xAI had earlier sued former engineer Xuechen Li for stealing its trade secrets to take to OpenAI, but xAI has now come up with a comprehensive lawsuit against OpenAI for systematically using several of its employees to steal its proprietary information.
Elon Musk’s xAI has filed a comprehensive lawsuit against OpenAI in the U.S. District Court for the Northern District of California, alleging a systematic campaign of trade secret theft and unfair competition that goes far beyond previously known incidents. The lawsuit accuses Sam Altman’s company of orchestrating multiple parallel schemes to steal proprietary code, business strategies, and talent from the rival AI company. “We sent them many warning letters, but they continued to cheat. Lawsuit was the only option after exhausting all others,” Elon Musk posted on X.
The Core Allegations
The lawsuit centers on three primary legal claims: misappropriation of trade secrets, interference with economic relations, and unfair competition. xAI alleges that OpenAI, facing competitive pressure from Grok’s superior performance metrics compared to ChatGPT models, resorted to what the complaint characterizes as a “strategic campaign to undermine xAI and gain unlawful advantage in the race to build the best artificial intelligence models.”
According to court documents, the case stems from OpenAI’s alleged pattern of targeting xAI employees with access to critical proprietary information, including the company’s entire codebase and specialized data center deployment strategies that xAI refers to as its “secret sauce.”
The Xuechen Li Case Expands
While xAI’s August 2025 lawsuit against former engineer Xuechen Li for allegedly downloading the company’s entire codebase was previously known, the new filing reveals this was merely the tip of the iceberg. The lawsuit states that “unbeknownst to xAI at the time,” Li’s theft was part of a broader, coordinated effort involving multiple employees and different types of proprietary information.
Li, described as an early xAI engineer, allegedly admitted to stealing xAI’s complete codebase before joining OpenAI. However, the current lawsuit reveals that while xAI was pursuing legal action against Li, “at least two other parallel OpenAI efforts were afoot.”
Multiple Theft Schemes Alleged
The lawsuit details two additional schemes running concurrently with Li’s alleged theft:
Jimmy Fraiture’s Code Theft: Another early xAI engineer, Jimmy Fraiture, allegedly “harvested xAI’s source code and airdropping it to his personal devices to take to OpenAI, where he now works.” This represents a second vector of source code theft beyond the Li incident.
CFO’s “Secret Sauce” Theft: The most significant allegation involves former xAI Chief Financial Officer Mike Liberatore, who allegedly brought xAI’s proprietary data center deployment strategies to OpenAI. The lawsuit describes these as xAI’s “secret sauce” for rapid data center scaling, critical to the company’s supercomputing capabilities that power both Grok and its Colossus supercomputer infrastructure.
Hostile Exit Behavior
The lawsuit paints a particularly damaging picture of fomer CFO Mike Liberatore’s departure from xAI. According to court documents, the former CFO refused to sign standard confidentiality exit agreements required of departing executives. When xAI attempted to remind him of his ongoing legal obligations to the company, Liberatore allegedly responded with profanity, telling representatives to “Suck my d**” and “Leave me the f** alone.”
This behavior, according to xAI’s legal team, demonstrates a clear intent to disregard confidentiality obligations while possessing access to some of the company’s most sensitive business strategies.
Broader Talent Poaching Campaign
Beyond the three primary individuals named in the theft allegations, the lawsuit identifies five additional former xAI employees who left for OpenAI: Uday Ruddarraju, Sreekanth Pothanis, Mike Dalton, Hieu Pham and Ethan Knight. All five are described as being tied to xAI’s supercomputing and scaling efforts, suggesting a targeted recruitment strategy focused on employees with access to critical infrastructure knowledge.
Strategic Context and Implications
The lawsuit frames OpenAI’s alleged actions within the broader context of the competitive AI landscape. xAI claims that OpenAI’s behavior represents a response “to being out-innovated by xAI whose Grok model overtook OpenAI’s ChatGPT models in performance metrics.” This suggests the alleged theft campaign was motivated by competitive pressure rather than opportunistic hiring.
The complaint characterizes OpenAI’s approach as crossing “the line of fair play” and states that the company “clearly will do anything when threatened by a better innovator, including plundering and misappropriating the technical advancements, source code, and business plans of xAI.”
Legal Stakes and Industry Impact
The lawsuit seeks a jury trial and represents one of the most comprehensive trade secret theft allegations between major AI companies to date. The case could set important precedents for how intellectual property disputes are handled in the rapidly evolving AI industry, particularly regarding employee mobility and the protection of proprietary training methods, infrastructure strategies, and source code.
For OpenAI, the allegations come at a time when the company is facing increased scrutiny over its competitive practices and business relationships. The lawsuit’s detailed allegations of systematic theft could potentially impact investor confidence and regulatory attention. At the same time, Meta has been openly poaching OpenAI’s researchers with some eye-popping pay packages. The case also highlights the intense competition for top AI talent and the challenges companies face in protecting proprietary information in a field where key employees often possess comprehensive knowledge of their former employers’ technical capabilities.
As the AI race intensifies between major players, this lawsuit may signal a new phase of legal warfare alongside technological competition, with companies increasingly willing to pursue aggressive litigation to protect their competitive advantages and intellectual property investments.