Judge Sides with OpenAI, Casts Doubt on Musk's xAI Trade Secrets Lawsuit

By Jonathan Stempel

SAN FRANCISCO, Jan 30 (Reuters) – In a preliminary ruling that could significantly weaken Elon Musk's legal campaign against OpenAI, a U.S. judge on Friday signaled her intent to dismiss a trade secrets lawsuit filed by Musk's artificial intelligence startup, xAI.

U.S. District Judge Rita Lin, presiding in San Francisco, stated her "tentative view" was to grant OpenAI's motion to dismiss the case. The lawsuit, filed in September, accused OpenAI of poaching xAI employees to gain confidential information related to the development of the AI chatbot Grok. Judge Lin has scheduled oral arguments for February 3 to hear from both sides before making a final decision, noting that xAI could be permitted to amend its claims if dismissed.

The ruling highlights the high-stakes legal and commercial battles defining the breakneck AI industry. OpenAI, backed by Microsoft and led by CEO Sam Altman, has become a market leader with its ChatGPT product. Musk, a co-founder of OpenAI who left in 2018, launched xAI last year as a direct competitor, positioning its Grok chatbot as a more irreverent alternative.

In a four-page filing outlining her reasoning, Judge Lin found that xAI failed to plausibly allege that OpenAI acquired or encouraged the theft of trade secrets, even if some former xAI employees downloaded source code before departing. She further noted the complaint did not support an inference that OpenAI used any purported secrets or that the former employees utilized them in their new roles.

An unfair competition claim based on employee poaching also appears likely to fail. Judge Lin wrote that xAI's allegations "all focus on poaching in service of acquiring xAI’s trade secrets and do not identify any other reason why the hiring of those employees was anticompetitive."

This lawsuit is one front in a broader legal war between Musk and OpenAI. In a separate, higher-stakes case, Musk is suing OpenAI and its partner Microsoft for up to $134.5 billion, alleging the company breached its founding agreement by prioritizing profit over its original mission to benefit humanity. Jury selection in that case is set for April 27.

OpenAI has previously characterized Musk's lawsuits as a "campaign to harass a competitor with unfounded legal claims," arguing they stem from xAI's inability to keep pace with ChatGPT's development.

Industry Reaction:

"This tentative ruling is a reality check," said Dr. Anya Sharma, a technology ethics professor at Stanford. "The bar for proving trade secret misappropriation is high, especially when it revolves around employee mobility in a field where talent is the ultimate currency. The judge is asking for concrete evidence of theft and use, not just circumstantial movement of people."

"It's a tactical setback for Musk, but the core dispute about OpenAI's structure and mission is far from over," noted Michael Chen, a venture capitalist focused on AI. "The market is watching to see if this cools the litigious atmosphere or if it just redirects energy to the other, more philosophical lawsuit."

"This is judicial overreach protecting a corporate giant," argued tech blogger and vocal Musk supporter, Marcus Thorne. "It sends a terrible message: that you can systematically raid a competitor, and as long as you're vague about how you use the stolen IP, the courts will look the other way. It stifles innovation by letting the biggest player win not on merit, but on legal technicalities."

"A predictable outcome," commented Sarah Li, a former federal prosecutor now in private practice. "The initial complaint read more like a press release than a legal pleading. Judges expect specific facts, not broad narratives of corporate espionage. xAI will need a much more surgical approach if it amends its complaint."

(Reporting by Jonathan Stempel in New York; Editing by Cynthia Osterman)