Thanks for sharing this, very informative and helpful for highlighting a potential leverage point., strong upvoted.
One minor point of disagreement: I think you are being a bit too pessimistic here:
And put in more EA-coded language: the base rate of courts imploding massive businesses (or charities) is not exactly high. One example in which something like this did happen was the breakup of the Bell System in 1982, but it wasn’t quick, the evidence of antitrust violations was massive, and there just wasn’t any other plausible remedy. Another would be the breakup of Standard Oil in 1911, again a near-monopoly with some massive antitrust problems.
There are few examples of US courts blowing up large US corporations, but that is not exactly the situation here. OpenAI might claim that preventing a for-profit conversion would destroy or fatally damage the company, but they do not have proof. There is a long history of businesses exaggerating the harm from new regulations, claiming they will be ruinous when actually human ingenuity and entrepreneurship render them merely disadvantageous. The fact is that this far OpenAI has raised huge amounts of money and been at the forefront of scaling with its current hybrid structure, and I think a court could rightfully be skeptical of claims without proof that this cannot continue.
I think a closer example might be when the DC District Court sided with the FTC and blocked the Staples-Office Depot merger on somewhat dubious grounds. The court didn’t directly implode a massive retailer… but Staples did enter administration shortly afterwards, and my impression at the time was the causal link was pretty clear.
OpenAI might claim that preventing a for-profit conversion would destroy or fatally damage the company, but they do not have proof. [ . . . .] The fact is that this far OpenAI has raised huge amounts of money and been at the forefront of scaling with its current hybrid structure, and I think a court could rightfully be skeptical of claims without proof that this cannot continue.
Yes, that’s the counterargument. I submit that there is likely to be pretty relevant documentary and testimonial evidence on this point, but we don’t know which way it would go. So I don’t have any clear opinion on whether OpenAI’s argument would work and/or how much these kinds of concerns would shape the scope of injunctive relief.
OpenAI agreed to terms that I would almost characterize as a poison pill: if the transformation doesn’t move forward on time, the investors can get that $6.6B back. It may be that would-be investors were not willing to put enough money to keep OpenAI going without a commitment to refund if the non-profit board were not disempowered. As you mentioned, corporations exaggerate the detrimental impact of legal requirements they don’t like all the time! But the statements and actions of multiple, independent third-party investors should be less infected on this issue. If an inability to secure adequate funding as a non-profit is what this evidence points toward, I think that would be enough to establish a prima facie case and require proponents to put up evidence of their own to rebut that case.
So who will make that case? It’s not clear Musk will assert that OpenAI can stay competitive while remaining a non-profit; his expression of a desire “[o]n behalf of a consortium of buyers,” “to acquire all assets . . . of OpenAI” for $97,375,000,000 (Order at 14 n.10) suggests he may not be inclined to advocate for OpenAI’s ability to use its own assets to successfully advance its mission.
There’s also the possibility that the court would show some deference on this question to the business judgment of OpenAI’s independent board members if people like Altman and Brockman were screened off enough. It seems fairly clear to me that everyone understood early on there would need to be some for-profit elements in the mix, and so I think the non-conflicted board members may get some benefit of the doubt in figuring that out.
To the extent that evidence from the recent fundraising cycle supports the risk-of-fatal-damage theory, I suspect the relevance of fundraising success that occurred prior to the board controversy may be limited. I think it would be reasonable to ascribe lowered funder willingness to tolerate non-profit control to that controversy.
Thanks for sharing this, very informative and helpful for highlighting a potential leverage point., strong upvoted.
One minor point of disagreement: I think you are being a bit too pessimistic here:
There are few examples of US courts blowing up large US corporations, but that is not exactly the situation here. OpenAI might claim that preventing a for-profit conversion would destroy or fatally damage the company, but they do not have proof. There is a long history of businesses exaggerating the harm from new regulations, claiming they will be ruinous when actually human ingenuity and entrepreneurship render them merely disadvantageous. The fact is that this far OpenAI has raised huge amounts of money and been at the forefront of scaling with its current hybrid structure, and I think a court could rightfully be skeptical of claims without proof that this cannot continue.
I think a closer example might be when the DC District Court sided with the FTC and blocked the Staples-Office Depot merger on somewhat dubious grounds. The court didn’t directly implode a massive retailer… but Staples did enter administration shortly afterwards, and my impression at the time was the causal link was pretty clear.
Yes, that’s the counterargument. I submit that there is likely to be pretty relevant documentary and testimonial evidence on this point, but we don’t know which way it would go. So I don’t have any clear opinion on whether OpenAI’s argument would work and/or how much these kinds of concerns would shape the scope of injunctive relief.
OpenAI agreed to terms that I would almost characterize as a poison pill: if the transformation doesn’t move forward on time, the investors can get that $6.6B back. It may be that would-be investors were not willing to put enough money to keep OpenAI going without a commitment to refund if the non-profit board were not disempowered. As you mentioned, corporations exaggerate the detrimental impact of legal requirements they don’t like all the time! But the statements and actions of multiple, independent third-party investors should be less infected on this issue. If an inability to secure adequate funding as a non-profit is what this evidence points toward, I think that would be enough to establish a prima facie case and require proponents to put up evidence of their own to rebut that case.
So who will make that case? It’s not clear Musk will assert that OpenAI can stay competitive while remaining a non-profit; his expression of a desire “[o]n behalf of a consortium of buyers,” “to acquire all assets . . . of OpenAI” for $97,375,000,000 (Order at 14 n.10) suggests he may not be inclined to advocate for OpenAI’s ability to use its own assets to successfully advance its mission.
There’s also the possibility that the court would show some deference on this question to the business judgment of OpenAI’s independent board members if people like Altman and Brockman were screened off enough. It seems fairly clear to me that everyone understood early on there would need to be some for-profit elements in the mix, and so I think the non-conflicted board members may get some benefit of the doubt in figuring that out.
To the extent that evidence from the recent fundraising cycle supports the risk-of-fatal-damage theory, I suspect the relevance of fundraising success that occurred prior to the board controversy may be limited. I think it would be reasonable to ascribe lowered funder willingness to tolerate non-profit control to that controversy.