WHEN A COMPANY is sued, its lawyers typically counsel that it should make its response in measured court filings rather than via social media.
Sam Altman apparently didn’t get — or didn’t follow — that message.
In a blog post Tuesday, Altman and OpenAI responded to a lawsuit by Elon Musk, suggesting that Musk’s version of events omitted a number of key facts about his actions.
Musk sued Altman and the company he runs — OpenAI, owner of ChatGPT and its progeny ChatGPT-2, -3, and -4 — in San Francisco state court on Feb. 29, 2024.
The claim is that at least three of OpenAI’s founders — Musk, Altman, and Gregory Brockman, a former chief technology officer of the payment processing company Stripe — entered into a “Founding Agreement.”
The agreement allegedly stated that the company’s mission would be to develop artificial intelligence for the benefit of the public and the company’s future technology would be treated as “open source.”
Based on that foundation, Musk’s suit is styled primarily as a breach of contract case — the contract being the founding agreement — in which Musk contends that Altman has steered OpenAI away from its agreed mission.
According to the suit, the founding agreement was implemented by, among other things, the incorporation of a Delaware nonprofit corporation named OpenAI, Inc. with a charter to create and use its technology for the public benefit.
According to Musk, that mission went astray when OpenAI created a for-profit subsidiary, allowed Microsoft to invest billions in it, and ceded to Microsoft control over the artificial intelligence technology developed by OpenAI.
The upshot, according to Musk, is that, “GPT-4 is now a de facto Microsoft proprietary algorithm, which it has integrated into its Office software suite.”
The colorful complaint builds to a crescendo with Musk’s perceived fear that OpenAI’s for-profit subsidiary is not operating for the purpose of benefiting “humanity.”
OpenAI’s response
On Tuesday, Altman and several colleagues, including Brockman, responded to the complaint — not by way of a court filing, but by a blog post on OpenAI’s website. The post gave their version of several key parts of Musk’s narrative and attached a chain of lightly redacted emails that shored up the narrative in the post.
The key points from the emails:
• Musk knew that it would take billions to catch up with the head start of the deep-pocketed Google.
• Musk knew that money could not be raised by a nonprofit.
• Musk was aware of and agreed to the creation of the for-profit subsidiary.
• Musk urged that the for-profit subsidiary be merged or in some way attached to Tesla, allowing Tesla to serve as the cash cow for what were anticipated to be OpenAI’s need for enormous capital.
• Musk couldn’t reach agreement with Altman over the for-profit subsidiary’s governance.
• Musk stepped down from his role with OpenAI.
• Musk told Altman that OpenAI’s chance of success was zero.
• Musk said he was going to create his own AI company.
The post closed with this statement: “We’re sad that it’s come to this with someone whom we’ve deeply admired — someone who inspired us to aim higher, then told us we would fail, started a competitor, and then sued us when we started making meaningful progress towards OpenAI’s mission without him.”
In other words, according to the blog, OpenAI’s story is that a disgruntled Musk — thwarted in his ability to gain control over priceless technology — is suing out of spite.
It makes for an appealing public narrative, feeding as it does into Musk’s checkered public image, tarnished by his fitful acquisition and management of the social media platform X, and by frequent media reports on controversial behavior and positions.
But the court of public opinion is not the only court that matters. In litigation, there is also the court — or courts — that will be hearing the case.
The blog post suggests that OpenAI intends to move to dismiss Musk’s suit in the San Francisco court. The implication is that because of Musk’s joinder or acquiescence in the actions of OpenAI, the breach of contract claim has no merit.
And yet there may be a public interest involved that goes beyond the interests of the warring founders, even if, as the emails suggest, at one point they were of one mind about the path OpenAI would follow.
The nonprofit
According to public records, OpenAI, Inc was chartered in Delaware as a nonprofit corporation. It applied for and obtained 501(c)3 status as a “tax exempt organization,” meaning that donors to the company were entitled to claim a deduction on their federal returns. The effect was that the public indirectly bore a portion of the funding of the enterprise. OpenAI’s corporate 990 returns show $33.5 million in grants and contributions in 2021 alone.
Musk’s complaint quotes paragraph three of its Delaware charter: “THIRD: This Corporation shall be a nonprofit corporation organized exclusively for charitable and/or educational purposes….”
The section continues: “The specific purpose of this corporation is to provide funding for research, development and distribution of technology related to artificial intelligence. The resulting technology will benefit the public and the corporation will seek to open source technology for the public benefit when applicable. The corporation is not organized for the private gain of any person. …”
Resolution of a fight among OpenAI’s founders over their contractual rights would not necessarily determine the Delaware nonprofit’s responsibilities.
Lawrence Hamermesh, Emeritus Professor of corporate law at Widener University Delaware Law School, gave the example of a recent Delaware case that considered whether provisions in a stockholders’ agreement that were not included in the company’s charter were valid when they restricted the exercise of the board’s discretion.
The court in that case held the restrictions were not valid, although many of the limitations would have been if they had been included in the charter.
Hamermesh said the court’s message was “you want that kind of restriction on what the directors can’t, can or must do, it’s got to be in the certificate of incorporation. It’s a matter of corporation law.”
The Delaware Court of Chancery frequently hears issues involving the Delaware corporations. Its website says it is “widely recognized as the nation’s preeminent forum for the determination of disputes involving the internal affairs of the thousands upon thousands of Delaware corporations. … Its unique competence in and exposure to issues of business law are unmatched.”
That said, it is unclear whether the Delaware’s courts will become involved with the core governance issues raised by the Musk Altman sniping. For the court to be involved, there would need to be a case filed in its jurisdiction.
In many states, the state Attorney General has broad authority over charitable corporations. Delaware law gives its AG general responsibility for corporations — both for-profit and nonprofit — but according to local practitioners, the office has not been particularly active in nonprofit matters in the past.
Whether that will change in days ahead remains to be seen.