Federal agencies have added a new dimension to Elon Musk’s ongoing lawsuit against OpenAI, raising questions about antitrust risks in the company’s relationship with Microsoft.
In a legal brief submitted to a California court, the Federal Trade Commission (FTC) and Department of Justice (DOJ) flagged concerns over OpenAI’s governance practices, particularly its defense against allegations of board interlocks.
Elon Musk, a co-founder of OpenAI, has alleged that its shift from a nonprofit organization to a for-profit model not only undermines its founding mission but also unfairly consolidates power in the hands of major corporate players.
The FTC’s comments, while not directly supporting Musk’s claims, reinforce his argument that the governance structure of OpenAI could violate antitrust laws.
Antitrust Allegations and the Role of Microsoft
At the core of Musk’s lawsuit are accusations that OpenAI and Microsoft have engaged in anticompetitive practices through their governance and investment arrangements.
Musk highlights the role of Microsoft board member Reid Hoffman, who simultaneously served on OpenAI’s board until 2023, and Microsoft executive Dee Templeton, who held an observer seat on OpenAI’s board.
Musk argues that these dual roles constitute interlocking directorates, a violation of Section 8 of the Clayton Act, which prohibits individuals from serving on the boards of competing companies.
OpenAI, however, contends that these issues are resolved, as Hoffman and Templeton have since resigned from their positions.
The FTC’s filing challenges this defense, stating: “Ending an interlocking directorate, e.g., by having a person resign from a corporate board, is not sufficient, on its own, to moot a claim under Section 8 of the Clayton Act.”
This interpretation strengthens Musk’s case, emphasizing that past governance structures may still have lingering anticompetitive effects.
The FTC and DOJ’s intervention comes as scrutiny over Microsoft’s $13 billion investment in OpenAI continues to mount. This partnership grants Microsoft exclusive rights to OpenAI’s models and infrastructure until the company achieves $100 billion in cumulative profits.
Musk’s lawsuit alleges that such exclusivity agreements create barriers for competitors, including his own AI venture, xAI.
OpenAI’s Transition to a Public Benefit Corporation
OpenAI’s evolution from a nonprofit to a capped-profit entity in 2019, and now to a Public Benefit Corporation (PBC), has drawn both support and criticism.
As a PBC, OpenAI aims to balance profit-making with legally mandated public benefit objectives, a structure designed to attract the immense capital required for developing artificial general intelligence (AGI).
AGI refers to AI systems capable of performing a wide range of intellectual tasks at or above human levels, making it a foundational goal in AI research.
Musk has described this transition as a “bait and switch”, claiming it betrays OpenAI’s original mission to advance AI for the benefit of all humanity.
Emails released by OpenAI reveal Musk’s push for aggressive funding strategies during his tenure, including proposals to merge OpenAI with Tesla. These plans were rejected by OpenAI’s leadership, leading to Musk’s departure in 2018 over disagreements about governance and control.
Microsoft’s Influence and Competitive Pressures
Microsoft’s role as OpenAI’s largest investor has been pivotal but controversial. Critics argue that the partnership has created a symbiotic yet imbalanced relationship, with Microsoft gaining strategic advantages in AI through its investments.
For instance, Microsoft’s integration of OpenAI’s models into its Azure cloud services and Office 365 suite has allowed it to rapidly commercialize AI capabilities, giving it a competitive edge over rivals.
Musk’s lawsuit also alleges that Microsoft leveraged its partnership to influence OpenAI’s decision-making, resulting in agreements that discouraged investors from supporting competitors like xAI.
“OpenAI’s path from a nonprofit to for-profit behemoth is replete with per se anticompetitive practices, flagrant breaches of its charitable mission, and rampant self-dealing,” Musk’s legal team argued in court filings.
The FTC’s brief does not address all of Musk’s allegations but raises questions about the long-term implications of governance structures like OpenAI’s, where major investors hold significant influence.
OpenAI has defended its approach, stating that partnerships with companies like Microsoft are necessary to scale its operations and compete with other tech giants such as Google and Anthropic.
Ethical and Governance Challenges
The legal battle highlights deeper ethical and governance challenges in the AI sector. OpenAI’s decision to tie AGI development to financial metrics, such as its $100 billion profit benchmark, has drawn criticism from those who argue it prioritizes investor returns over public benefit. At the same time, the complexity of developing AGI—requiring vast computational resources and talent—makes large-scale investment unavoidable.
Musk’s departure from OpenAI and subsequent launch of xAI reflect his dissatisfaction with the organization’s governance.
Emails from co-founder Ilya Sutskever reveal concerns about Musk’s push for control, with Sutskever warning that granting Musk “unilateral absolute control” over AGI development conflicted with OpenAI’s founding principles.
Musk’s establishment of xAI, which leverages data and infrastructure from his other ventures, underscores his belief in an alternative path to AGI development free from corporate entanglements.
Federal Oversight and Industry Implications
The FTC and DOJ’s involvement in Musk’s lawsuit signals growing regulatory interest in the intersection of corporate governance and competition in the AI industry.
As OpenAI faces mounting competition from rivals like Google, Anthropic, and Musk’s xAI, its reliance on partnerships with companies like Microsoft will likely remain under scrutiny.
This case also raises broader questions about how advanced AI technologies should be governed to ensure ethical use and equitable access. While OpenAI’s transition to a PBC aims to balance these concerns, critics argue that its close ties with Microsoft and reliance on exclusivity agreements undermine its mission.
The outcome of Musk’s lawsuit and the regulatory review of OpenAI’s practices could set precedents for how the AI industry navigates these challenges.
