Elon Musk accused of making up math to squeeze $134B from OpenAI, Microsoft
Musk’s math reduced ChatGPT inventors’ contributions to “zero,” OpenAI argued.
Elon Musk is going for some substantial damages in his lawsuit accusing OpenAI of abandoning its nonprofit mission and “making a fool out of him” as an early investor.
On Friday, Musk filed a notice on remedies sought in the lawsuit, confirming that he’s seeking damages between $79 billion and $134 billion from OpenAI and its largest backer, co-defendant Microsoft.
Musk hired an expert he has never used before, C. Paul Wazzan, who reached this estimate by concluding that Musk’s early contributions to OpenAI generated 50 to 75 percent of the nonprofit’s current value. He got there by analyzing four factors: Musk’s total financial contributions before he left OpenAI in 2018, Musk’s proposed equity stake in OpenAI in 2017, Musk’s current equity stake in xAI, and Musk’s nonmonetary contributions to OpenAI (like investing time or lending his reputation).
The eye-popping damage claim shocked OpenAI and Microsoft, which could also face punitive damages in a loss.
The tech giants immediately filed a motion to exclude Wazzan’s opinions, alleging that step was necessary to avoid prejudicing a jury. Their filing claimed that Wazzan’s math seemed “made up,” based on calculations the economics expert testified he’d never used before and allegedly “conjured” just to satisfy Musk.
For example, Wazzan allegedly ignored that Musk left OpenAI after leadership did not agree on how to value Musk’s contributions to the nonprofit. Problematically, Wazzan’s math depends on an imaginary timeline where OpenAI agreed to Musk’s 2017 bid to control 51.2 percent of a new for-profit entity that was then being considered. But that never happened, so it’s unclear why Musk would be owed damages based on a deal that was never struck, OpenAI argues.
It’s also unclear why Musk’s stake in xAI is relevant, since OpenAI is a completely different company not bound to match xAI’s offerings. Wazzan allegedly wasn’t even given access to xAI’s actual numbers to help him with his estimate, only referring to public reporting estimating that Musk owns 53 percent of xAI’s equity. OpenAI accused Wazzan of including the xAI numbers to inflate the total damages to please Musk.
“By all appearances, what Wazzan has done is cherry-pick convenient factors that correspond roughly to the size of the ‘economic interest’ Musk wants to claim, and declare that those factors support Musk’s claim,” OpenAI’s filing said.
Further frustrating OpenAI and Microsoft, Wazzan opined that Musk and xAI should receive the exact same total damages whether they succeed on just one or all of the four claims raised in the lawsuit.
OpenAI and Microsoft are hoping the court will agree that Wazzan’s math is an “unreliable… black box” and exclude his opinions as improperly reliant on calculations that cannot be independently tested.
Microsoft could not be reached for comment, but OpenAI has alleged that Musk’s suit is a harassment campaign aimed at stalling a competitor so that his rival AI firm, xAI, can catch up.
“Musk’s lawsuit continues to be baseless and a part of his ongoing pattern of harassment, and we look forward to demonstrating this at trial,” an OpenAI spokesperson said in a statement provided to Ars. “This latest unserious demand is aimed solely at furthering this harassment campaign. We remain focused on empowering the OpenAI Foundation, which is already one of the best resourced nonprofits ever.”
Only Musk’s contributions counted
Wazzan is “a financial economist with decades of professional and academic experience who has managed his own successful venture capital firm that provided seed-level funding to technology startups,” Musk’s filing said.
OpenAI explained how Musk got connected with Wazzan, who testified that he had never been hired by any of Musk’s companies before. Instead, three months before he submitted his opinions, Wazzan said that Musk’s legal team had reached out to his consulting firm, BRG, and the call was routed to him.
Wazzan’s task was to figure out how much Musk should be owed after investing $38 million in OpenAI—roughly 60 percent of its seed funding. Musk also made nonmonetary contributions Wazzan had to weigh, like “recruiting key employees, introducing business contacts, teaching his cofounders everything he knew about running a successful startup, and lending his prestige and reputation to the venture,” Musk’s filing said.
The “fact pattern” was “pretty unique,” Wazzan testified, while admitting that his calculations weren’t something you’d find “in a textbook.”
Additionally, Wazzan had to factor in Microsoft’s alleged wrongful gains, by deducing how much of Microsoft’s profits went back into funding the nonprofit. Microsoft alleged Wazzan got this estimate wrong after assuming that “some portion of Microsoft’s stake in the OpenAI for-profit entity should flow back to the OpenAI nonprofit” and arbitrarily decided that the portion must be “equal” to “the nonprofit’s stake in the for-profit entity.” With this odd math, Wazzan double-counted value of the nonprofit and inflated Musk’s damages estimate, Microsoft alleged.
“Wazzan offers no rationale—contractual, governance, economic, or otherwise—for reallocating any portion of Microsoft’s negotiated interest to the nonprofit,” OpenAI’s and Microsoft’s filing said.
Perhaps most glaringly, Wazzan reached his opinions without ever weighing the contributions of anyone but Musk, OpenAI alleged. That means that Wazzan’s analysis did not just discount efforts of co-founders and investors like Microsoft, which “invested billions of dollars into OpenAI’s for-profit affiliate in the years after Musk quit.” It also dismissed scientists and programmers who invented ChatGPT as having “contributed zero percent of the nonprofit’s current value,” OpenAI alleged.
“I don’t need to know all the other people,” Wazzan testified.
Musk’s legal team contradicted expert
Wazzan supposedly also did not bother to quantify Musk’s nonmonetary contributions, which could be in the thousands, millions, or billions based on his vague math, OpenAI argued.
Even Musk’s legal team seemed to contradict Wazzan, OpenAI’s filing noted. In Musk’s filing on remedies, it’s acknowledged that the jury may have to adjust the total damages. Because Wazzan does not break down damages by claims and merely assigns the same damages to each individual claim, OpenAI argued it will be impossible for a jury to adjust any of Wazzan’s black box calculations.
“Wazzan’s methodology is made up; his results unverifiable; his approach admittedly unprecedented; and his proposed outcome—the transfer of billions of dollars from a nonprofit corporation to a donor-turned competitor—implausible on its face,” OpenAI argued.
At a trial starting in April, Musk will strive to convince a court that such extraordinary damages are owed. OpenAI hopes he’ll fail, in part since “it is legally impossible for private individuals to hold economic interests in nonprofits” and “Wazzan conceded at deposition that he had no reason to believe Musk ‘expected a financial return when he donated… to OpenAI nonprofit.’”
“Allowing a jury to hear a disgorgement number—particularly one that is untethered to specific alleged wrongful conduct and results in Musk being paid amounts thousands of times greater than his actual donations—risks misleading the jury as to what relief is recoverable and renders the challenged opinions inadmissible,” OpenAI’s filing said.
Wazzan declined to comment. xAI did not immediately respond to Ars’ request to comment.
Ashley is a senior policy reporter for Ars Technica, dedicated to tracking social impacts of emerging policies and new technologies. She is a Chicago-based journalist with 20 years of experience.
