Musk has no proof OpenAI stole xAI trade secrets, judge rules, tossing lawsuit
Source: Ars Technica
Hostility Is Not Proof of Theft
Even twisting an ex‑employee’s text to favor xAI’s reading fails to sway the judge.
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 tied to its data centers and chatbot, Grok.
On Tuesday, U.S. District Judge Rita F. Lin granted OpenAI’s motion to dismiss. In her order, Judge Lin noted that xAI failed to provide evidence of any misconduct by OpenAI.
Order granting OpenAI’s motion to dismiss – PDF
Key Findings
- No proof of inducement – xAI did not show that OpenAI induced any former employees to steal trade secrets or that the employees used any stolen secrets once at OpenAI.
- Limited wrongdoing – Two former employees admitted to downloading xAI’s source code and one took a supposedly sensitive “All Hands” recording. The remaining six were either accused of retaining low‑value data (e.g., work chats) or held no confidential information at all.
- Weak complaints – The complaint even acknowledged that one poached employee never accessed the alleged confidential information, and two employees were simply “lumped” into the suit for leaving xAI for OpenAI.
- Conclusion – While xAI may have viable misappropriation claims against a couple of its former employees, it does not present a plausible claim against OpenAI itself.
Judge Lin allowed xAI to amend its complaint to address these deficiencies, so the litigation is not necessarily over.
Reactions
- xAI – Ars could not immediately reach xAI for comment, so the company’s next steps remain unclear.
- OpenAI – Celebrated the order on X, calling the lawsuit “baseless” and part of a “harassment campaign” by Musk.
- Legal analysis – Commercial litigator Sarah Tishler explained that the decision underscores a core principle of trade‑secret law:
“Hiring from a competitor is not the same as stealing trade secrets from one. Under the Defend Trade Secrets Act, xAI must show that OpenAI actually received and used the alleged trade secrets, not merely that it hired employees who may have taken them.”
“Suspicious timing, aggressive recruiting, and even downloaded files are not enough on their own.”
Tishler added that the ruling should reassure AI firms that talent can move freely without automatically triggering legal risk, provided there is no concrete evidence of misappropriation.
“In the AI industry, where talent moves fast and the competitive stakes are enormous, this ruling reaffirms that suspicion is not enough. You have to show the stolen information actually made it into the competitor’s hands and was put to use.”
This article has been cleaned up for readability while preserving the original content and sources.
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.”
The Core Issue
The claim hinges entirely on xAI proving that OpenAI poached its employees to steal its trade secrets. For xAI’s lawsuit to proceed, it must:
- Bolster the evidence for its claim that OpenAI violated the federal Defend Trade Secrets Act (DTSA).
- Show that OpenAI unlawfully acquired, disclosed, or used a trade secret with xAI’s consent.
According to legal analyst Lin, this will be challenging because xAI has not offered “any non‑conclusive allegations that OpenAI itself acquired, disclosed, or used xAI’s trade secrets.”
“All xAI has claimed is that OpenAI induced former employees to share secrets, and so far, nothing backs that claim,” Lin wrote.
Tishler added that the court also rejected an xAI theory that “OpenAI should be responsible for what its new hires did before they arrived,” noting that without evidence of OpenAI directing the theft or using the stolen information, liability cannot be imposed.
Evidence Centered on Engineer Xuechen Li
The strongest evidence xAI presented involves the departure of one of its earliest engineers, Xuechen Li:
- Presentation to OpenAI: Li allegedly gave a presentation that included confidential information.
- Source‑code upload: Li uploaded the entire xAI source‑code base to a personal cloud account that he had linked to ChatGPT.
- Signal messages: A recruiter sent Li a Signal message four hours after the upload that read “nw!” – xAI interprets this as shorthand for “no way!” (i.e., excitement about obtaining the code). OpenAI, however, insists “nw” means “no worries,” which is unrelated to the alleged theft.
Even interpreting the message as xAI does, Lin notes that there is no proof the recruiter or OpenAI accessed or requested the files.
Injunction and Its Consequences
A temporary injunction in a separate lawsuit blocked Li from accepting a job at OpenAI. Consequently:
- OpenAI withdrew its job offer to Li.
- Since Li never worked at OpenAI, there is no evidence he used xAI’s trade secrets while employed there.
If Li did share confidential information during his interview presentation, xAI has no facts showing OpenAI was aware of the disclosure. Tishler told Ars:
“This makes it very hard to argue OpenAI ever used anything he allegedly took.”
Other Former Engineers
- Jimmy Fraiture was accused of copying xAI trade secrets but claims he deleted the information before starting at OpenAI.
- Lin points out that no evidence shows Fraiture used any xAI secrets to benefit OpenAI.
“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 encouraged Fraiture to take xAI’s confidential information,” Lin wrote.
Since none of the other former employees disclosed trade secrets to OpenAI, xAI cannot advance a misappropriation claim based solely on the allegations against Li and Fraiture.
Outlook
xAI may amend its complaint to keep these arguments alive, but to date it has presented only scant, circumstantial evidence.
It remains possible that xAI will secure additional proof in its ongoing lawsuit against Li. Ars was unable to reach Li’s lawyer to determine whether today’s ruling will affect 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 those trade secrets to benefit OpenAI.
Had xAI found evidence that OpenAI’s data‑center strategy suddenly mirrored xAI’s after the executive joined the rival, that may have helped xAI’s case. However, 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 that it may only “correct the identified deficiencies” without otherwise changing the allegations.
Criminal Probe Likely Leaves OpenAI on Pins
For Li, the engineer accused of disclosing xAI trade secrets to OpenAI, the litigation could eliminate one front of discovery as he navigates two other legal fights over xAI’s trade‑secret claims.
Tishler has been closely monitoring xAI’s trade‑secret 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?”
Author
Ashley Belanger is a senior policy reporter for Ars Technica, dedicated to tracking the social impacts of emerging policies and new technologies. She is a Chicago‑based journalist with 20 years of experience.
