Musk Loses Round One, But OpenAI’s Legal Troubles Are Far From Over

Elon Musk may have lost the latest round in his lawsuit against OpenAI, but a federal judge’s comments suggest the fight isn’t over yet. While Musk’s request to block OpenAI’s transition to a for-profit entity was denied, the judge highlighted some serious concerns about the shift—giving hope to those who oppose the company’s move away from its nonprofit roots.

Musk, along with his legal team, is suing OpenAI, its CEO Sam Altman, and major investor Microsoft. He argues that OpenAI abandoned its original nonprofit mission of ensuring artificial intelligence benefits everyone, opting instead to chase profits. Originally founded as a nonprofit in 2015, OpenAI restructured into a “capped-profit” model in 2019, and now it’s aiming to transform again—this time into a public benefit corporation.

Judge Acknowledges Potential Harm from OpenAI’s Shift

On Tuesday, U.S. District Judge Yvonne Gonzalez Rogers rejected Musk’s bid for a preliminary injunction, which would have temporarily stopped OpenAI from completing its for-profit transition. However, she didn’t dismiss the underlying issues. In her ruling, she pointed out that when public donations help fund a nonprofit, allowing that organization to turn into a profit-driven business can cause “significant and irreparable harm.”

Right now, OpenAI’s nonprofit arm still holds a controlling stake in its for-profit operations. As part of the transition, it could receive billions of dollars—something that raised red flags in the courtroom.

Judge Rogers also noted that several OpenAI co-founders, including Altman and President Greg Brockman, originally committed to not using the company as a vehicle for personal financial gain. Given these commitments, the court is willing to fast-track a trial to resolve the legal disputes over OpenAI’s corporate restructuring. The trial is expected to take place in the fall of 2025.

Musk’s Legal Team Sees an Opportunity

Marc Toberoff, Musk’s attorney, welcomed the judge’s decision to offer a quicker trial and confirmed that Musk’s team will take her up on it. OpenAI, however, has not yet commented on whether it will accept the offer.

Legal experts suggest the ruling could spell trouble for OpenAI. Tyler Whitmer, an attorney representing the nonprofit Encode, which filed a brief supporting Musk’s stance, said the judge’s remarks have created a “cloud of regulatory uncertainty” over OpenAI’s leadership. With attorneys general in California and Delaware already investigating the company’s transition, Whitmer believes the ruling could encourage even deeper scrutiny.

Some Wins for OpenAI

Despite the concerns raised by the judge, OpenAI did score some legal victories.

Judge Rogers ruled that Musk’s team had not provided enough evidence to prove OpenAI breached a contract by accepting his $44 million in donations before shifting toward a for-profit model. In fact, she pointed out that some emails submitted as evidence suggested Musk himself was open to the idea of OpenAI eventually becoming a for-profit company.

Additionally, the judge found that xAI, Musk’s own AI company and a plaintiff in the case, failed to show that it would suffer “irreparable harm” if OpenAI completed its transition. She was also unconvinced by arguments that Microsoft’s involvement in OpenAI violates antitrust laws or that Musk had legal standing under California’s self-dealing provisions.

The Battle Between Musk and OpenAI Continues

Musk, who was once one of OpenAI’s biggest supporters, has become one of its most vocal critics. His company, xAI, directly competes with OpenAI in developing advanced AI models, and Musk and Altman now find themselves battling for influence in both legal and political arenas.

For OpenAI, the stakes couldn’t be higher. Reports indicate that if the company doesn’t complete its for-profit transition by 2026, some of the capital it has recently raised could turn into debt.

Concerns Over AI Governance

Not everyone is comfortable with OpenAI’s shift to a profit-driven model. A former OpenAI employee, who spoke anonymously to TechCrunch, said they worry that the restructuring could put AI safety at risk. They explained that OpenAI was originally structured as a nonprofit to ensure that financial motives wouldn’t take precedence over ethical concerns. If the company fully embraces a for-profit model, that safeguard could disappear.

The ex-employee added that the nonprofit structure was a major reason they joined OpenAI in the first place.

With regulatory scrutiny increasing and a trial set for 2025, the next few months will be critical for OpenAI’s future. Tech investors, AI safety advocates, and government officials will be watching closely to see how this legal battle unfolds.

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Versha Gupta

Versha Gupta is a tech freak and co-founder of techzimo.com, she spends more of her time searching latest innovations in the tech world. But being a tech freak, she has the same interest in the entertainment world, she watches all the latest web series on OTT platforms and reviews them on Techzimo. Know more about her on Facebbok Instagram linkedin