Judge Dismisses Musk’s Trade-Secret Case Against OpenAI, But Leaves Door Open to Revised Complaint

A federal judge has dismissed a lawsuit by Elon Musk’s artificial intelligence (AI) startup xAI accusing OpenAI of poaching employees to obtain trade secrets, but gave xAI an opportunity to try again.

In an opinion issued on Feb. 24, Judge Rita Lin of the U.S. District Court for the Northern District of California granted a request by OpenAI, led by CEO Sam Altman, to toss the case, finding that xAI had not adequately show alleged wrongdoing by the ChatGPT maker.

“Notably absent are allegations about the conduct of OpenAI itself,” the order reads. “xAI does not allege any facts indicating that OpenAI induced xAI’s former employees to steal xAI’s trade secrets or that these former xAI employees used any stolen trade secrets once employed by OpenAI.”

The dismissal was issued with leave to amend, allowing xAI to file a revised complaint by March 17.

The lawsuit was brought last September with xAI alleging that OpenAI engaged in a “deeply troubling pattern” of recruiting former xAI employees to gain access to confidential information related to its flagship chatbot, Grok. In an amended complaint, the company accused its rival of violating California and federal law by “inducing” several ex-employees to “steal and share xAI’s trade secrets.”

The complaint claimed that, over the course of a few months, OpenAI poached at least eight xAI employees, including one of xAI’s first 20 engineers and a senior finance executive. At least two other former employees, the lawsuit said, admitted to keeping confidential information on their personal devices.

“OpenAI is targeting those individuals with knowledge of xAI’s key technologies and business plans—including xAI’s source code and its operational advantages in launching data centers—then inducing those employees to breach their confidentiality and other obligations to xAI through unlawful means,” the complaint reads.

OpenAI has denied the accusations. In its motion to dismiss, the company said xAI failed to show that OpenAI actually acquired or disclosed any xAI trade secrets, and framed the legal action as a tactic aimed to “intimidate current and former xAI employees from working at their place of choice.”

“xAI’s federal trade secret misappropriation claim fails as a matter of law,” OpenAI’s attorneys wrote. “Remarkably, xAI never alleges that OpenAI actually acquired or disclosed xAI’s trade secrets.”

Representatives of xAI and OpenAI didn’t respond to requests for comment.

The case is part of an escalating public feud between Musk and Altman, who co-founded OpenAI in 2015 as a non-profit research lab but ultimately parted ways after disagreements over the direction of the company.

Last August, xAI separately sued Apple and OpenAI in federal court, accusing the iPhone maker of conspiring with OpenAI to dominate the market for AI services on smartphones. Apple has not yet responded to that lawsuit.

Musk also separately sued Altman and OpenAI in 2024, accusing them of betraying the company’s founding non-profit mission in favor of a for-profit model. Musk left the company in 2018, paving the way for Microsoft to become OpenAI’s largest strategic partner and investor.

In a blog post last year, OpenAI rejected Musk’s claims and said it had concluded that a for-profit structure was necessary to secure the massive amount of resources needed to develop advanced AI in line with its mission.

The 2024 case is scheduled to go to trial in April.