OpenAI fends off xAi’s claims of trade secret theft

(CN) — A federal judge dealt a blow to Elon Musk's ongoing battle with OpenAI Tuesday, dismissing his artificial intelligence company's claims of trade secret misappropriation.

U.S. District Judge Rita Lin concluded that even if the employees' purported thefts were significant, xAI had sued the wrong party.

"Notably absent are allegations about the conduct of OpenAI itself," the Joe Biden appointee wrote in her order. "xAI does not allege any facts indicating that OpenAI induced xAI's former employees to steal xAI's trade secrets or that these former xAI employees used any stolen trade secrets once employed by OpenAI."

In the summer of 2025, eight engineers and executives at xAI left in quick succession. Nearly all of them went to the same place: OpenAI.

xAI sued OpenAI Feb. 3, accusing its rival of orchestrating the departures as part of an unlawful scheme to obtain confidential information.

But Lin found claims of both direct and indirect misappropriation insufficient, writing, "Mere possession of trade secrets is not sufficient to constitute misappropriation."

One engineer, who later had his OpenAI job offer rescinded, reportedly uploaded xAI's entire source code base to a personal cloud account. Another was accused of copying files to his personal device, including a recording of a meeting in which Musk discussed the company's future plans, product roadmap and commercial contracts.

"Yes, several employees took its confidential information at around the same time and before leaving to work for OpenAI, and two of those employees communicated with the same OpenAI recruiter using an encrypted messaging application around the time of their exfiltration and their exploration of a move to OpenAI," Lin wrote. "Without more, though, those allegations are insufficient to support a plausible inference that OpenAI encouraged the alleged theft."

Holding a future employer liable for a new hire's pre-employment conduct, without claims that the information was used, would risk exposing companies to liability whenever they hired someone who had improperly taken files from a prior job, Lin said.

Claims against six other former employees named by xAI were also insufficient. Two admitted to keeping xAI work chats on their personal devices after leaving and later sharing that information with an unidentified third party. One attempted, unsuccessfully, to access an internal xAI document about data center optimization after starting at OpenAI. Two others left xAI for OpenAI without asserting they took anything at all.

Lin found that none of those facts, individually or collectively, supported a plausible claim of misappropriation or unfair competition against OpenAI.

"While xAI may state misappropriation claims against a couple of its former employees, it does not state a plausible misappropriation claim against OpenAI, which is the sole defendant in this case,” Lin wrote.

The ruling does not close the case entirely. Lin dismissed it with leave to amend, giving xAI until March 17 to file a revised complaint addressing the deficiencies she identified.

Representatives for xAI and OpenAI did not immediately respond to requests for comment.

Follow @JeremyYurow