CHAUDHRI: Musk vs. Altman’s OpenAI legal battle offers lessons for business owners
· Toronto Sun
Billionaires are more reliable than you think.
Elon Musk and Sam Altman co-founded OpenAI in 2015. Originally touted as a non-profit research laboratory, the company evolved in 2019 and created a ‘for-profit’ subsidiary that is responsible for arguably the most famous AI tool on the planet, ChatGPT.
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During the shift, Musk left OpenAI’s board in 2018 and has since been openly critical of the company’s move to a for-profit model.
Unsurprisingly, this break in relationship has led to a very public legal battle between the two billionaires. The two tech giants are currently in a month-long trial that kicked off last week in a California federal court.
Among other claims, Musk is suing for billions in “wrongful gains,” alleging Altman reneged on OpenAi’s original non-profit mission. Altman argues the company needed a for-profit structure to succeed at scale.
Legal issues in case relatable to business owners
It is difficult to find common ground with the interests of billionaires but many of the legal issues in this case are highly relatable to the common business owner and founder.
First, a core issue in this case will be proving what the actual “deal” was between Musk and Altman. What was it in 2015? What was the common intention between the parties? Did it change?
Proving the elements of any agreement in court primarily comes down to the paper trail. Even though there may be no paper at all! Much of the relevant evidence in cases where a contract goes south can be found in emails, Slack messages, texts and other digital records during the relationship.
Second, the reputation and credibility of witnesses matters. Motive is always considered. Musk and Altman are both expected to take the stand in this case. Their respective actions within the company, good and bad, public and private, will be under scrutiny. How one conducted themselves during the business relationship will inform how a jury rules on where the damages lie.
Notably, Musk attempted to purchase the assets of OpenAI numerous times in the last few years.
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Lastly, legal posturing between competitors is common in business and law. It is often costly. When a former partner or employee launches a competing business, all kinds of legal claims can be made. Since leaving OpenAi, Musk has launched his own AI product – xAi – and one can only assume that issues relating to confidentiality, trade secrets, client data and other business assets will be at play in this case.
Reminder of what happens when relationships sour
If Musk can prove he was misled or that OpenAI improperly departed from its stated mission, he may have a compelling narrative that could succeed.
For scaling startups and ousted partners, this is a reminder of what happens when relationships sour and the paperwork isn’t bulletproof.
When your company pivots, restructures or changes its mission, it impacts executive contracts, unvested equity and potential severance liabilities.
The takeaways for founders:
Keep a paper trail – A written agreement helps define the relationship and reduces legal risk. Remember that this trail likely includes all digital communication around the deal (like Slack and text messages).
Document the pivot – Ensure corporate transitions and mission changes are supported by clear board approvals and clean records. If providing notice of the pivot is a reasonable step to get relevant stakeholders aligned, offer it. Timed moves, with notice, can make all the difference.
Update your contracts – When the business model shifts, ensure your agreements and equity structures reflect the new reality.
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The content of this article is general information only and is not legally advice.