A federal court in San Francisco has dismissed trade secret claims made by xAI against Open AI, with prejudice.

xAI accused OpenAI of misappropriating its trade secrets through xAI’s former employees.

xAI pled two theories of misappropriation:

1. OpenAI induced xAI’s then-employee Li to misappropriate xAI’s trade secrets; and 
2. Li disclosed xAI’s trade secrets to OpenAI in a presentation that he delivered during the recruitment process.

OpenAI moved to dismiss on the basis that xAI insufficiently alleged misappropriation of trade secret.

In its dismissal of a prior complaint, the court had found that xAI insufficiently pled inducement because it offered no nonconclusory allegations allowing a reasonable inference “that OpenAI told or encouraged” xAI’s former employees to exfiltrate its confidential information.

In response, xAI focused on the OpenAI recruitment process, claiming that:

1. OpenAI specifically targeted Li for recruitment because of his role as “a senior engineer responsible for the reinforcement learning and post training techniques for Grok 4,” which were “areas in which OpenAI was lagging”; 
2. OpenAI typically “asks candidates to deliver a presentation about a prior project” which, for engineers like Li, “typically addresses technical aspects of the project”; 
3. “OpenAI knew or should have known that asking [Li] to present on his prior work was tantamount to asking Li to discuss xAI’s reinforcement learning and post training techniques”; 
4. Li met with OpenAI’s head of research to understand Li’s professional interests to determine his “best fit” at OpenAI, and during that conversation, “Li described his work on post-training and reinforcement learning at xAI”; and 
5. as part of the recruiting process, “OpenAI scheduled Li to meet with key leaders of its post-training and reinforcement learning teams.”

The court said this wasn’t enough to survive a motion to dismiss:

In essence, xAI equates asking a candidate about their prior work experience with encouraging the candidate to divulge trade secrets obtained during that prior work experience. Without more, however, merely asking Li to discuss his previous work—a routine part of the hiring process—does not allow a plausible inference that OpenAI induced Li to reveal anything confidential or secret about that work. To hold otherwise would potentially expose employers to liability any time they inquire about a candidate’s past work.

xAI alleged when OpenAI asked Li to present on “technical aspects” of a project he worked on at xAI, it knew or should have known that Li would discuss reinforcement learning and post training techniques in his presentation.

However, said the court,

xAI does not identify any facts supporting an inference that presenting on these topics would necessitate the disclosure of trade secrets, and nothing in the SAC supports xAI’s speculation that OpenAI’s presentation request to Li included a request that his presentation cover xAI’s “proprietary methods.”

xAI also argued that OpenAI induced Li to steal xAI’s trade secrets by showing continued interest in his candidacy even after he revealed xAI trade secrets in his presentation, which “should have been a red flag against hiring him.”

However, said the court, “Showing continued interest could potentially demonstrate inducement only if OpenAI knew or should have known that Li had disclosed xAI’s trade secrets in his presentation.”

The court had noted in ruling on the previous motion to dismiss,

xAI allege[d] no facts that permit[ted] a reasonable inference that OpenAI knew that the information [disclosed in the presentation] was a trade secret, that Li had improperly acquired the information, or that Li was improperly or mistakenly disclosing the information.

In response, xAI made the following new allegations:

1. OpenAI engineers “who were focused on post-training and/or reinforcement learning” interviewed Li during his presentation;
   
2. the presentation “focused specifically on xAI’s reinforcement learning techniques” and Grok 4, and given that Grok 4’s “strong performance [had been] widely publicized,” the “interviewers would have known the value of the information that [Li] was communicating”;
   
3. the first page of the slide deck was marked “confidential material”;
   
4. because confidentiality agreements are “prevalen[t]” in the AI industry, listening to Li’s presentation should have notified the interviewers (who themselves, on information and belief, had signed similar agreements) that Li “was violating his contractual confidentiality duties to xAI”;
   
5. the slide deck included “details of xAI’s training recipes and checkpoints, the sources of problems in post-training AI models, xAI’s experience with different training recipes and which methods provided the best results, details of xAI’s experience with different training methods including specific characteristics of xAI’s internal training, details of xAI’s training for model behavior, and details of problems identified in xAI’s model training”; and
   
6. “[a]n xAI engineer confirmed that th[e] slide deck . . . disclosed multiple xAI trade secrets relating to xAI’s reinforcement learning approach vis-à-vis Grok 4.”

Still, said the court, these allegations were insufficient to support a reasonable inference that OpenAI knew or should have known that Li disclosed xAI trade secrets during his presentation because it wasn’t clear at what level of detail Li discussed xAI’s reinforcement learning techniques.

Also, said the court,

Even if xAI sufficiently alleged OpenAI’s knowledge, disclosure by Li would still not be enough to state a misappropriation claim because xAI alleges only passive receipt of trade secrets by OpenAI.

Under the federal Defend Trade Secrets Act (DTSA), misappropriation of trade secrets includes acquisition, disclosure, or use of trade secrets.

At most, said the court,

disclosure by Li could constitute only acquisition by OpenAI and not disclosure or use. Courts interpret acquisition under the DTSA to require active conduct. The mere passive receipt of trade secrets is not enough.

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