In 2017, Elon Musk expressed interest in a for-profit structure for OpenAI.

• Elon Musk, one of OpenAI's co-founders, advocated for a for-profit structure for the company as early as 2017, according to screenshots posted by OpenAI on Friday.
• The ChatGPT-maker responded to Musk's request to halt its conversion to a fully for-profit business by posting screenshots.
• OpenAI stated in a blog post that when Musk did not receive majority equity and full control, he left and declared that the company would fail.

Elon Musk, one of OpenAI's co-founders, was criticized by the company on Friday for requesting a federal court to halt its conversion to a fully for-profit business.

In 2017, Elon Musk not only desired but also created a for-profit structure for OpenAI, the startup claimed in a blog post.

"After not receiving majority equity and full control, Elon left and predicted our failure. Now that he leads a competing AI company and OpenAI is the leading AI research lab, he is seeking to halt our pursuit of our mission through legal action."

Musk and xAI did not immediately respond to requests for comment.

In July 2023, Musk announced the launch of xAI, his competitor to OpenAI, and since then, the startup has released its Grok chatbot and is seeking to raise up to $6 billion at a $50 billion valuation, with the aim of purchasing 100,000 Nvidia chips, as reported by CNBC last month.

From the start, Musk has been skeptical of OpenAI's nonprofit model, as a member of OpenAI's legal team revealed to CNBC.

In a November 2015 email to OpenAI CEO Sam Altman, Musk wrote that OpenAI's structure "doesn't seem optimal," as per screenshots shared in a blog post.

"Musk wrote in the screenshots that the alignment of incentives is muddied by the YC stock and a salary from the nonprofit. He suggested having a standard C corp with a parallel nonprofit as a better option."

According to blog screenshots, Greg Brockman, co-founder of OpenAI, wrote in a text conversation with former board member Shivon Zilis that a discussion he had with Musk shifted to discussing structure, and Musk expressed that a non-profit may not be the best option now, although it was the right one initially.

A week after sharing screenshots, Musk wrote about China's plan to match the number of AI research facilities in the U.S. and become an AI world leader by 2030, stating, "They will do whatever it takes to obtain what we develop. Maybe another reason to change course."

Brockman concurred and stated that from 2018 onwards, the course would require a combination of "Al research and hardware for-profit." Musk responded, "Let's discuss on Saturday or Sunday. I have a proposed plan that I'd like to share with you."

In fall 2017, Musk, Brockman, Altman and others discussed the terms for the planned OpenAI for-profit, but negotiations fell apart after the participants could not agree on equity, control, and who would be CEO. Due to his investment in OpenAI, Musk initially proposed a scenario in which he would have initial control of the company, but he said this would change quickly after the company's board grew to 12 to 16 members.

In September 2017, Musk established a public benefit corporation called "Open Artificial Intelligence Technologies, Inc," as per screenshots in OpenAI's blog post. A few days later, OpenAI rejected Musk's proposed terms for the for-profit and proposed to continue the conversation, but Musk responded that his offer was "no longer on the table" and that "discussions are over," as per screenshots.

In January 2018, Elon Musk suggested that OpenAI become a part of his electric vehicle company, Tesla, stating that the only viable options were a significant expansion of OpenAI or a significant expansion of Tesla AI. He believed that both options would require a substantial increase in funding and the addition of highly credible individuals to the board. Musk also expressed his belief that OpenAI was on a path towards failure in comparison to Google.

In February 2018, Musk resigned as co-chair of OpenAI. Brockman proposed a detailed plan, which included the suggestion that the company should strive to maintain its non-profit status, as per screenshots.

OpenAI's complex history

In 2015, OpenAI was launched as a nonprofit, but in 2019, it became a "capped-profit" model, with the OpenAI nonprofit serving as the governing entity for its for-profit subsidiary. Last week at the DealBook Summit, Altman stated that the company transitioned to a capped-profit structure due in part to Musk stopping funding them.

Since its launch in November 2022, OpenAI has become one of the most popular and controversial startups globally, thanks to the viral spread of ChatGPT. The company's valuation has increased to $157 billion, and it has raised $13 billion from Microsoft, with its latest $6.6 billion round led by Thrive Capital and including participation from Nvidia, SoftBank, and others.

The company received a $4 billion revolving line of credit, bringing its total liquidity to more than $10 billion. OpenAI is expected to lose about $5 billion on $3.7 billion in revenue this year, according to a person familiar with the situation, as confirmed by CNBC in September.

OpenAI is currently undergoing a two-year process of transitioning from a non-profit to a for-profit public benefit corporation, which may increase its appeal to investors. The plan would enable OpenAI to maintain its non-profit status as a separate entity, as previously reported by CNBC.

Generative AI is becoming increasingly competitive, with startups like Musk's xAI and Anthropic, as well as tech giants like Google, facing off against each other. The generative AI market is predicted to reach $1 trillion in revenue within a decade, and business spending on generative AI has surged 500% this year, according to recent data from Menlo Ventures.

A thorny legal battle

On November 29, attorneys representing Elon Musk, his AI startup xAI, and Zilis filed for a preliminary injunction against OpenAI.

In their request for a preliminary injunction, Musk's lawyers claimed that OpenAI should not be allowed to use information or coordination obtained illegally through its board interlock with Microsoft.

The ongoing legal battle between Musk, OpenAI, Altman, and other involved parties and supporters, including tech investor Reid Hoffman and Microsoft, has intensified with the latest court filings.

In March 2024, Elon Musk sued OpenAI and its co-founders, Sam Altman and Max Brockman, in a San Francisco state court, accusing them of breach of contract and fiduciary duty. In the lawsuit, Musk argued that the initial OpenAI team aimed to create artificial general intelligence for the betterment of humanity, but that the project had evolved into a profit-driven enterprise largely controlled by Microsoft, its principal shareholder.

In June, Musk withdrew his complaint against OpenAI and later refiled it in federal court. Attorneys for Musk in the federal suit, led by Marc Toberoff in Los Angeles, argued in their complaint that OpenAI had violated federal racketeering, or RICO, laws.

In November, the complaint was expanded to include allegations that Microsoft and OpenAI had violated antitrust laws when ChatGPT maker allegedly requested investors to refrain from investing in competing companies, including Musk's xAI.

"Microsoft and OpenAI are seeking to maintain their dominance in the generative AI industry by cutting off competitors' access to investment capital through a group boycott, while continuing to benefit from years of shared competitively sensitive information during generative AI's formative years, according to a November filing by lawyers. The lawyers added that the terms OpenAI asked investors to agree to amounted to a "group boycott" that "blocks xAI's access to essential investment capital.""

At The New York Times' DealBook Summit last week, Altman stated that OpenAI investors are not prohibited from investing in competitors. However, he added that the company will no longer grant its "information rights," such as access to its research roadmap and other materials, to those who invest in competitors.

Microsoft invested nearly $14 billion in OpenAI but recorded a $1.5 billion loss in the current period, largely due to an expected loss from the AI startup. Microsoft relinquished its observer seat on OpenAI's board in July, although CNBC reported that the Federal Trade Commission would continue to monitor the influence of the two companies over the AI industry.

— CNBC's Lora Kolodny contributed reporting.

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