Nadella: Musk Never Pitched Microsoft Deals

Microsoft CEO Satya Nadella took the stand on Monday in the high-profile Musk v. Altman trial, asserting that Elon Musk never raised concerns with him about Microsoft’s investments in OpenAI potentially violating any specific terms or commitments. Nadella’s testimony, delivered in federal court in Oakland, California, spanned several hours and delved into the foundational stages of Microsoft’s strategic alliance with OpenAI, his understanding of their intertwined relationship, and his pivotal role during the tumultuous period when Sam Altman was briefly removed as OpenAI’s chief executive.

Altman’s own testimony is scheduled to commence on Tuesday, as confirmed by his legal counsel.

The legal battle was initiated in 2024 when Musk filed a lawsuit against OpenAI, Altman, and the company’s president, Greg Brockman. Musk alleges that they reneged on their commitment to uphold the artificial intelligence company’s nonprofit structure and adhere to its charitable mission. Microsoft is also named as a defendant, with Musk accusing the tech giant of aiding and abetting OpenAI’s purported breach of charitable trust.

Microsoft has been a substantial financial backer of OpenAI since 2019, predating the company’s meteoric rise to mainstream prominence following the launch of its ChatGPT chatbot in late 2022. The magnitude of Microsoft’s investment, exceeding $13 billion, including a $1 billion infusion in 2019, $2 billion in 2021, and a staggering $10 billion in 2023, has been a recurring theme throughout the proceedings.

Nadella expressed considerable pride in Microsoft’s decision to invest in OpenAI at a time when “no one else was willing” to gamble on the nascent research lab.

Musk, who testified late last month, characterized Microsoft’s $10 billion investment as the critical inflection point that led him to believe OpenAI was deviating from its nonprofit mission. He stated that the sheer scale of the investment raised red flags, prompting him to initiate a legal inquiry into OpenAI. Musk testified, “I was concerned they were really trying to steal the charity.”

From the witness stand, Nadella countered that he did not view Microsoft’s investments as charitable donations, emphasizing that a clear commercial imperative was present from the inception of their partnership. He elaborated that in the early years of their collaboration, Microsoft provided OpenAI with substantial discounts on computing resources, anticipating significant marketing benefits in return.

During a separate video deposition played on Monday morning, Michael Wetter, a corporate development executive at Microsoft, revealed that the company has generated approximately $9.5 billion in revenue to date through its partnership with OpenAI, underscoring the commercial viability and tangible returns of the alliance.

Musk, alongside Altman, Brockman, and other early collaborators, co-founded OpenAI in 2015. Disagreements over OpenAI’s strategic direction, including a failed attempt to integrate it with his automotive company Tesla, ultimately led to Musk’s departure from the OpenAI board in 2018. He subsequently launched his own AI venture, xAI, which he later merged with SpaceX.

In the months following Musk’s exit, OpenAI established a for-profit subsidiary, a move that facilitated the company’s ability to secure external funding more readily. This strategic shift paved the way for billions of dollars in investments from entities like Microsoft, propelling OpenAI’s valuation to over $850 billion.

The leadership crisis at OpenAI reached a climax in November 2023 when Altman was temporarily ousted as CEO, with the board citing his “not consistently candid” communications. He was reinstated mere days later following intense negotiations.

Nadella recounted being “pretty surprised” by the board’s decision, stating his immediate priority was to ensure continuity for Microsoft’s extensive customer base. He described making efforts to understand the underlying reasons for Altman’s removal, suspecting that jealousy and communication breakdowns were contributing factors.

In his discussions with OpenAI board members post-firing, Nadella sought clarification on the language used in OpenAI’s official statement regarding Altman’s “not consistently candid” communications. Nadella testified, “That language, Nadella said, ‘just didn’t sort of suffice, because this is the CEO of a company that we are invested in and we’re deeply partnered with, and so I felt that they could have told me they could have explained to me what are the incidents or what is the detail behind it.'” He further elaborated that while there might have been instances of jealousy or miscommunication, the board’s lack of detailed explanation was a critical failing.

“It was sort of amateur city, as far as I’m concerned,” Nadella testified, reflecting on the board’s handling of the situation.

In October, OpenAI completed a significant recapitalization, solidifying its structure as a nonprofit entity with an equity stake in its for-profit business. This development saw Microsoft disclose its holding of approximately a 27% stake in OpenAI’s for-profit unit, valued at roughly $135 billion.

Recent months have seen indications of evolving dynamics within the OpenAI-Microsoft relationship, even as both entities continue to highlight its strategic importance. Late last month, coinciding with the commencement of jury selection in the Musk v. Altman trial, the companies announced a revised partnership agreement. This new framework allows OpenAI greater flexibility to cap revenue-sharing payments and serve clients across any cloud provider, signifying a strategic recalibration of their collaboration.

OpenAI articulated in a release that the agreement aimed to “simplify our partnership and the way we work together.”

Musk conveyed his nuanced view, stating he wasn’t entirely opposed to OpenAI operating a for-profit unit but felt it had become “the tail wagging the dog.” He repeatedly accused Altman and Brockman of personal enrichment at the expense of a charitable mission, while simultaneously leveraging the positive public perception associated with running a nonprofit. Musk testified, “Microsoft has their own motivations, and that would be different from the motivations of the charity. All due respect to Microsoft, do you really want Microsoft controlling digital superintelligence?”

During a videotaped deposition presented last week, former OpenAI director Tasha McCauley recounted a conversation with Nadella and other board members following the 2023 decision to dismiss Altman. McCauley stated, “To the best of my recollection, Satya wanted to restore things to as they had been.” However, she noted that the board members did not concur with this proposed course of action.

Contrasting with McCauley’s recollection, Nadella testified on Monday that he never explicitly demanded the reinstatement of Altman as OpenAI’s CEO.

Musk’s attorney, Steven Molo, presented Nadella with screenshots of text messages exchanged with Kevin Scott, Microsoft’s chief technology officer, discussing potential candidates for OpenAI’s board. The conversations included notable figures such as Emilie Choi, Chief Operating Officer of Coinbase; Julia Hartz, former CEO of Eventbrite; Sue Desmond-Hellmann, former CEO of the Gates Foundation; Bing Gordon, former investor at Klein Perkins Caufield & Byers; Ursula Burns, former CEO of Xerox; Jeff Weiner, former CEO of LinkedIn; and Diane Greene, former director at Alphabet.

Greene’s past involvement with Google, where she led the cloud division after Google acquired her company Bebop in 2015, prompted Nadella’s opposition to her joining OpenAI’s board. In a text message response to a potential board seat, Nadella stated “no,” explaining his rationale on Monday: “I thought there were going to be conflicts because of our major competition with Google.” He recalled that upon becoming Microsoft’s CEO in 2014, Google had been Microsoft’s primary competitor in the AI space, particularly after Google’s acquisition of AI lab DeepMind.

OpenAI publicly announced the appointment of Desmond-Hellmann to its board in March 2024, a decision Nadella noted he was aware of, stating, “I had known her from the past.”

Molo also inquired about a 2022 email Nadella sent to several Microsoft executives concerning terms that would favor the company in its collaboration with OpenAI. The email read, “I don’t want to be IBM and OpenAI to be Microsoft.” Nadella elaborated on this sentiment by drawing a parallel to Microsoft’s historical licensing agreement with IBM for its DOS operating system in 1980. This deal allowed Microsoft to expand its business with numerous PC manufacturers, leading to the widespread adoption of DOS. Subsequently, Microsoft’s licensing of its Windows operating system to device makers cemented its dominance in the information technology sector. When Molo asked if Microsoft ultimately became a more significant company than IBM, Nadella affirmed, “That’s right.” As of Monday’s market close, Microsoft’s market capitalization stood at $3 trillion, a stark contrast to IBM’s $210 billion valuation.

Following Nadella’s conclusion, Ilya Sutskever, a distinguished AI researcher and co-founder of OpenAI, was called to testify. Sutskever, dressed in a blue button-down shirt, addressed questions pertaining to his decision to join OpenAI, his communications with Musk, and his role in the events leading to Altman’s dismissal. Sutskever revealed that he had previously worked at Google, which had offered him a compensation package of up to $6 million annually to dissuade him from leaving for OpenAI. He admitted to being among the employees who voiced concerns about Altman’s conduct to the board, driven by a profound sense of “ownership” over the startup. “I simply cared for it, and I didn’t want it to be destroyed,” Sutskever stated.

Bret Taylor, the chairman of OpenAI’s board, followed Sutskever on the stand. Taylor provided an overview of OpenAI’s organizational structure to the jury and recounted the “dire” atmosphere that prevailed during the period when Altman was removed as chief executive. Taylor’s testimony was not completed on Monday and will resume on Tuesday at 8:30 a.m. PT.