Elon Musk vs. OpenAI: Legal experts weigh in

The Elon Musk lawsuit filed yesterday in California against OpenAI, CEO Sam Altman and president Greg Brockman left legal experts scrambling to analyze the bombshell claims. These include breach of contract, breach of fiduciary duty, and unfair competition — all circling around the idea that OpenAI put profits and commercial interests in developing artificial general intelligence (AGI) ahead of its duty to protect the public good.

VentureBeat reached out to two legal experts for comment on the case: Anat Alon-Beck, associate professor at Case Western University School of Law, who focuses on corporate law and governace; and James Denaro, attorney and chief technologist at the Washington DC-based CipherLaw, which focuses on navigating the legal landscape of AI and intellectual property.

Were OpenAI agreements ‘well-defined’ contracts?

Denaro pointed to Musk’s efforts in the suit to “effectively force OpenAI to open-source all of its research and technologies.” At the time of OpenAI’s founding and when he was funding it, he explained, Musk clearly had an expectation that OpenAI was going to be open source.

But, he continued, it would be difficult to enforce these generalized understandings as if they were well-defined contracts.

“For example, did they all agree that OpenAI could never have a proprietary for-profit product, or could OpenAI have both some open source technology and other closed source technology?” he said. “It may be difficult for a court to find that the agreements they had with each other, being ambiguous in scope and in time, can be strictly enforced when they weren’t originally negotiated as if they were contracts.”

Lawsuit ‘probably a stretch’ but makes a ‘strong policy argument’

While Musk has long made his frustrations with OpenAI very public, Denaro said he believes the breach of contract claim is uncertain at best.

“The complaint styles what is more of a generalized consensus among Altman, Brockman, and Musk as the ‘Founding Agreement,’” he said. “But was there an actual agreement, and if so, to do exactly what?”

On the law alone, this lawsuit is “probably a stretch,” he added, as the agreements do not clearly exclude OpenAI from having closed source technologies or ever profiting from that.

“However, Musk does make a strong policy argument that if a company can launch as a non-profit working for the public benefit, collect pre-tax donations, and then transfer the IP into a for-profit venture, this would be a highly problematic paradigm shift for technology start-ups,” he pointed out. “While it’s not clear that the court would be in a position to resolve the issue of shifting corporate forms and IP transfers, it does raise an important issue that will probably need to be addressed in law or policy.”

Musk’s lawsuit ‘should have been brought in Delaware’

Alon-Beck told VentureBeat in a phone call that she was “not surprised” by Musk’s lawsuit, but says that while he has the right to file it, the fact that Musk, as the founder of X.ai, is now also a competitor, he has clear “incentives to sabotage” OpenAI.

“What judge is not going to see through that?” she pointed out.

That said, she added that the lawsuit really belongs under Delaware’s business-friendly jurisdiction, not California — since all of the OpenAI corporate and nonprofit entities were formed there. But Musk has been unhappy with Delaware’s rulings against him, she explained, so he may be purposely rolling the dice in California.

However, that could leave two states competing over this issues in the case, which could lead it all the way to the Supreme Court, she claimed: “This should really be governed under Delaware law.”

No matter where the case is brought, however, Denaro emphasized that “handshakes and your own expectations are notoriously difficult to enforce in court.”

At the end of the day, he said, the Elon Musk vs. OpenAI case will “hinge on whether the relatively informal agreements and understandings between them can be enforced – to great consequence to OpenAI.”