI startup he co-founded. The ruling, issued on Thursday in Oakland, California, comes as part of Musk’s lawsuit asserting that OpenAI violated its commitment to function as a public charity by planning to transform into a for-profit business.
While Judge Gonzalez Rogers narrowed the claims in the complaint filed by Musk last year, she upheld the fraud allegations against OpenAI. Additionally, the judge declined to dismiss an unjust enrichment claim against both OpenAI and Microsoft, a major investor in the startup. However, she threw out false advertising and breach of fiduciary duty claims against OpenAI.
Both OpenAI and Microsoft successfully secured the dismissal of Musk’s racketeering claims, but the judge provided the billionaire with an opportunity to revise that allegation through an amended complaint. In response to the ruling, an OpenAI spokesperson referred to a social media post from last month, asserting that Musk’s actions constitute an unlawful attempt to hinder the company’s growth to benefit his rival startup, xAI, which he launched in 2023.
The legal dispute between Musk and Sam Altman, who collaborated to establish OpenAI a decade ago, unfolds as the startup engages in discussions with officials in Delaware and California regarding its restructuring plans. OpenAI faces pressure to complete the overhaul by the end of 2025, as failure to do so could result in SoftBank Group reducing its funding contribution from $30 billion to $20 billion. In such a scenario, OpenAI would have the option to seek out other investors.
Musk has alleged that the alliance forged between OpenAI and Microsoft after his departure from the startup’s board in 2018 represents an attempt to dominate the generative AI industry, potentially threatening free market competition. His lawyers also contend that Microsoft was aware of OpenAI co-founders Sam Altman and Greg Brockman engaging in “a scheme to defraud Musk of his valuable contributions and backing to enrich themselves.”
While Judge Gonzalez Rogers granted OpenAI and Microsoft’s request to dismiss Musk’s claim of aiding the fraud, she ruled that Microsoft must face claims of interfering with the contract between OpenAI and Musk. According to Musk, this contract stipulated that the startup’s technology should benefit the public.
In her ruling, Judge Gonzalez Rogers stated that Musk has “plausibly alleged that Microsoft knew of the charitable trust and took steps constituting ‘substantial assistance or encouragement’ in the violation” of the contract.
The case, Musk v. Altman, 24-cv-04722, is being heard in the US District Court, Northern District of California.
Read more at Bloomberg here.
Lucas Nolan is a reporter for Breitbart News covering issues of free speech and online censorship.
