OpenAI, the artificial intelligence research organization, finds itself embroiled in a lawsuit brought by tech entrepreneur Elon Musk. The lawsuit spotlights the claim that OpenAI has significantly deviated from its initial nonprofit charter. They were Inc.’s mission to develop artificial general intelligence (AGI) and globally distribute it, ensuring that AGI benefits humanity. This legal fight comes at a time when OpenAI is poised to make its own transition to a for-profit entity. This new decision has triggered massive blowback from former employees, as well as state regulatory authorities.
This bitter conflict started when Musk attacked OpenAI by claiming it had abandoned its charitable origins. This charge was made just as OpenAI was trying to pivot into a for-profit company. It is this change that has spurred a wave of protests from former employees. They have been calling on the attorneys general of Delaware and California to prevent OpenAI’s conversion. The former employees explain that the proposed changes are at odds with the organization’s long-held pledge to increase the accessibility of AGI.
Legal Challenges from Musk
Elon Musk’s lawsuit against OpenAI highlights the growing friction over the organization’s trajectory. Initially based in San Francisco to avoid regulatory scrutiny, Musk argues that the nonprofit has strayed from its original mission. His legal team now maintains that developing a for-profit model is against OpenAI’s charter. More particularly, that charter calls for AGI to be used to benefit everyone on the globe.
In response, a federal judge has denied several motions by OpenAI to dismiss claims in Elon Musk’s lawsuit. With this decision, the legal battle will continue to play out. Musk’s lead counsel, Marc Toberoff, expressed doubt that OpenAI is really trying to restructure.
“OpenAI’s new corporate restructuring plan changes nothing.” – Marc Toberoff
Restructuring Amid Controversy
In an effort to address the impending legal challenges and concerns from state attorney generals, OpenAI is attempting a new, revised long game with this restructuring plan. We hope that this plan goes some distance toward dispelling regulatory apprehensions by balancing integration with protection of Microsoft’s significant investment in the organization. After all, Microsoft has sunk billions upon billions into OpenAI and is deeply invested in making sure that its interests are looked after.
Until now, OpenAI’s plan had been to spin its for-profit arm out from underneath its nonprofit board’s oversight. This strategy drew sharp criticism over fears that it would lead the organization to abandon OpenAI’s original charitable purpose. The nonprofit board is bound by specific obligations, including a clause in its charter that mandates AGI developments must serve humanity broadly.
The recently adopted restructuring plan is essential for keeping investor confidence intact. It might just lead to an eventual initial public offering, or IPO. Experts urge caution when assessing the feasibility of this ambitious plan. Stephen Diamond, a corporate governance academic at Santa Clara University, has been warning since the spring. He asks what OpenAI’s public benefit corporation (PBC) would actually own if it chooses to go public.
“But if the PBC doesn’t own and control the core IP, but are just licensed to use it, then what’s the IPO? That’s the challenge.” – Stephen Diamond
Doubts About Future Success
As OpenAI sails through this stormy weather, there are reasons to be doubtful that its forthcoming restructuring plan will go as swimmingly as the creation of ChatGPT has. Rose Chan Loui (far right) mentioned at the Leverage Points session that an IPO will be difficult to accomplish given the present conditions.
“I think an IPO is much harder in this scenario.” – Rose Chan Loui
Despite the surrounding uncertainty, OpenAI’s CEO, Sam Altman, reportedly maintains that Musk’s lawsuit has not influenced the organization’s strategic plans. This claim would further muddy the waters of the ongoing story as to what is next for OpenAI and their admitted chat bot GPT.