Elon Sues OpenAI For Breach Of Contract Over A Contract That Doesn’t Exist, Because It’s Not Acting The Way He Wants It To
Do you remember Irell & Manella? Of course you do. It's the formerly well-respected law firm that once brought a lawsuit on behalf of PETA claiming (incorrectly) to represent a monkey, which it claimed (incorrectly) could hold a copyright. As we noted at the time, the whole reason that a respected firm like Irell would bring such a lawsuit was a (weak, embarrassing) attempt to position itself for the coming rise in IP lawsuits around artificial intelligence.
So it's actually been kind of interesting to me that we haven't seen Irell all that active in the spate of lawsuits around generative AI over the last year or so. But maybe that's changing?
On Thursday, Elon personally sued OpenAI using Irell & Manella as his lawyers. When I saw the headlines about the case, I was pretty curious. After all, it's well known that Elon helped conceive of and then fund OpenAI in the early years. It's also well known that Elon grew disillusioned with OpenAI and stepped down from its board. There is some level of dispute over what preceded that disillusionment, though there are plenty of stories out there.
Over the last couple of years, Elon has been particularly angry about OpenAI's decision to launch a for-profit (capped profit") entity, ostensibly controlled by the non-profit board a few years ago. However, the firing-to-rehiring of Sam Altman last year raised questions about how much control the non-profit board really had when things got serious.
Elon has repeatedly joked on ExTwitter that he doesn't understand how the OpenAI he funded to offer open source" AI to the world via a non-profit had turned into a closed source, for-profit company that charges for access to its AI. He's frequently mused about how this must have violated some law somehow.
And now, I guess he's trying to test that theory with the folks who will sue on behalf of a monkey.
Reading the complaint, I kept expecting there to be some sort of fundamental underlying breach of contract. After all, it is a breach of contract complaint (with a few other lesser claims tossed in). Maybe when OpenAI launched, there was some sort of official agreement with Elon which it's now violating? That would have been an interesting case!
But... as is all too often the case with Elon, this case seems to be almost entirely vibes based. OpenAI was supposed to be an open non-profit, and now it's a closed for-profit. Elon doesn't like it and thus he thinks he can sue.
Which brings us to the biggest problem in this breach of contract" lawsuit. There's no contract. Elon doesn't have a contract with OpenAI which the company could have breached. And that's kinda a problem in a breach of contract lawsuit.
There are... discussions between Elon, Sam Altman and Greg Brockman, which the lawsuit tries to turn into a Founding Agreement" but that Founding Agreement" does not seem to actually exist. It appears to be just discussions that the three of them had:
Together with Mr. Brockman, the three agreed that this new lab: (a) would be a nonprofit developing AGI for the benefit of humanity, not for a for-profit company seeking to maximize shareholder profits; and (b) would be open-source, balancing only countervailing safety considerations, and would not keep its technology closed and secret for proprietary commercial reasons (The Founding Agreement"). Reflecting the Founding Agreement, Mr. Musk named this new AI lab OpenAI," which would compete with, and serve as a vital counterbalance to, Google/DeepMind in the race for AGI, but would do so to benefit humanity, not the shareholders of a private, for-profit company (much less one of the largest technology companies in the world).
That's... not an agreement. It's not a contract. The complaint also describes the articles of incorporation, which any company must have. But... that's also not a contract in any way. And... any corporate lawyer would know this. I guarantee that the lawyers at Irell & Manella know this. And yet...
The Founding Agreement was also memorialized, among other places, in OpenAI, Inc.'s December 8, 2015 Certificate of Incorporation, which affirmed that its 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." Ex. 1 at 1. The Certificate of Incorporation further affirmed that all of the corporation's property was irrevocably dedicated" to these agreed purposes. Id.
As Bloomberg's Matt Levine (a former securities lawyer turned columnist) writes about all of this, the only way to see a contract here is to handwave away the details. And, you know, in contract law, the details kinda matter?
You can sort of wave your hands at all this and say Musk had a contract with OpenAI in which he agreed to donate money and in exchange OpenAI explicitly agreed to be an open-source nonprofit forever," but I don't think that's exactly right? The email from Altman was an initial proposal, not a detailed contract setting out the permanent terms of their deal; it promised not to open-source the software forever but only to have an ongoing conversation about what work should be open-sourced and what shouldn't." Money was not mentioned.
And the certificate of incorporation was not a contract between Musk and OpenAI: He didn't sign the certificate, and he wasn't a shareholder, because there were no shares (it's a nonprofit). OpenAI's fiduciary duties are not to him, as a co-founder, but to humanity. The evidence of a specific deal between Musk and OpenAI is pretty thin.
I mean, perhaps there's an argument that the IRS should pull OpenAI's non-profit status for violating its promises there. But those promises aren't to Elon. He's not the stakeholder here.
Levine rightly notes that the underlying issue that Elon is raising has some legitimacy. Lots of people were sold a bill of goods regarding OpenAI and how it would function. But it's not clear that any of that comes anywhere close to a breach of contract. It would be nice if OpenAI were forced to open source GPT-4, as the complaint demands. I wouldn't be upset if Elon won this case. I'm just not sure how he can.
Nilay Patel, a former lawyer turned editor/journalist, notes, the lawsuit is just bad?
Let's just take the very first cause of action of the lawsuit, for example. It is a claim for breach of contract - a very, very simple claim that almost any first-year law student can evaluate, because step one is asking if there is a contract, and step two is figuring out what the contract says. To have a valid contract, you need an offer, acceptance, and an exchange of value - what lawyers are trained to call consideration," in an enduring effort to make simple concepts sound confusing and increase fees.
Most importantly, contracts need to be written down - proving that an unwritten contract exists, what its terms are, and if they are enforceable is extraordinarily difficult, and courts do not like doing it, especially for ultra-sophisticated parties with a long history of dealing.
My friends, Musk is straightforwardly alleging that OpenAI breached a contract that does not exist. It is simply not a thing! The complaint makes reference to a Founding Agreement," but no such Founding Agreement is attached as an exhibit, and the breach of contract claim admits that the Founding Agreement" is basically a vibe everyone caught in some emails.
The other claims in the lawsuit don't get much better. The promissory estoppel is maybe (?!?) the strongest claim of the bunch, but that doesn't mean it's strong. To have promissory estoppel, you need to show that a significant, unambiguous promise was made, and the promisee (in this case Musk) relied on that promise and suffered damages for doing so.
Maybe you could argue that there was a promise to do something, but even then the promise is vague. There was no clear and unambiguous promise. There is no real indication that Musk relied on that promise in any meaningful way. And, even if he did, it's not clear what injury he sustained for relying on that promise.
OpenAI has a very strong legal team. I am guessing they are not particularly worried about this lawsuit. But it is another example of Elon seeming to think that the world revolves around him, and when things don't go his way, surely he can sue to try to change things.