Elon Musk recently suffered a setback in his lawsuit against OpenAI, but a federal judge’s ruling has provided Musk and other opponents of OpenAI’s for-profit conversion with reasons to be optimistic.

The lawsuit, which also names Microsoft and OpenAI CEO Sam Altman as defendants, alleges that OpenAI has abandoned its nonprofit mission to prioritize the greater good of humanity through its AI research. OpenAI was initially established as a nonprofit in 2015 but transitioned to a “capped-profit” structure in 2019 and is now seeking to restructure as a public benefit corporation.

Musk had requested a preliminary injunction to halt OpenAI’s transition to a for-profit entity. Although a federal judge in Northern California, U.S. District Court Judge Yvonne Gonzalez Rogers, denied Musk’s request, she expressed concerns about OpenAI’s planned conversion.

In her ruling, Judge Rogers stated that significant and irreparable harm occurs when public funds are used to support a nonprofit’s conversion into a for-profit organization. Currently, OpenAI’s nonprofit arm holds a majority stake in OpenAI’s for-profit operations and is reportedly set to receive billions of dollars in compensation as part of the transition.

Judge Rogers also noted that OpenAI’s co-founders, including Altman and president Greg Brockman, had made commitments not to utilize OpenAI as a means to enrich themselves. The judge indicated that the court is prepared to offer an expedited trial in the fall of 2025 to resolve the corporate restructuring disputes.

Marc Toberoff, Musk’s lawyer, expressed satisfaction with the judge’s decision and stated that Musk’s legal team intends to accept the offer for an expedited trial. OpenAI has not yet indicated whether it will accept the offer and did not immediately respond to requests for comment.

Judge Rogers’ remarks on OpenAI’s for-profit conversion are not entirely favorable for the company.

Tyler Whitmer, a lawyer representing Encode, a nonprofit that filed an amicus brief arguing that OpenAI’s for-profit conversion could jeopardize AI safety, stated that Judge Rogers’ decision has created a “cloud” of regulatory uncertainty over OpenAI’s board of directors. The attorneys general in California and Delaware are already investigating the transition, and the concerns raised by Judge Rogers could encourage them to probe more aggressively, according to Whitmer.

There were some positive outcomes for OpenAI in Judge Rogers’ ruling.

The evidence presented by Musk’s legal team to demonstrate that OpenAI breached a contract by accepting around $44 million in donations from Musk and then taking steps to convert to a for-profit was deemed “insufficient” by Judge Rogers. The judge pointed out that some emails submitted as exhibits showed Musk himself considering the possibility that OpenAI might become a for-profit company in the future.

Judge Rogers also stated that Musk’s AI company, xAI, a plaintiff in the case, failed to demonstrate that it would suffer “irreparable harm” if OpenAI’s for-profit conversion were not halted. The judge was unpersuaded by the plaintiffs’ arguments that OpenAI’s close collaborator and investor, Microsoft, would violate interlocking directorate laws and that Musk has standing under a California provision prohibiting self-dealing.

Musk, once a key supporter of OpenAI, has positioned himself as one of the company’s greatest adversaries. xAI competes directly with OpenAI in developing cutting-edge AI models, and Musk and Altman now find themselves jockeying for legal and political power under a new presidential administration.

The stakes are high for OpenAI, as the company reportedly needs to complete its for-profit conversion by 2026 or risk having some of the capital it recently raised convert to debt.

A former OpenAI employee, speaking anonymously to protect their future job prospects, expressed concerns that the startup’s conversion could threaten public safety. The employee believes that if OpenAI becomes a traditional for-profit company, it may prioritize profits over its mission to ensure AI research benefits all of humanity.

The ex-employee stated that OpenAI’s nonprofit structure was one of the primary reasons they joined the organization.

In the coming months, it will become clearer what obstacles OpenAI will need to overcome in its for-profit transition. Regulators, AI safety advocates, and tech investors will be watching with great interest.