Inside Elon Musk's suit against Apple and OpenAI: 'This is a tale of two monopolists'

Elon Musk followed through on Monday with a warning to sue Apple (AAPL) and OpenAI (OPAI.PVT) over their agreement to integrate OpenAI’s chatbot into Apple’s operating systems and prioritize the chatbot in its app store.

In a lawsuit filed in the Texas federal district court, Musk’s artificial intelligence startup, xAI (XAAI.PVT), and his social media platform, X, alleged that the partnership between the iPhone maker and rival AI developer, OpenAI, violates laws against unfair competition.

“This is a tale of two monopolists joining forces,” Musk’s companies alleged in the complaint, saying that Apple and OpenAI had “locked up” their respective monopolies in the smartphone market — and the market for generative AI-powered chatbots.

Apple couldn’t immediately be reached for comment. OpenAI said, “This latest filing is consistent with Mr Musk’s ongoing pattern of harassment.”

According to the lawsuit, OpenAI controls at least 80% of the market for AI-powered chatbots. Apple, it claimed, holds a 65% share in the market for smartphones.

The lawsuit alleges unfair competition and multiple violations of Section 1 and Section 2 of the Sherman Act, including monopolization, attempted monopolization, and conspiracy to monopolize the respective markets. It also alleges violations of Texas state competition law.

In June, during Apple’s Worldwide Developers Conference (WWDC), Apple announced that OpenAI had agreed to make its AI-powered chatbot, ChatGPT, exclusive to Apple devices on iOS, iPadOS, and macOS. ChatGPT’s integration is intended to enhance features that Apple offers through its voice command system, Siri, and its systemwide writing tools.

“This means that if iPhone users want to use a generative AI chatbot for key tasks on their devices, they have no choice but to use ChatGPT,” the lawsuit claims, even if the user would prefer to use chatbots such as xAI’s Grok.

The lawsuit acknowledges that iPhone users can access generative AI chatbots other than ChatGPT by using their phone’s web browser or by downloading a competing generative AI chatbot’s app. However, the plaintiffs argue that those alternate options fail to offer the same level of usability and access to user prompts as ChatGPT’s first-party integration.

The complaint claims that Apple colluded with OpenAI to make ChatGPT exclusive to its products in a belated attempt to hold on to its smartphone market monopoly. That monopoly, it claims, is under threat from AI innovations, like AI-powered “super apps” meant to work across mobile devices.

“Super apps, like those being developed by X and xAI, stand ready to upend the smartphone market and Apple’s entrenched monopoly in it,” the lawsuit states. “As Apple now recognizes, AI poses an existential threat to its business.”

Musk’s companies contend that the partnership is also anticompetitive because generative AI chatbots like ChatGPT and Grok require continuous feedback loops in order to improve. With ChatGPT as Apple’s exclusive provider, it can benefit from Apple’s billions of user prompts that its iPhone users generate.

“More users beget more prompts, and more prompts offer more opportunities to train the model, whose better features then attract even more users,” the complaint states.

The suit reiterates Musk’s claim earlier in August that Apple was unfairly promoting ChatGPT in its App Store.

“If not for its exclusive deal with OpenAI, Apple would have no reason to refrain from more prominently featuring the X app and the Grok app in its App Store,” the suit said.

The lawsuit references Apple’s exclusive provider arrangements with Google (GOOG, GOOGL), which are at the heart of the US Justice Department’s pending antitrust case against Google’s search engine monopoly. The case, which Google lost last year, heavily turned on Google’s exclusive contracts with Apple and other mobile device manufactures and browsers that positioned Google’s search engine as the default search provider.

In a landmark decision by the federal district court for the District of Columbia, the judge overseeing the case ruled that Google used the default placement agreements to illegally dominate the search engine market, in violation of federal antitrust law.

X and xAI are asking for a judge to permanently block Apple and OpenAI from carrying out the arrangement and for the companies to pay an unspecified amount in damages.

Yahoo Finance’s Daniel Howley contributed to this report.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.

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