The DOJ and FTC were careful to say their statement of interest takes no position on the facts as Musk has alleged in his suit accusing OpenAI of fraudulently enticing his support with promises of remaining a nonprofit, only to turn around and seek to transition to for-profit status.
But Friday's statement, offering up "the proper standards" for weighing claims of improper board overlap and group boycotts, nevertheless could make it harder for OpenAI to fight Musk's bid for a preliminary injunction that would temporarily block the for-profit transition. In particular, enforcers said that when fighting claims under Section 8 of the Clayton Act, which bars executives from serving on the boards of direct competitors, OpenAI can't simply argue there's no live case since venture capitalist Reid Hoffman and Microsoft Vice President Deannah Templeton no longer serve on OpenAI's board.
"Defendants argue 'there is no live 'case or controversy'' here because 'neither Hoffman nor Templeton is currently affiliated with OpenAI's board in any capacity.' ... But ending an interlocking directorate, e.g., by having a person resign from a corporate board, is not sufficient, on its own, to moot a claim under Section 8 of the Clayton Act," the agencies said. "In resolving this matter, the court should avoid holding otherwise."
Biden-era antitrust enforcers have made fighting interlocking directorates a priority. They argued Friday that when assessing such claims, courts need to watch for the risk that overlap can happen again.
"Accordingly, if a plaintiff properly pleads a likelihood of recurrence or an ongoing harm through the wrongful retention of competitively sensitive information obtained through the alleged interlocks, Section 8 claims are not moot," they said.
The enforcers also urged the court not to put form over substance when assessing the alleged interlocks, arguing that even board observers can still be considered directors "in certain circumstances," arguments that speak to Templeton's former role as a nonvoting observer on OpenAI's board.
In addition, the statement of interest argued that such interlocks count as an unfair method of competition barred by the Federal Trade Commission Act, which in turn can inform unfair methods claims like the ones brought here under California's Unfair Competition Law.
"The court may consider under the proscriptions of California's UCL whether the alleged conduct is contrary to Section 5 of the FTC Act, e.g., by facilitating the exchange of confidential, competitively significantly information between rivals," the enforcers said.
Lastly, the agencies sough to "clarify" the right way to analyze Musk's claims of an edict to "fund no competitors," under which OpenAI in October 2024 is accused of telling investors like Microsoft, which has poured roughly $13 billion into OpenAI over the years, not to offer similar funding to rivals, denying funding for companies like Musk's xAI.
Looking at those claims Friday, the agencies argued that boycott claims can be made, under Section 1 of the Sherman Act's prohibition on agreements in restraint of trade, regardless of whether the alleged restraint is vertical in nature or a horizontal one between direct competitors.
"The litigants disagree about whether the alleged fund-no-competitors edict is horizontal or vertical. This distinction does not preclude application of Section 1. Without commenting on the facts as alleged, a group boycott can have a vertical aspect; and per se liability under Section 1 can attach so long as there is also a horizontal element to the alleged conspiracy," they said.
In opposing the preliminary injunction, Microsoft had argued that the relationship between Microsoft and OpenAI is vertical as an investor and investee. But the DOJ and FTC argued Friday that horizontal agreements, which are considered automatically, or per se, illegal and thus not open to justification, can be considered as such "even if it is organized by one of their customers."
Nor does it matter that the alleged victim, which here would be xAI, is just one victim whose injuries may not impact the broader economy, according to the enforcers. "And the fact that alternative resources may be secured by the boycotted firm beyond those supplied by the boycotting group cannot serve as a defense," they said.
Musk's lead counsel, Marc Toberoff of Toberoff & Associates PC, said in a statement to Law360 that "the participation of the DOJ and FTC is a sign of how seriously regulators take OpenAI and Microsoft's misconduct."
"Defendants have gotten away with too much, for too long," Toberoff said. "The FTC and DOJ are the experts here, so we're glad to see they share our view of the law. Concern about tech monopolies and the growing anticompetitive practices of Silicon Valley transcends party and politics."
OpenAI responded to a request for comment by pointing to its opposition brief contesting the preliminary injunction motion.
Representatives for the agencies declined comment and counsel for Microsoft and Musk did not immediately respond to requests for comment Friday.
In fighting the preliminary injunction motion in December, OpenAI had assailed Musk for filing it months after bringing suit and castigating the bid as "just another evidence-free effort to harass a competitor." It argued that Musk hasn't named a single investor who has refused to invest in xAI as a result of any boycott and provides no evidence that xAI has not been able to raise the funds it needs.
Musk — who leads X Corp., Space Exploration Technologies Inc. and Tesla Inc. — was one of OpenAI's earliest funders and sued the nonprofit in February 2024 in California state court, claiming OpenAI reversed its mission and reneged on its promise to make technological advances open to the public so AI development would be "for the benefit of humanity."
Musk later dropped the state suit and filed the current case in California federal court in August — on behalf of himself and derivatively on behalf of OpenAI — with claims including fraud, conspiracy, false advertising and breach of an implied contract. In suing OpenAI and its leaders, Musk contends they "assiduously manipulated" him into contributing financially to the venture, claiming they wrongly told him OpenAI would remain a nonprofit when they actually had "commercial intentions" for the venture. He has since added Microsoft, Templeton and Hoffman to the list of defendants, as well as California Attorney General Rob Bonta.
The amended complaint, which comes while Microsoft and OpenAI's relationship is under investigation by the FTC, says Hoffman has been involved in the same kind of self-dealing as OpenAI CEO and co-founder Sam Altman, simultaneously serving on the boards of OpenAI, Microsoft and his own AI startup Inflection AI Inc.
OpenAI has responded by contending Musk had wanted OpenAI to become a for-profit entity, but when the organization rejected his demand to be CEO and have absolute control, Musk resigned as co-chair.
The agencies are represented by Doha Mekki, John W. Elias, David B. Lawrence, Ryan Danks, Miriam R. Vishio, Benjamin L. Rudofsky and Alice A. Wang with the U.S. Department of Justice and Anisha Dasgupta, Henry Liu, Hannah Garden-Monheit, Shaoul Sussman and Katherine Van Dyck with the Federal Trade Commission.
Musk is represented by Marc Toberoff and Jaymie Parkkinen of Toberoff & Associates PC.
Altman and OpenAI are represented by Jordan Eth and David J. Wiener of Morrison Foerster LLP and William Savitt and Sarah K. Eddy of Wachtell Lipton Rosen & Katz.
Microsoft and Hoffman are represented by Russell P. Cohen, Andrew J. Levander, Howard Mark Ullman, John A. Jurata Jr. and Nisha Patel of Dechert LLP.
Bonta is represented by Anna P. Nguyen of the California Attorney General's Office.
The case is Elon Musk et al. v. Samuel Altman et al., case number 4:24-cv-04722, in the U.S. District Court for the Northern District of California.
--Additional reporting by Lauren Berg, Craig Clough, Hailey Konnath, Jared Foretek and Hannah Albarazi. Editing by Michael Watanabe.
For a reprint of this article, please contact reprints@law360.com.
