A US federal judge has dismissed Elon Musk’s xAI trade secret lawsuit against OpenAI with prejudice, ruling that the AI company failed to show that OpenAI induced a former xAI engineer to divulge confidential information. The decision marks Musk’s second legal defeat against OpenAI in four weeks and further entrenches OpenAI’s position as the dominant player in the large language model market.

The Ruling

US District Judge Rita Lin in San Francisco found that xAI could not demonstrate that OpenAI pushed former senior engineer Xuechen Li to leak trade secrets related to the Grok chatbot during the recruitment process. “To hold otherwise would potentially expose employers to liability any time they inquire about a candidate’s past work,” Lin wrote, according to Al Jazeera. The judge dismissed the lawsuit with prejudice, calling further proceedings “futile.” Lin had previously dismissed an earlier version of the complaint in February.

OpenAI’s Defence

OpenAI said Li never worked for the company and that it never acquired xAI secrets. In seeking dismissal, OpenAI’s lawyers wrote: “OpenAI does not need or want anyone’s trade secrets, especially not from xAI, which is failing in the marketplace and hemorrhaging talent.” Li is being sued separately by xAI and has denied wrongdoing. The amended complaint had focused on a presentation Li gave while OpenAI was recruiting him, with xAI claiming OpenAI wanted secrets related to the July 2025 release of Grok 4 because its forthcoming ChatGPT update “could not compete” on complex reasoning.

Broader AI Industry Rivalry

The ruling comes amid an intensifying battle for AI talent and market position in the New York and San Francisco tech corridors. OpenAI, valued at more than $300 billion, has become the industry’s leading force, while xAI — now a subsidiary of SpaceX following last week’s record IPO — has positioned Grok as a competitor focused on real-time data and enterprise applications. The Pentagon’s use of Grok during the Iran war, which included directing more than 2,000 munitions strikes within the first 96 hours, has given xAI a significant defence contract foothold. On May 18, a separate federal jury ruled against Musk in his $150 billion lawsuit accusing OpenAI of betraying its nonprofit origins — a legal losing streak that underscores the difficulty of litigating competitive dynamics in a fast-moving industry. The legal battles between Musk and OpenAI have drawn intense interest from New York’s venture capital and legal communities, where the outcome could shape how non-compete and trade secret disputes are litigated in the AI era. Several prominent venture firms have adjusted their investment terms in response to the cases, adding stricter intellectual property protections to portfolio company employment agreements.