Poaching Isn’t Piracy: What XAI v. OpenAI Teaches About DTSA Claims Against Competitors

When does hiring a rival’s employees turn into a federal case for violation of the Defend Trade Secrets Act (DTSA)? A pair of recent rulings dismissing xAI’s trade secret claims against OpenAI answer that question by focusing on the new employer’s conduct — whether OpenAI wrongfully induced the theft of trade secrets or knowingly benefited from wrongfully obtained trade secrets — not whether the departing individuals harmed their old employer.  

In xAI Corp. v. Open AI Inc., xAI alleged significant misconduct by employees who departed for OpenAI, including allegations that employees downloaded source code and troves of other confidential information before leaving the company. Despite those troubling allegations, the Northern District of California — the federal district court that covers San Francisco and Silicon Valley — twice dismissed xAI’s claims against OpenAI.¹

The opinions highlight an important distinction that often arises in employee mobility cases: Allegations that former employees improperly took confidential information do not, standing alone, establish trade secret liability for their new employer.²

1 xAI's allegations

OpenAI and xAI are fierce rivals in the generative AI market, each having released competing AI chatbots: ChatGPT and Grok. xAI alleged that OpenAI sought to compete by actively recruiting xAI employees working on leading-edge technology.³  It alleged that numerous former employees downloaded source code and other highly sensitive information onto personal devices before departing for OpenAI. In particular, xAI alleged that a former engineer uploaded its entire source code to a personal cloud account connected to ChatGPT, moved confidential information to his personal laptop, and then deleted system logs to cover his tracks. It further alleged that, as part of its hiring process, OpenAI asked the engineer to present on “technical aspects” of a project he worked on at xAI — specifically an area where Grok had been outperforming ChatGPT — and that another xAI engineer confirmed the presentation disclosed multiple xAI trade secrets.⁴

2 Why the DTSA claims against OpenAI failed

The court dismissed xAI’s claims, emphasizing that alleged misconduct by former xAI employees does not alone state a claim against OpenAI as their new employer.⁵

No plausible allegation that OpenAI induced misappropriation

A central theme of the court’s decisions was the absence of factual allegations that would show that OpenAI encouraged employees to take trade secrets from xAI.

The court found that allegations concerning recruiting efforts, communications with prospective employees and the timing of employee departures do not plausibly suggest that OpenAI directed or encouraged the removal of confidential information. The court stressed that even hiring multiple employees from a competitor does not alone support an inference that the hiring company induced trade secret theft.⁶

The court likewise found insufficient allegations that the former xAI engineer made a “technical presentation” as part of OpenAI’s hiring process. It reasoned that asking a candidate to discuss prior work experience or even to discuss technical aspects of that work during the interview process is a routine hiring practice. Without additional allegations showing that OpenAI specifically sought the disclosure of trade secrets, the court concluded that the presentation did not support a plausible inference of inducement either.⁷

The court contrasted these allegations with cases where inducement had been sufficiently alleged — for example, a case where a defendant conditioned co-founder status on a new hire’s retention of proprietary materials or another case where a defendant entered into an agreement specifically to obtain confidential information. xAI offered no comparable allegations.⁸

No active acquisition of trade secrets

Although the DTSA imposes liability for, among other things, the “acquisition” of trade secrets, the court joined other courts in holding that acquisition in this context “require[s] active conduct.”⁹  The court quoted Silvaco Data Systems v. Intel Corp. for the proposition that “[o]ne does not ordinarily ‘acquire’ a thing inadvertently; the term implies conduct directed to that objective,”¹⁰ and observed that “were passive receipt enough, that would run dangerously close to imposing liability for the mere possession of trade secrets,” a result courts have consistently rejected.¹¹ Accordingly, even if the former employee disclosed trade secret information during OpenAI’s hiring process (an issue that the court did not decide), that disclosure alone would not be sufficient absent active conduct by OpenAI to induce that disclosure because “mere passive receipt of trade secrets is not enough.”¹²

No plausible allegation that OpenAI knew it was receiving trade secrets

The court also found that xAI failed to adequately plead OpenAI’s knowledge. Under the DTSA, it is not enough to allege that information was disclosed; a plaintiff must plausibly allege that the defendant knew or had reason to know that the information constituted trade secrets and was being disclosed improperly.¹³

Although xAI pled that the slide deck for the “technical presentation” was marked “confidential,” the court found that was not enough to plausibly allege that OpenAI knew that it was receiving trade secrets. The court reasoned that xAI had not alleged that the engineer actually displayed the slide deck during his presentation, as opposed to using it as notes for a verbal presentation. And even assuming the label was visible, the court observed that the word “confidential” could plausibly have referred to the engineer’s nondisclosure agreement with OpenAI — i.e., a promise to keep the recruitment process confidential — rather than to xAI’s proprietary information. Finally, even if the label referred to xAI, not all confidential information amounts to a trade secret. Because there were plausibly innocent explanations at each step of the inferential chain, the court concluded that xAI failed to allege that OpenAI knew that it was receiving trade secrets as part of the presentation.¹⁴

No plausible allegation that OpenAI used any trade secrets

The court also rejected vicarious liability under a respondeat superior theory — xAI had argued that OpenAI should be held liable for the misconduct of the employees it hired. The court held that to succeed on that theory in a trade secret case, a plaintiff must plausibly allege that “the future employer subsequently used the trade secrets or the wrongdoer used the trade secrets once he actually became employed.”¹⁵

The court found that xAI failed to plead sufficient facts on that theory too. It stressed that mere exfiltration, without more, does not support an inference of actual use. Allowing exfiltration alone to establish use, the court warned, “would automatically subject future employers to potential trade secret misappropriation liability every time they hired someone who, without their knowledge beforehand or ratification afterwards, had improperly taken confidential information from their former employer on the way out the door.”¹⁶

The court contrasted xAI’s allegations with cases where use had been sufficiently alleged — for example, a case where the defendants released competing products performing identically to the plaintiff’s software or another case where defendants rapidly launched products containing functionality similar to allegedly stolen source code. It found that xAI made no similar allegations here.¹⁷

3 Key Takeaways

The xAI case offers several practical lessons for companies considering hiring employees from a competitor or pursuing a DTSA lawsuit against one.

• Routine recruiting activities generally will not create liability, even if the recruited employees act wrongfully toward their former employer. Hiring employees from a competitor, communicating with candidates or requesting presentations about prior work are not, without more, enough to establish inducement. To state a claim, plaintiffs must allege specific facts showing that the defendant company directed, encouraged or participated in the alleged employee misconduct.
• Active conduct is required for acquisition liability. Even where a defendant does not solicit employee misconduct, it may still face liability if it actively directed its conduct toward obtaining trade secret information. Passive receipt or inadvertent possession is insufficient as a matter of law.
• Compliance and remediation matter. The DTSA requires plaintiffs to allege that a defendant knew — or had reason to know — that it possessed wrongfully obtained trade secrets. But that is not an invitation to bury one’s head in the sand, because courts often equate willful blindness — i.e., conscious and deliberate avoidance of facts — with actual knowledge. Companies should carefully question new hires about any information brought onto their networks and invest in systems to detect and segregate improperly obtained information.

Taken together, the decisions provide a useful guide to the types of allegations courts may require before allowing a DTSA claim against a competitor to proceed past the pleading stage.

Footnotes

1 The court initially dismissed xAI’s claims without prejudice and provided xAI with leave to amend. xAI Corp. v. OpenAI Inc., 821 F. Supp. 3d 1100 (N.D. Cal. 2026) (Feb. 24 Order). Roughly four months later, it dismissed with prejudice after concluding that the amended complaint suffered from essentially the same pleading defects. xAI Corp. v. OpenAI Inc., 2026 WL 1718645 (N.D. Cal. June 15, 2026) (June 15 Order). Although the court dismissed xAI’s claims against OpenAI, it acknowledged that “xAI may state misappropriation claims against a couple of its former employees.” Feb. 24 Order, 821 F. Supp. 3d at 1103. xAI did sue one of its former engineers and obtained a temporary restraining order prohibiting him “from having any role or responsibility at OpenAI ... until xAI has confirmed that all of xAI’s Confidential Information in [the engineer’s] possession, custody, or control has been deleted.” Feb. 24 Order, 821 F. Supp. 3d at 1105; see also xAI Corp. v. Li, No. 3:25-cv-07292-RFL (N.D. Cal. filed Aug. 28, 2025). “OpenAI then revoked [the engineer’s] job offer.” Feb. 24 Order, 821 F. Supp. 3d at 1105.

2 The Feb. 24 Order also dismissed xAI’s claim under California’s Unfair Competition Law (UCL) because the California Uniform Trade Secrets Act preempts other civil claims based on the same facts as an alleged trade secret misappropriation. Both the unlawful and unfair prongs of xAI’s UCL claim rested on the same conduct underlying the DTSA claim and therefore could not proceed independently. Feb. 24 Order, 821 F. Supp. 3d at 1112. xAI did not re-allege the UCL claim in its second amended complaint. June 15 Order, 2026 WL 1718645, at *1 n.1.

3 Feb. 24 Order, 821 F. Supp. 3d at 1104-06.

4 June 15 Order, 2026 WL 1718645, at *1-2.

5 Feb. 24 Order, 821 F. Supp. 3d at 1103-04, 1107-09; June 15 Order, 2026 WL 1718645, at *1-3.

6 Feb. 24 Order, 821 F. Supp. 3d at 1107-08.

7 June 15 Order, 2026 WL 1718645, at *1-2.

8 See Citcon USA, LLC v. RiverPay Inc., 2019 WL 917056, at *4-5 (N.D. Cal. Feb. 25, 2019) (allegations that defendant conditioned cofounder status on retention of plaintiff’s point-of-sale device); Elko, Inc. v. WTH Commercial Services, LLC, 2023 WL 6141623, at *5 (D. Nev. Sept. 20, 2023) (allegations that defendant entered an agreement to obtain confidential information and used it to target plaintiff’s customers); discussed in Feb. 24 Order, 821 F. Supp. 3d at 1108.

9 June 15 Order, 2026 WL 1718645, at *3.

10 Id. (quoting Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210, 223 (2010)).

11 Id.; see also Feb. 24 Order, 821 F. Supp. 3d at 1110.

12 June 15 Order, 2026 WL 1718645, at *3.

13 Feb. 24 Order, 821 F. Supp. 3d at 1108-09; June 15 Order, 2026 WL 1718645, at *2-3.

14 June 15 Order, 2026 WL 1718645, at *2-3.

15 Feb. 24 Order, 821 F. Supp. 3d at 1109 (quoting Alert Enter., Inc. v. Rana, 2023 WL 2541353, at *3 (N.D. Cal. Mar. 16, 2023); accord Flexport, Inc. v. Freightmate AI, Inc., 2025 WL 2399666, at *4 (N.D. Cal. July 10, 2025)).

16 Feb. 24 Order, 821 F. Supp. 3d at 1109-10.

17 Feb. 24 Order, 821 F. Supp. 3d at 1111 (discussing Autodesk, Inc. v. ZWCAD Software Co., Ltd., 2015 WL 2265479, at *1 (N.D. Cal. May 13, 2015); Yeiser Res. & Dev. LLC v. Teknor Apex Co., 281 F. Supp. 3d 1021, 1048 (S.D. Cal. 2017); 3D Sys., Inc. v. Wynne, 2022 WL 21697345, at *4 (S.D. Cal. Mar. 9, 2022); Flexport, 2025 WL 2399666, at *4).

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