Elon Musk’s Feud With OpenAI Goes to Court

Musk takes aim at OpenAI

The gloves have really come off in one of the most personal fights in the tech world: Elon Musk has sued OpenAI and its C.E.O., Sam Altman, accusing them of reneging on the start-up’s original purpose of being a nonprofit laboratory for the technology.

Yes, Musk has disagreed with Altman for years about the purpose of the organization they co-founded and he is creating a rival artificial intelligence company. But the lawsuit also appears rooted in philosophical differences that go to the heart of who controls a hugely transformative technology — and is backed by one of the wealthiest men on the planet.

The backstory: Musk, Altman and others agreed to create OpenAI in 2015 to provide an open-sourced alternative to the likes of Google, which had bought the leading A.I. start-up DeepMind the year before. Musk notes in his suit that OpenAI’s certificate of incorporation states that its work “will benefit the public,” and that it isn’t “organized for the private gain of any person.”

Musk poured more than $44 million into OpenAI between 2016 and 2020, and helped hire top talent like the researcher Ilya Sutskever.

Altman has moved OpenAI toward commerce, starting with the creation in 2019 of a for-profit subsidiary that would raise money from investors, notably Microsoft. The final straw for Musk came last year, when OpenAI released its GPT-4 A.I. model — but kept its workings hidden from all except itself and Microsoft.

“OpenAI, Inc. has been transformed into a closed-source de facto subsidiary of the largest technology company in the world: Microsoft,” Musk’s lawyers write in the complaint.

(Musk has raised these concerns for some time. “Is this legal?” Musk asked at the DealBook Summit last year.)

Musk also argues that GPT-4 has achieved a level of complexity known as artificial general intelligence, which makes it exempt from a 2020 exclusivity agreement between OpenAI and Microsoft. (Other A.I. experts say GPT-4 falls far short of that designation.)

Musk’s main aim is for the court to open up OpenAI, forcing the company to reveal its research to the public and preventing its executives and Microsoft from profiting from its work.

He is also seeking damages, though it’s unclear he would win a significant amount; the lawsuit says he would contribute any to charity.

The counternarrative: The Times has reported that Musk sought to take control of OpenAI in 2017 to make it a commercial venture that worked with Tesla. After Altman and others pushed back, Musk quit and focused on expanding Tesla’s in-house A.I. capabilities. Musk pointed out in the lawsuit, however, that he continued to invest in OpenAI’s nonprofit entity until September 2020.

More recently, Musk has founded xAI, a start-up that is working on chatbots like Grok and other OpenAI competitors.

Musk is a more formidable foe than many of OpenAI’s other legal challengers. (These include The Times, which has sued OpenAI and Microsoft, accusing them of copyright infringement.) The tech billionaire has the means to keep his lawsuit going for some time. That could include the expensive work of obtaining legal discovery, which might unearth communications and documents that could pose headaches for Altman and OpenAI.

Then again, OpenAI itself has considerable means, thanks in part to the financial backing from Microsoft. And some legal experts cast doubt on the strength of Musk’s case. Game on.

HERE’S WHAT’S HAPPENING

President Biden reportedly wants to raise taxes on the wealthy and businesses. Biden will back plans for higher taxes and lower prescription drug prices in his State of the Union address next week, according to Bloomberg. The president has been campaigning lately on his economic record and his administration’s tough stance on big business.

Alabama lawmakers move to protect I.V.F. procedures. Legislators overwhelmingly voted to advance bills that would give legal protections to doctors, hospitals and others who provide the fertility treatment, after the state’s Supreme Court ruled that frozen embryos should be considered children. The high court decision prompted I.V.F. clinics to suspend service in Alabama and has created a political headache for even staunchly anti-abortion Republicans.

G.M. reportedly slashes the internal valuation of its Cruise division. Executives told employees of the carmaker’s autonomous vehicle unit that its estimated share price was $11.80, down more than half from a quarter ago, according to Reuters. The steep markdown is the latest consequence of the privately held company pulling its vehicles off the road after an October accident in which a Cruise car dragged a pedestrian, drawing regulatory investigations.

The BeyHive and Swifties give AMC a lift. The theater chain on Thursday reported a tripling of operating profit and a 12 percent rise in revenue in its fourth quarter — and attributed “literally all” of that growth to concert films by Beyoncé and Taylor Swift. It was a reminder of the economic power of the two pop superstars, whose tours and associated projects have bolstered the fortunes of business partners and host cities alike.

“Summertime” rate cuts?

Stocks have surged to records across three continents, as encouraging inflation data bolsters investors’ hopes for interest-rate cuts as soon as June.

The Nasdaq composite, S&P 500, Japan’s Nikkei, and Germany’s DAX are sitting on all-time highs, thanks to booming interest in A.I.-related stocks and optimism about lower borrowing costs. Thursday’s Personal Consumption Expenditures report, the Fed’s favored inflation gauge, reinforced that message as the data came in line with economists’ forecasts.

In Europe, new data on Friday morning showed inflation easing further.

The markets and policymakers may be on the same page regarding rates. Raphael Bostic, president of the Atlanta Fed and an inflation hawk, gave a lift to the markets on Thursday when he suggested that rate cuts would probably happen in “the summertime.”

Wall Street seems aligned with Bostic’s view. The futures market as of Friday is penciling in June. That suggests investors have shifted from their widely held position at the start of the year, when the bet was that the Fed would begin lowering borrowing costs this month.

Some analysts are coming to a similar view. “We expect the Fed to start a gradual cutting cycle in June owing to progress in reducing inflation,” Michael Gapen, the chief U.S. economist at Bank of America, wrote in an investor note on Thursday. He and his colleagues see three cuts coming this year, and four next year.

The inflation picture is not entirely rosy. Inflation on goods like cars and appliances continues to fall, the P.C.E. data showed. But services inflation is running hot. Auto-insurance premiums are soaring, for example, and consumers have cut back on spending for the first time in five months.

Such economic trends could present a potential problem for President Biden. Voters have been feeling better about the economy in recent months (though that’s not translating into better polling numbers). And they remain concerned about high inflation.

• In other market news: The share price of New York Community Bank plunged more than 25 percent in premarket trading after the embattled lender reported a worse-than-expected fourth-quarter loss, and it announced a leadership shake-up. And Bitcoin was trading around $62,000 on Friday morning as its blockbuster rally takes a breather.

“We don’t need anybody to change their views. We just need them not to express them while they’re here.”

— An executive at LVMH, ahead of a Louis Vuitton fashion show in Hong Kong, according to The Wall Street Journal. China is a crucial market for the Bernard Arnault’s luxury giant, which is trying to avoid being caught in geopolitical tensions between the West and Beijing.

The Disney clan backs Iger in activist challenge

Over the past two decades, the Disney family was perhaps best known for feuding with the company that bears its name, forcing out Michael Eisner as C.E.O. and chiding his successor, Bob Iger, for pay inequality.

So it’s striking that the heirs of Walt and Roy Disney have now come out strongly in support of Iger and against efforts by Nelson Peltz to shake up the media giant. (The Disneys said the company hadn’t sought their endorsement.)

“These activists must be defeated,” Roy P. Disney, a grandson of the co-founder Roy Disney, told The Times. “They are not interested in preserving the Disney magic, but stripping it to the bone to make a quick profit for themselves.”

Abigail Disney, one of Roy P. Disney’s sisters, was similarly blunt: “I have my differences with Bob Iger, but I know for a fact that the worst thing that could happen to the company is Nelson Peltz,” she said.

The Disneys’ support is a symbolic victory for Iger. The family probably has just a small stake in the media giant, but their words carry significant weight. And it’s especially notable that Abigail Disney has backed Iger, after criticizing him for “obscene” pay inequality at the company. (She and several siblings were behind a 2022 documentary that excoriated Disney on the issue.)

Roy E. Disney, the father of Abigail and Roy P. Disney, twice led revolts against the company’s management.

It’s another blow to Peltz. He has argued that Disney’s stock has lagged because the company needs to rethink its strategy on streaming and other business issues. But Disney has since reported strong quarterly earnings and announced an investment in Epic Games, the maker of Fortnite, that was well-received by investors.

What are the odds of success for Peltz? Iger has cut costs and moved to revamp Disney’s streaming business, helping to push the company’s share price up 12 percent since the earnings report. Disney’s stock is up 23 percent since the start of the year.

But the share price is nearly half of what it was at a 2021 peak. And Iger still has to deal with Peltz’s other concerns, including coming up with a succession plan that will stick. The real test will come on April 3 at the company’s annual shareholder meeting.

THE SPEED READ

Deals

• Alexa von Toby and Penny Pritzker’s Inspired Capital raises $330 million, its third fund-raising round in five years. (Fast Company)

• The Australian hedge fund investor Greg Coffey is in talks to acquire the emerging markets investor Emso in a deal that would create a $13 billion firm. (Bloomberg)

Policy

Best of the rest

• Howard Schultz wrote to Starbucks’ board before his successor agreed to talks with unions, warning that the company was at an “inflection point” and needed to adhere to its core values to survive. (LinkedIn)

• “Larry Fink, Bill Gates, Rihanna to Join Ambani Son’s Pre-Wedding Bash” (Bloomberg)

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