Meta asks California AG to block OpenAI’s transition from non-profit to for-profit status

Dear General Bonta:

As a California company building Generative AI technology, Meta Platforms, Inc. (“Meta”) is deeply concerned by OpenAI’s attempt to shed its founding non-profit status to create a for-profit entity. I am. We encourage you to consider this proposed transaction, including the nature and timing of any transfer of assets from OpenAI’s nonprofit entity to another entity. If OpenAI cannot be held accountable for choosing to set up as a nonprofit, we could see a proliferation of similar startups that are nominally philanthropic until potentially profitable. Californians have a direct and urgent interest in stopping this practice. To protect investors and consumers alike, all commercial activities of OpenAI and its affiliates must be suspended.

In 2015, OpenAI filed its original certificate of incorporation with the State of Delaware.

This corporation shall operate solely for charitable and/or educational purposes within the meaning of Section 501(c){3) of the Internal Revenue Code of 1986, as amended, or corresponding provisions of any future United States Internal Revenue Code. A non-profit corporation organized for the purpose of Law. The specific purpose of this corporation is to fund the research, development, and distribution of technologies related to artificial intelligence…This corporation is not organized for the private benefit of any individual. …the property of this corporation is irrevocably[se] …and no part of this company’s net profits or assets will be used for the benefit of its directors, officers or members or for any personal benefit.

OpenAI reaffirmed this commitment several years later on its website.

There is no clear path forward in the public sector, given the success of other ambitious projects in the private sector. [OpenAI] has decided to pursue this project through private means, bound by a strong commitment to the public good. [OpenAI] Initially, it was believed that a 501(c)(3) would be the most effective means to direct the development of safe and broadly beneficial AGI, unencumbered by profit incentives.

Using this nonprofit status, OpenAI has raised billions of dollars from investors to further its mission. The company has announced to the state of California and the world that it will be operated without any profit motive. Investors and the public naturally trusted that guarantee.

Now, OpenAI wants to change its status while retaining all the advantages that have allowed it to reach its current position. That’s wrong. OpenAI should not be allowed to ignore the law by taking and reappropriating the assets it built as a charity and using them for potentially huge personal gain.

Moreover, OpenAI’s proposed transformation does not simply represent a potential abuse of future corporate forms. Also of note is whether OpenAI’s past practices are consistent with its obligations as a nonprofit organization, particularly whether it has inappropriately depleted the nonprofit’s assets by distributing assets to third parties. We recommend that you investigate whether there is one.

OpenAI’s actions could have serious implications for Silicon Valley. If approved, OpenAI’s restructuring would represent a paradigm shift for tech startups. Allowing this reorganization would allow investors to set up the organization as a not-for-profit organization, raise hundreds of millions of dollars in tax-free donations to support research and development, and once the technology becomes commercially viable, it could be used for for-profit purposes. They will only be tempted to gain status.

In fact, if OpenAI’s new business model is effective, nonprofit investors will receive the same for-profit benefits as investors who invest in for-profit companies through traditional means, while also benefiting from tax breaks provided by governments. And ultimately, the public. This would force startups looking to stay competitive to essentially adopt the same strategies, distorting the market.

We understand that Elon Musk and Siobhan Gillis are currently seeking to represent the public interest in Musk v. Altman, No. 4:24-cv-04722-YGR (ND Cal.). We urge your office to take direct action, but we believe that Mr. Musk and Mr. Gillis are qualified and well placed to represent the interests of Californians on this issue. They had an early foundational role in the founding and operation of OpenAI, and as previous members of the Board of Directors, they have a deep understanding of what OpenAI was intended to be and how its current actions depart from its philanthropic mission. I was in a better position than anyone else to understand why something was so deviant.

Meta values ​​openness and transparency in the AI ​​transformation space. OpenAI’s philanthropic promise to develop safe and broadly useful AI free of commercial pressure is important and must be kept. This is a special case that requires urgent action, given that OpenAI continues its commercial transformation at breakneck speed.

Thank you for considering our views. We will be happy to answer any questions you may have.

With respect,

meta platform