Elon Musk may be headed for major legal trouble

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Elon Musk may be headed for major legal trouble

After an extremely complicated April 2025, Elon Musk is still facing some significant problems ahead as the market enters a new month.

Since it reported extremely disappointing Q1 earnings, Tesla has had to grapple with the fact that it failed to meet even Wall Street’s scaled-back expectations. Even after Musk announced plans to spend more time at his company and less time on Capitol Hill, TSLA stock has been highly volatile.

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Meanwhile, Musk’s other companies have problems of their own. His artificial intelligence (AI) startup xAI is reportedly in the process of raising $20 billion in a new funding round, but his other attempt to conquer the fast-growing market seems to be facing new obstacles.

For months, Musk has been locked in a legal battle with one of the industry’s hottest AI startups, maneuvering to stop a major transition it is planning. According to experts, he is facing a difficult road ahead.

Elon Musk’s lawsuit against another Silicon Valley leader may be heading in a surprising direction.Image source: Marc Piasecki/Getty Images

Over the past year, a new rivalry has come to dominate Silicon Valley, surpassing that of Bill Gates and Steve Jobs, a dynamic that shaped the personal computing ***** of the 1980s. Musk has doubled down in his battle against OpenAI founder Sam Altman, someone with whom he once worked closely.

Related: Elon Musk gets more bad news from a new rival

An early investor in OpenAI, Musk also helped create and build the AI research organization, assisting in work that would lay the foundation for ChatGPT. However, he departed in 2018 over disagreements regarding its direction, sparking what would become a multi-year feud with Altman.

Last year, it reached a boiling point when Musk filed a lawsuit against OpenAI and Altman. In it, he claimed the startup’s attempts to transition from a nonprofit entity to a for-profit structure constituted both fraud and breach of contract, prompting him to seek a preliminary injunction to stop it.

In March 2024, U.S. District Judge Yvonne Gonzalez Rogers denied Musk’s attempt to block the transition on the grounds that he lacked the “high burden required for a preliminary injunction.”

But now the case is moving forward quickly in the direction of a trial. It is currently scheduled for March 2026, though both parties may want to expedite the process.

According to legal experts, Musk’s chances of winning his case against OpenAI don’t seem high. Arthur Dermendjian, a pre-litigation managing attorney at J&Y Law, spoke to TheStreet about the pending legal showdown between two tech-sector titans.

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Dermendjian describes Musk’s claims as being relatively weak, leading him to believe the case won’t go well for him.

“As a nonprofit, OpenAI did not issue shares or create shareholder contracts,” he states. “Unless Musk can produce a formal, written, and enforceable contract that explicitly prohibits OpenAI from creating a for-profit arm or limits its commercial activities, the case leans on informal understandings, mission statements, or general commitments, which U.S. courts are reluctant to enforce as binding contracts.”

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He also notes that OpenAI is based in California, a state in which courts maintain high standards for “clarity and mutual assent in contract law.” Therefore, he sees Musk’s chances of winning a breach-of-contract case as being extremely slim, unless he can produce hard evidence of a contractual obligation on the startup’s part.

While Musk is an undeniably polarizing figure, particularly since he began working closely with U.S. President Donald Trump, he seems to be focused on ensuring that OpenAI continues developing technology that is most beneficial to humanity as a whole. His arguments allege that this won’t be possible if the startup transitions to a for-profit structure.

Related: Elon Musk reveals plans to do exactly what he’s been warned against

Now, as Musk’s lawsuit against OpenAI moves forward, it seems that people who previously worked for Altman share his challenger’s vision. Twelve former OpenAI employees have come out in support of Musk’s lawsuit and asked to share their perspectives on the startup’s transformation.

This could potentially complicate the case for OpenAI, depending on what the former staffers share. However, Dermendjian maintains that ultimately, while OpenAI has gone in a direction that did not align with Musk’s initial vision for the public-benefit AI research organization, it does not mean the company will be found guilty.

“OpenAI’s later move to create a ‘capped-profit’ entity and sign a multi-billion-dollar deal with

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diverges from that vision,” he states.

“But whether those expectations were legally enforceable is another matter. Expectations and disappointment alone, even from a co-founder, don’t necessarily translate into winning claims in court.”

Related: Veteran fund manager unveils eye-popping S&P 500 forecast

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