OpenAI and Musk's Lawsuit: A Trial Over AI Governance Structure

Author: Shenchao TechFlow

Today, the focus of the tech world is on Musk and his legal showdown.

Musk took the witness stand and was questioned by lawyers for nearly two hours. He spoke from his childhood in South Africa to the founding of SpaceX, from “The Terminator” to “Star Trek,” trying to convince the nine jurors that everything he had ever done in life was aimed at saving humanity.

Then he said: "If it's acceptable to loot charitable organizations, American charitable giving will be destroyed."

On the surface, this case appears to be a personal dispute between two tech billionaires. Musk demands the removal of Altman, the restoration of OpenAI’s nonprofit status, and seeks $134 billion in damages, stating that the entire amount will go to OpenAI’s charitable entity.

OpenAI’s lawyer, Bill Savitt, opened with another version: “We are here because Mr. Musk did not get what he wanted at OpenAI. He left, saying they would surely fail. But my client had the courage to succeed without him.”

Two narratives, each with its own script. But what’s truly worth unpacking isn’t who’s lying.

Between 2016 and 2020, Musk donated approximately $38 million to $44 million to OpenAI. At the higher end, this represents about 0.005% of OpenAI’s current $85.2 billion valuation.

With this money, he is now eligible to petition the court to dismantle the structure of a trillion-dollar company, remove its CEO and president, terminate its partnership with Microsoft, and recover hundreds of billions of dollars in "unjust enrichment."

This would be impossible in the normal business world. You’ve purchased only 0.005% of a company—you wouldn’t even be allowed into a shareholder meeting. But OpenAI began as a 501(c)(3), a tax-exempt charitable organization under U.S. tax law. Musk’s money was donated, qualifying for a tax deduction, and thereby granting him legal standing to sue if the donor believes the charity has deviated from its mission.

Many people think donating means giving money. However, under U.S. charitable trust law, if you can prove that an organization has deviated from its founding mission, donors have legal standing to take action—regardless of the donation amount.

In other words, the $38 million given to Musk was not for equity, but for a nuclear button.

And this button was pressed at the most critical moment for OpenAI. OpenAI had just completed a $122 billion funding round with an $852 billion valuation and was preparing for its Q4 IPO. Kalshi’s prediction market places the probability of Musk winning at 47%.

In fact, OpenAI's greatest risk is its legacy corporate structure. It has grown a trillion-dollar body but is still wearing a 501(c)(3) coat—one that could be pulled off at any moment, potentially at very little cost to the person doing so.

OpenAI is not the only AI lab walking a tightrope between a nonprofit mission and commercial ambitions.

This model has a template in Silicon Valley: initially establish as a nonprofit, attracting top talent and early funding under the banner of “benefiting humanity,” and then, when significant spending is required, introduce a for-profit subsidiary. The nonprofit shell retains the mission narrative, while the for-profit entity handles revenue generation and fundraising.

Mozilla did it, and OpenAI is no exception. Founded as a nonprofit in 2015, it created a for-profit subsidiary in 2019, and in 2025 split into a public benefit corporation (PBC)—iterating, fundraising, and growing all along the way.

Anthropic chose a different path. From the outset, it registered as a Delaware public benefit corporation, taking the commercial entity route but adding a governance body called the Long-Term Benefit Trust (LTBT) to constrain corporate behavior. Anthropic’s co-founders likely observed OpenAI’s governance challenges and opted for a structure free from nonprofit constraints from the beginning.

But the key question is, who do these structural constraints affect?

In November 2023, OpenAI’s nonprofit board attempted to remove Altman. The power struggle lasted less than a week, after which Altman returned with Microsoft’s support, and the directors who voted to remove him were ousted instead. The nonprofit governance structure was crushed by commercial forces at the very moment it was needed most.

The lesson from OpenAI is that a nonprofit structure is a shield in the early stage, a decoration in the middle stage, and a vulnerability in the later stage. It fails to protect the founding mission while leaving a perfect entry point for external attackers.

After addressing the structural issues, let’s turn our attention back to the people.

Musk compared himself to humanity's savior in court. But look at the current state of his own AI company, xAI.

Founded in 2023, its valuation surged to $230 billion by 2025—astonishing speed. But by early 2026, things began to change. In February, SpaceX acquired xAI, followed by large-scale layoffs and restructuring. Co-founders departed one after another. By the end of March, only Musk remained among the original 11 co-founders. In April, the CFO left, and the VP of SpaceX’s Starlink was appointed as xAI’s new president.

After SpaceX took over, xAI essentially became a department rather than an independent company. The founders left for a simple reason: they joined an AI lab, not a subsidiary of SpaceX.

What about the enterprise side? Grok claims 64 million monthly active users, but that’s because it’s embedded within X’s interface—simply opening X counts as usage. Pilot programs with Morgan Stanley and Palantir generated revenue in the range of hundreds of thousands to millions of dollars. xAI’s standalone annualized revenue (excluding X’s advertising and subscriptions) is projected to reach approximately $5 billion by the end of 2025.

Meanwhile, OpenAI's monthly revenue reached $2 billion in March 2026.

Elon Musk stands in court demanding the breakup of the world’s largest AI company, holding onto an AI firm whose founding team has vanished, revenue is nearly zero, and which has been absorbed by SpaceX.

He said it was for humanity. OpenAI’s lawyers said it’s because xAI can’t compete with OpenAI commercially, so Musk is trying to use legal means to achieve what he cannot accomplish in business.

What’s the real reason? The timeline makes it clear. In 2024, Musk filed the lawsuit, the same year xAI was just founded. In 2025, xAI went on a wild fundraising spree, trying to catch up to OpenAI in both technology and scale. In 2026, xAI began to unravel internally, coinciding with the trial finally beginning.

Perhaps if xAI had been technically competitive with OpenAI, Musk might never have reached the point of going to court. Litigation is Plan B after failing in business competition.

Now let's take a step back and look at the big picture.

The trial is expected to last three to four weeks. Judge Yvonne Gonzalez Rogers—who presided over the Epic v. Apple case—will issue a ruling based on the jury’s recommendations, expected in mid-May.

Most legal analysts believe the most likely outcome is a mixed ruling. The court may find that OpenAI violated its fiduciary duties to donors in certain respects, but it is unlikely to fully dismantle the for-profit structure or remove management. Regardless of the outcome, the losing party will appeal to the Ninth Circuit Court of Appeals, and the case could drag on until 2027.

But regardless of the verdict, this lawsuit has already changed several things.

For OpenAI, it exposed a vulnerability: the legal structure of the world’s most valuable privately held tech company could be undermined by a small donation made a decade ago. This risk must be disclosed in the IPO prospectus, and every future investor will ask whether there are other historical donors who might come forward.

a16z co-founder Marc Andreessen said: "Regardless of the outcome, it has set a corporate governance template for all future frontier AI labs. The path of starting as a nonprofit and transitioning midstream now needs to be reevaluated."

As for Musk himself, he stood in court and told a story about saving humanity. But his own AI company is being hollowed out, with its founding team gone and absorbed by SpaceX into a single department. He is using this lawsuit to cover up a building that is collapsing.

Ultraman had already left the courtroom before Musk testified.

Who is more panicked, who is pretending—perhaps the court transcripts will provide the answer. The true showdown of this high-stakes gamble may not come until the appeal window opens at the Ninth Circuit Court in 2027.