Antitrust law

Elon Musk appears to be grasping at straws in a lawsuit accusing OpenAI of poaching eight xAI employees in an allegedly unlawful bid to access xAI trade secrets connected to its data centers and chatbot, Grok.

In a Tuesday order granting OpenAI’s motion to dismiss, US District Judge Rita F. Lin said that xAI failed to provide evidence of any misconduct from OpenAI.

Instead, xAI seemed fixated on a range of alleged conduct of former employees. But in assessing xAI’s claims, Lin said that xAI failed to show proof that OpenAI induced any of these employees to steal trade secrets “or that these former xAI employees used any stolen trade secrets once employed by OpenAI.”

Two employees admitted to stealing confidential information, with both downloading xAI’s source code and one improperly grabbing a supposedly sensitive recording from a Musk “All Hands” meeting. But the rest were either accused of retaining seemingly less consequential data, like retaining work chats on their devices, or didn’t seem to hold any confidential information at all. Lin called out particularly weak arguments that xAI’s complaint acknowledged that one employee who OpenAI poached never received access to confidential information allegedly sought after exiting xAI, and two employees were lumped into the complaint who “simply left xAI for OpenAI,” Lin noted.

From the limited evidence, Lin concluded that “while xAI may state misappropriation claims against a couple of its former employees, it does not state a plausible misappropriation claim against OpenAI.”

Lin’s order will likely not be the end of the litigation, as she is allowing xAI to amend its complaint to address the current deficiencies.

Ars could not immediately reach xAI for comment, so it’s unclear what steps xAI may take next.

However, xAI seems unlikely to give up the fight, which OpenAI has alleged is part of a “harassment campaign” that Musk is waging through multiple lawsuits attacking his biggest competitor’s business practices.

Unsurprisingly, OpenAI celebrated the order on X, alleging that “this baseless lawsuit was never anything more than yet another front in Mr. Musk’s ongoing campaign of harassment.”

Other tech companies poaching talent for AI projects will likely be relieved while reading Lin’s order. Commercial litigator Sarah Tishler told Ars that the order “boils down to a fundamental concept in trade secret law: hiring from a competitor is not the same as stealing trade secrets from one.”

“Under the Defend Trade Secrets Act, xAI has to show that OpenAI actually received and used the alleged trade secrets, not just that it hired employees who may have taken them,” Tishler said. “Suspicious timing, aggressive recruiting, and even downloaded files are not enough on their own.”

Tishler suggested that the ruling will likely be welcomed by AI firms eager to secure the best talent without incurring legal risks from their hiring practices.

“In the AI industry, where talent moves fast and the competitive stakes are enormous, this ruling reaffirms that suspicion is not enough,” Tishler said. “You have to show the stolen information actually made it into the competitor’s hands and was put to use.”

OpenAI not liable for engineers swiping source code

Through the lawsuit, Musk has alleged that OpenAI is violating California’s unfair competition law. He claims that OpenAI is attempting “to destroy legitimate competition in the AI industry by neutralizing xAI’s innovations” and forcing xAI “to unfairly compete against its own trade secrets.”

But this claim hinges entirely upon xAI proving that OpenAI poached its employees to steal its trade secrets. So, for xAI’s lawsuit to proceed, xAI will need to beef up the evidence base for its other claim, that OpenAI has violated the federal Defend Trade Secrets Act, Lin said. To succeed on that, xAI must prove that OpenAI unlawfully acquired, disclosed, or used a trade secret with xAI’s consent.

That will likely be challenging because xAI, at this point, has not offered “any nonconclusory allegations that OpenAI itself acquired, disclosed, or used xAI’s trade secrets,” Lin wrote.

All xAI has claimed is that OpenAI induced former employees to share secrets, and so far, nothing backs that claim, Lin said. Tishler noted that the court also rejected an xAI theory that “OpenAI should be responsible for what its new hires did before they arrived” for “the same reason: without evidence that OpenAI directed the theft or actually put the stolen information to use, you cannot hold the company liable.”

The strongest evidence that xAI had of employee misconduct, allegedly allowing OpenAI to misappropriate xAI trade secrets, revolves around the departure of one of xAI’s earliest engineers, Xuechen Li.

That evidence wasn’t enough, Lin said. xAI alleged that Li gave a presentation to OpenAI that supposedly included confidential information. Li also uploaded “the entire xAI source code base to a personal cloud account,” which he had connected to ChatGPT, Lin noted, after a recruiter sent a message on Signal sharing a link with Li to another unrelated cloud storage location.

xAI hoped the Signal messages would shock the court, expecting it to read through the lines the way xAI did. As proof that OpenAI allegedly got access to xAI’s source code, xAI pointed to a Signal message that an OpenAI recruiter sent to Li “four hours after” Li downloaded the source code, saying “nw!” xAI has alleged this message is short-hand for “no way!”—suggesting the OpenAI recruiter was geeked to get access to xAI’s source code. But in a footnote, Lin said that “OpenAI insists that ‘nw’ means ‘no worries,’” and thus is unconnected to Li’s decision to upload the source code to a ChatGPT-linked cloud account.

Even interpreting the text using xAI’s reading, however, xAI did not show enough to prove the recruiter or OpenAI accessed or requested the files, Lin said.

It also didn’t help xAI’s case that a temporary injunction that xAI secured in a separate lawsuit targeting the engineer blocked Li from accepting a job at OpenAI.

That injunction led OpenAI to withdraw its job offer to Li. And that’s a problem for xAI, because since Li never worked at OpenAI, it’s clear that he never used xAI’s trade secrets while working for OpenAI.

Further weakening xAI’s arguments, if Li indeed shared confidential information during his presentation while interviewing for OpenAI, xAI has alleged no facts suggesting that OpenAI was aware Li was sharing xAI trade secrets, Lin wrote.

This “makes it very hard to argue OpenAI ever used anything he allegedly took,” Tishler told Ars.

Another former xAI engineer, Jimmy Fraiture, was accused of copying xAI trade secrets, but Fraiture has said he deleted the information he improperly downloaded before starting his job at OpenAI. Importantly, Lin said, since he joined OpenAI, there’s no evidence that he used xAI trade secrets to benefit xAI’s rival.

“Other than the bare fact that Fraiture had been recruited” by the same OpenAI employee “who had also recruited Li, xAI does not allege any facts indicating that OpenAI had encouraged Fraiture to take xAI’s confidential information in the first place,” Lin wrote.

Since “none of the other former employees allegedly shared with or disclosed to OpenAI any xAI trade secrets,” xAI could not advance its claim that OpenAI misappropriated trade secrets based only on allegations tied to Li and Fraiture’s supposed misconduct, Lin said.

xAI may be able to amend its complaint to maintain these arguments, but the company has thus far presented scant, purely circumstantial evidence.

It’s possible that xAI will secure more evidence to support its misappropriation claims against OpenAI in its ongoing lawsuit against Li. Ars could not immediately reach Li’s lawyer to find out if today’s ruling may impact that case.

Ex-executive’s “hostility” is not proof of theft

Among the least convincing arguments that xAI raised was a claim that an unnamed finance executive left xAI to take a “lesser role” at OpenAI after learning everything he knew about data centers from xAI.

That executive slighted xAI when Musk’s company later attempted to inquire about “confidentiality concerns.”

“Suck my dick,” the former xAI executive allegedly said, refusing to explain how his OpenAI work might overlap with his xAI position. “Leave me the fuck alone.”

xAI tried to argue that the executive’s hostility was proof of misconduct. But Lin wrote that xAI only alleged that the executive “merely possessed xAI trade secrets about data centers” and did not allege that he ever used trade secrets to benefit OpenAI.

Had xAI found evidence that OpenAI’s data center strategy suddenly mirrored xAI’s after the executive joined xAI’s rival, that may have helped xAI’s case. But there are plenty of reasons a former employee might reject an ex-employer’s outreach following an exit, Lin suggested.

“His hostility when xAI reached out about its confidentiality concerns also does not support a plausible inference of use,” Lin wrote. “Hostility toward one’s former employer during departure does not, without more, indicate use of trade secrets in a subsequent job. Nor does the executive’s lack of experience with AI data centers before his time at xAI, without more, support a plausible inference that he used xAI’s trade secrets at OpenAI.”

xAI has until March 17 to amend its complaint to keep up this particular fight against OpenAI. But the company won’t be able to add any new claims or parties, Lin noted, “or otherwise change the allegations except to correct the identified deficiencies.”

Criminal probe likely leaves OpenAI on pins

For Li, the engineer accused of disclosing xAI trade secrets with OpenAI, the litigation could eliminate one front of discovery as he navigates two other legal fights over xAI’s trade secrets claims.

Tishler has been closely monitoring xAI’s trade secret legal battles. In October, she noted that Li is in a particularly prickly position, facing pressure in civil litigation from Musk to turn over data that could be used against him in the Federal Bureau of Investigation’s criminal investigation into Musk’s allegations. As Tishler explained:

“The practical reality is stark: Li faces a choice between protecting himself in the criminal action with his silence, and the civil consequences of doing so. Refuse to answer, and xAI could argue adverse inferences; answer, and the responses could feed the criminal case.”

Ultimately, the FBI is trying to prove that Li stole information that qualified as a trade secret and intended to use it for OpenAI’s benefit, while knowing that it would harm xAI. If they succeed, “xAI would suddenly have a government-backed record that its trade secrets were stolen,” Tishler wrote.

If xAI were so armed and able to keep the OpenAI lawsuit alive, the central question in the lawsuit that Lin dismissed today would shift, Tishler suggested, from “was there a theft?” to “what did OpenAI know, and when did it know it?”