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Title: Musk's Lawsuit Against OpenAI Gains Momentum under Lina Khan's Leadership at FTC

In a less straightforward manner, federal authorities lent Musk's antitrust argument some credence, without explicitly endorsing it.

Title: Musk's Lawsuit Against OpenAI Gains Momentum under Lina Khan's Leadership at FTC

In a recent turn of events, federal antitrust regulators have lent some weight to Elon Musk's lawsuit aiming to prevent OpenAI from completely transforming into a for-profit company. The FTC and DOJ's antitrust division filed a brief in a California court, expressing skepticism about one of OpenAI's defenses.

The non-profit OpenAI, initially funded by Musk, converted into a for-profit company controlled by a non-profit board of directors. It's now planning to fully separate from this non-profit board and transition into a public benefit corporation, allowing it to prioritize investors' interests over its charitable mission.

Microsoft, a major competitor in the AI market, has played a significant role in OpenAI's growth and financial stability through investments and support worth over $13 billion. Reid Hoffman, LinkedIn's founder, who was once on OpenAI's board, and Dee Templeton, a top Microsoft executive, have been associated with OpenAI in the past.

Musk has accused Microsoft representatives of violating federal antitrust laws by serving on OpenAI's board, as they hold positions in competing companies. This is also known as an interlocking directorate. OpenAI has countered that these individuals have already left their positions on the board, rendering Musk's argument moot.

However, the FTC and DOJ lawyers argue that resolving the case should not conclude that ending an interlocking directorate instantly dissolves antitrust concerns. They reiterate that Section 8 of the Clayton Act prohibits individuals from serving on competing companies' boards simultaneously, and ending such a directorate does not automatically dismiss these claims.

The FTC and DOJ did not express support for Musk's other allegations, such as misleading statements or anticompetitive practices from OpenAI and Microsoft, or OpenAI conspiring to convince investors to avoid funding Musk's AI startup, xAI.

The legal battle between Musk and OpenAI has gained attention, often appearing as a petty feud between the billionaires. Regardless, the FTC and DOJ's intervention highlights their interest in monitoring OpenAI's restructuring plans. Delaware's attorney general has voiced concern and is prepared to take action if they perceive a violation of the law. Additionally, Meta has requested the California attorney general's office to hamper OpenAI's restructuring plans.

Relevant Insights:

  1. Interlocking Directorates: Section 8 of the Clayton Act forbids individuals from serving as directors or officers in two competing corporations simultaneously.
  2. Competitive Sensitive Information: Even when directors depart, the potential for sharing competitive information remains a concern.
  3. Board Members with Observer Status: Even in observer roles, board members may possess sensitive competitive information, which companies cannot disregard.
  4. Anticompetitive Practices: Musk's lawsuit implies that OpenAI and Microsoft have engaged in anticompetitive practices. The FTC and DOJ affirm that these claims are valid, regardless of whether the accused company operates in the same market.
  5. Investor Boycott: The lawsuit alleges that OpenAI orchestrated an investor boycott to hinder competition in the AI sector. The FTC and DOJ confirm that such claims are valid, stressing that antitrust liability does not terminate after a director's departure.
  6. Regulatory Scrutiny: The FTC is inspecting Microsoft's collaborations with OpenAI, examining potential anticompetitive conduct and violations of consumer protection laws.

The future of OpenAI as a public benefit corporation raises questions about its compliance with Section 8 of the Clayton Act, which prohibits individuals from serving on competing companies' boards simultaneously. The advancement of artificial-intelligence technology and the role of tech giants like Microsoft in this sector are under close scrutiny by regulatory bodies due to concerns about anticompetitive practices and potential violations of investor rights.

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