US court dismiss xAI’s trade-secrets lawsuit against OpenAI

On Tuesday, February 24, 2026, a federal judge in California dismissed the trade-secrets lawsuit filed by Elon Musk’s AI startup, xAI, against OpenAI.

U.S. District Judge Rita Lin in San Francisco ruled that xAI had failed to provide sufficient evidence that OpenAI itself committed any misconduct or orchestrated a “deliberate scheme” to steal confidential information.

The Ruling: Lack of Direct Misconduct

The judge’s decision highlighted a critical gap in xAI’s legal argument, noting that while the company accused individuals of theft, it did not link those actions to OpenAI’s corporate conduct.

• Poaching vs. Theft: xAI alleged that OpenAI engaged in a “strategic campaign” to poach at least eight employees to gain secrets about the Grok chatbot. However, Judge Lin stated that simply hiring talent from a competitor is not illegal in Silicon Valley’s fluid market.
• Missing Evidence of Inducement: The court found that xAI failed to allege facts indicating that OpenAI induced former employees to steal source code or that it ever used the stolen secrets once those employees were hired.
• The “Notably Absent” Quote: “Notably absent are allegations about the conduct of OpenAI itself,” Judge Lin wrote in her 15-page order.

Key Claims in the Lawsuit

The original suit, filed in September 2025, focused on specific “secret sauce” technologies that xAI claimed were compromised:

• Grok Source Code: xAI accused former engineers Xuechen Li and Jimmy Fraiture of downloading the entire Grok codebase onto personal devices before joining OpenAI.
• Infrastructure Advantage: xAI claimed OpenAI sought its proprietary methodologies for deploying massive data centers (like the Memphis Colossus) in record time.
• Encrypted Communications: Attorneys for xAI argued that OpenAI’s use of encrypted messaging apps like Signal to communicate with recruits was “indicative” of a plan to steal information.

Leave to Amend & Next Steps

While the current lawsuit was dismissed, it is not a final closure for the case.

• Deadline to Refile: Judge Lin granted xAI leave to amend, giving the company until March 17, 2026, to refile its complaint with more specific details and evidence of OpenAI’s involvement.
• Separate Suits: xAI is continuing separate, individual lawsuits against the former employees, including Xuechen Li, whom it labels an “insider” for the ChatGPT team.

Broader Legal Context

This trade-secret case is just one “front” in a massive legal war between Elon Musk and Sam Altman’s OpenAI.

OpenAI’s Response: Following the ruling, an OpenAI spokesperson characterized the lawsuit as a “baseless harassment” campaign and claimed Musk is attempting to slow down the company because Grok cannot keep up with ChatGPT.