Federal judge permanently dismisses xAI trade secret lawsuit against OpenAI, second legal defeat for Musk in four weeks

The dismissal

US District Judge Rita Lin dismissed xAI's trade secret lawsuit against OpenAI with prejudice on Monday, permanently ending the case. Lin ruled that xAI had failed to show OpenAI induced former xAI engineer Xuechen Li to disclose confidential information or that Li actually revealed any trade secrets during a recruitment presentation. Allowing further amendment would be "futile," the judge wrote.

The ruling marks the second major legal defeat for Elon Musk against OpenAI in four weeks. On 18 May, a federal jury in Oakland unanimously rejected his $150 billion lawsuit against Sam Altman, finding that Musk had filed his claims beyond the statute of limitations. That jury deliberated for less than two hours.

The allegations

Originally filed in September 2025, the lawsuit accused OpenAI of poaching former xAI employees and stealing trade secrets related to the Grok chatbot. xAI claimed that confidential source code was taken when engineers departed for OpenAI. The case centred on a presentation Li delivered while OpenAI was recruiting him for a position the company argued he never held.

xAI alleged that OpenAI sought trade secrets concerning Grok 4, released in July 2025, asserting that its own ChatGPT update "could not compete" on complex reasoning and was "lagging" in the reinforcement learning techniques Li understood. Lin was not persuaded.

“To hold otherwise would potentially expose employers to liability any time they inquire about a candidate's past work.”

A pattern of defeats

The dismissal with prejudice follows a February ruling that initially tossed the case but allowed xAI to amend its complaint. The amended version fared no better. Monday's decision means xAI cannot bring the same claims again.

The twin legal losses underscore a broader retreat for xAI. All 11 of its original co-founders have left, and the company was absorbed into SpaceX in a $1.25 trillion combined deal in February. Musk himself remarked that xAI "was not built right first time around" and needs rebuilding.

Routine hiring inquiry

Judge Lin's reasoning treated the recruitment exchange as ordinary. OpenAI argued it never acquired xAI's secrets and did not need them. Its lawyers delivered a pointed filing:

“OpenAI does not need or want anyone's trade secrets, especially not from xAI, which is failing in the marketplace and hemorrhaging talent.”

The court found no evidence that OpenAI engineers knew Li might have disclosed confidential information. Lin concluded that questioning a candidate about previous work is standard practice and cannot be the basis for a trade secret claim.

What comes next

Musk's legal team has said it will appeal the May jury verdict. Monday's dismissal, however, is final unless overturned on appeal. For now, the ruling sets a boundary on how far companies can go in accusing competitors of trade secret theft during routine hiring.