xAI Appeals Dismissal of Its Trade Secret Lawsuit Against OpenAI
Elon Musk's xAI filed a notice of appeal to the Ninth Circuit after a federal judge tossed its case against OpenAI with prejudice for the second time on June 15.
xAI filed a notice of appeal on July 13 to the US Court of Appeals for the Ninth Circuit, contesting a district court’s dismissal of its trade secret misappropriation lawsuit against OpenAI. X.AI Corp. and X.AI LLC paid the $605 appeal fee to challenge Judge Rita Lin’s June 15 ruling, which dismissed the case with prejudice — meaning xAI can’t refile the same claims.
The underlying case, filed in September 2025, accused OpenAI of inducing former xAI senior engineer Xuechen Li to disclose confidential information about Grok’s architecture during a job interview, alleging Li downloaded source code before leaving. xAI claimed OpenAI wanted the secrets because Grok 4’s July 2025 release outperformed ChatGPT on complex reasoning benchmarks. OpenAI countered that it has no need for xAI’s technology and described xAI as “failing in the marketplace.” Li was never hired by OpenAI, according to the company, and faces separate litigation from xAI directly.
Judge Lin’s dismissal — the second in the case, following an initial one in February — found xAI failed to show OpenAI either induced Li to leak information or knew he might have disclosed anything during the interview process. Her reasoning had teeth beyond this case: she wrote that “asking job candidates to discuss their prior work was routine,” and that ruling otherwise “would potentially expose employers to liability any time they inquire about a candidate’s past work” — a standard that would have made ordinary technical interviews at any AI lab legally risky.
OpenAI has separately asked the court to find the lawsuit “should never have been filed” and is seeking to recoup more than $1 million in legal fees from xAI. That fee motion is still pending and sits alongside the appeal.
This is now one of several active fronts between Musk’s companies and OpenAI — alongside Musk’s separate, larger suit over OpenAI’s for-profit restructuring — and adds to a summer of parallel trade secret litigation in AI, including Apple’s ongoing suit against OpenAI. None of it has produced a finding of actual misappropriation yet; what it has produced is a growing body of case law on how aggressively AI labs can recruit from rivals without triggering trade secret liability.