The Northern District of California has denied OpenAI’s motion to dismiss Elon Musk’s lawsuit against the company, its CEO Sam Altman, and its largest investor, Microsoft, allowing the case to proceed to trial on its merits. Musk accuses OpenAI of breaching agreements and committing fraud in its conversion to a for-profit entity.
U.S. District Judge Yvonne Gonzalez Rogers ruled against OpenAI’s motion to dismiss the case Musk filed in 2023. Musk alleges that Sam Altman, OpenAI, and Microsoft violated the original terms under which he provided early funding for the organization. According to Musk, OpenAI’s shift from a nonprofit to a for-profit model violates those original agreements and amounts to fraud.
OpenAI was established in 2015 as a nonprofit dedicated to developing safe AI systems to benefit humanity. Musk, one of its co-founders, states he contributed significant seed funding based on the promise that the organization would maintain a nonprofit status and structure. The judge found that Musk’s legal claims were strong enough to support moving forward with a trial. Although no written agreement exists, the court ruled that Musk has grounds to argue an enforceable contract was in place.
Upcoming Trial and Counterclaims
In March, the court declined Musk’s request for a preliminary injunction to prevent OpenAI’s transformation into a for-profit entity. However, the judge agreed to fast-track certain claims from the original lawsuit for earlier litigation. The main hearing is scheduled for March 2026. While some parts of OpenAI’s motion to dismiss were granted, key allegations, including breach of contract and misrepresentation, remain active in the case.
The court also found merit in Musk’s claim that the defendants may have misrepresented their intent to keep OpenAI nonprofit, seeking his financial support under false pretenses. That portion of the lawsuit will be preserved for trial.
In April 2025, OpenAI filed a counterclaim against Musk. The company alleges that Musk is employing unfair tactics to hinder OpenAI’s development and influence the direction of AI research. OpenAI claims Musk’s actions aim to delay its transition to a for-profit model and secure personal control over emerging AI technologies.
Ongoing Debate Over OpenAI’s Mission
OpenAI is currently governed by a nonprofit board with a mission to create powerful AI for the benefit of all humanity. At the same time, the company is working to simplify its hybrid structure with the goal of transforming into a for-profit organization with public benefit status.
This transition is partly intended to make fundraising from outside investors more straightforward, notes NIX Solutions. However, the move has drawn criticism from former employees and AI researchers, including Geoffrey Hinton, Margaret Mitchell, and Stuart Russell, who argue that placing AI development under commercial control risks compromising the technology’s broader societal impact.
The situation continues to evolve, and we’ll keep you updated as more developments emerge in the ongoing legal battle and corporate restructuring.