4 March 2024 Elon Musk sues for breach of contract

Full Disclosure:​

Elon Musk sues for breach of contract​

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The Story:

It’s 2012 and you’re Elon Musk. You’re worried about the future of AI, especially 'AGI', where a machine has the intelligence to perform a wide range of tasks like a human. You hear Google is about to buy DeepMind, one of the most advanced AI companies in the world. You don’t think the evolution of AI should be held in the hands of a closed, for-profit technology company.

You speak to Sam Altman, the president of a start-up accelerator, who shares your concerns. You now believe that nothing can be done to stop AI, so in 2015, you decide to start a non-profit lab that would lead AI progress more safely than Google.

Three of you come to an agreement to build a lab that is: 1) a non-profit for the benefit of humanity; and b) open source. You rely on this agreement to put more than $44m into OpenAI and hire some of the smartest scientists to join the lab.

But it all goes wrong.

It’s now 2023 and OpenAI is a very different company. You believe that OpenAI has traded its mission; it is now closed, secretive and for-profit. In your view, it’s now effectively a Microsoft subsidiary, designed to make money for the largest tech company in the world.

So you file a lawsuit. But on what grounds?

1. You sue for breach of contract. You and Sam came to an agreement when you formed OpenAI, an agreement to build a non-profit, with open source technology, for the benefit of humanity. You claim that you are entitled to damages for the breach of this contract.

2. You sue for something we call ‘promissory estoppel’. You argue that Sam made a promise, that OpenAI would be an open-source, non-profit company for the good of humanity. You relied on that promise to give OpenAI a lot of money and find great people to join. You have now suffered a detriment because Sam did not keep his promise.

What you need to know for your interviews:

First, to sue for breach of contract, there needs to be a contract. But there isn’t one - at least in the direct sense. Elon is arguing that the conversations with Sam (along with a few other documents like the certificate of incorporation) effectively amounted to a contract, which was then breached. So this is an interesting case study that goes to the root of contract law: when is a contract formed?

Second, note that this is Elon’s version of events according to his lawsuit filed in the Superior Court in San Francisco. It wouldn’t be unreasonable to argue that the lawsuit is a publicity stunt designed to slow down OpenAI. Competition regulators (like the UK’s CMA) are already investigating OpenAI’s relationship with Microsoft and this lawsuit will draw further attention to the unusual relationship between the companies.

Third, it’s nice to see contract law play out in practise! This case shows how the law can differ across jurisdictions. Promissory estoppel is not a cause of action in the UK, but it can be in the US.

What does this mean for law firms?

Law firms are making a lot of money from Elon Musk right now. I last wrote about the Delaware Court striking down Elon's pay packet.

Bernstein Litowitz Berger & Grossmann requested $6 billion?? in legal fees in a claim last week, at a rate of nearly $300,000 per hour for their work on behalf of a Tesla shareholder. This is because they are requesting a compensation award linked to Tesla's stock, which, they argue, would link the award to the benefit they created. It would also be tax deductible.