Musk’s Lawsuit Against OpenAI Gets a Boost From Lina Khan’s FTC

Federal antitrust regulators on Friday added weight to portions of Elon Musk’s lawsuit seeking to prevent OpenAI from restructuring itself into a fully for-profit company.

In a brief filed with a federal court in California, attorneys for the Federal Trade Commission and the Department of Justice’s antitrust division did not directly support Musk’s claims that OpenAI and Microsoft have colluded in an anticompetitive “de-facto merger,” but they did urge the court to be skeptical about one of the defenses made by OpenAI’s legal team.

OpenAI began as a non-profit, funded in part by Musk, and then converted itself into a for-profit company controlled by a non-profit board of directors. It is now planning to completely separate from that non-profit board and become a public benefit corporation, allowing it to be fiduciarily responsible to investors rather than beholden to a charitable mission.

A key contributor to OpenAI’s growth and the pressure for it to become a profitable business has been the more than $13 billion in investments and other support it’s received from Microsoft, a publicly traded company that competes in the AI market. Reid Hoffman, the founder of LinkedIn, is a member of Microsoft’s board and was a member of OpenAI’s board until March 2023. A top Microsoft executive, Dee Templeton, was a non-voting member of OpenAI’s board from November 2023 until July 2024.

Musk has argued that the Microsoft representatives’ positions on the OpenAI board violated federal antitrust laws that prohibit someone from serving on the governing board of competing companies, which is known as an interlocking directorate. OpenAI has responded by saying the argument is moot because neither Hoffman nor Templeton are members of OpenAI’s board anymore.

The FTC and DOJ lawyers, however, wrote that “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. … In resolving this matter, the Court should avoid holding otherwise.”

The federal agencies did not weigh in on Musk’s many other allegations, including that OpenAI CEO Sam Altman misled him and conspired with Microsoft to convince investors not to fund Musk’s own AI startup, xAI.

While the lawsuit has often taken the tone of a soap opera feud between billionaires, the FTC and DOJ filing is another sign that regulators have a close eye on OpenAI’s transition plans. Delaware’s attorney general has filed a brief in the case and said she will take action if she believes OpenAI is violating the law and Meta has asked the California attorney general’s office to block OpenAI’s restructuring.