Following recent successes in a social media addiction lawsuit filed by Colorado, New Jersey and Kentucky against Facebook that resulted in a $16.7 billion settlement, 8 states have now sued OpenAI based on theories of alleged harms to both children and adults using ChatGPT.
The 8 states each filed their suits in their own states but announced them together (links to each Complaint):
They join the existing lawsuits against OpenAI filed by other states:
By my unofficial count, OpenAI faces around 80 tort and state AG lawsuits in the United States.
That is on top of the 29 copyright lawsuits, including proposed class-actions:
why bankruptcy is now on the table for openai
No lawyer looking at these 3 maps — and the potential amount of legal liability OpenAI can face even from one or two lawsuits alone — would ignore considering how OpenAI filing for bankruptcy would play out. A spin-off unit of Johnson & Johnson filed for bankruptcy to navigate the legal liabilities it faced from damages awards in baby powder lawsuits in the amount ranging from $1 billion to $10 billion, for example. Johnson & Johnson agreed to a settlement of up to $5.5 billion. As discussed below, the amount of potential damages OpenAI faces could be much higher should it lose one or more of the 100+ lawsuits.
Some analysts have already predicted that OpenAI will face a funding crisis by 2027 — and these assessments did not include the potential liability OpenAI could face from one or more of these 100 lawsuits. (See also Noah Smith’s recent analysis of the huge financial debt AI hyperscalers are taking on. Add in Treasury Security Bessent’s comment that there will be “no liability shield” for safety risks posed by AI.)
That funding crisis would be peanuts compared to the funding crisis that would arise if OpenAI faced a massive damages award in one or more of the 100+ lawsuits it now faces. For example, in the copyright lawsuit filed by New York Times, the NYT’s complaint states that it owns more than 10 million registered works. Should the NYT prevail in its lawsuit, the amount of statutory damages from this one case could be ginormous depending on the precise number of works found to be involved.
To see what these numbers might look like, take a look at the numbers we ran before Anthropic settled the Bartz lawsuit. For example, the maximum amount possible for 6 million works would be $900 billion in statutory damages. The NYT has alleged it owns registered copyrights to 10 million works, although it’s unclear how many are alleged to be infringed. Plus, the New York Times is seeking the destruction of OpenAI’s models that were trained on any NYT article. So, even if OpenAI prevailed in all of the other 100+ lawsuits, this one lawsuit could be enough to raise bankruptcy considerations.
Bankruptcy would potentially enable OpenAI to discharge some of its existing debts, including in the form of lawsuits’ damages awards unless they involve “willful and malicious injury” under Section 523(a)(6) of the Bankruptcy Code (“for willful and malicious injury by the debtor to another entity or to the property of another entity”).
If it ever comes to this issue of potential bankruptcy, OpenAI would be in pretty dire straits.
And, even if OpenAI has strong defenses and decent chances of prevailing in these lawsuits, the sheer number of lawsuits makes it harder and harder to imagine that OpenAI can run the entire table of lawsuits and prevail outright in all of them.
If it ever comes to this issue of potential bankruptcy, OpenAI would be in pretty dire straits.
And, even if OpenAI has strong defenses and chances of prevailing in these lawsuits, the sheer number of lawsuits makes it harder and harder to imagine that OpenAI can run the entire table of lawsuits and prevail outright in all of them.
for what it’s worth, chatGPT agrees
Here’s ChatGPT’s take on the legal risk OpenAI faces:
“Yes. It would be prudent for OpenAI to have bankruptcy and restructuring specialists ready as a contingency, without that implying bankruptcy is imminent.
“For a company facing potentially large litigation exposure, substantial infrastructure commitments, and significant future funding needs, contingency planning is ordinary risk management. The decision is not necessarily whether to file for bankruptcy, but whether to prepare for a scenario in which legal liabilities or financing conditions deteriorate faster than expected.
“I would distinguish three levels of preparation:
- Routine contingency planning: Have restructuring counsel assess risks, contractual obligations, creditor rights, and potential liquidity scenarios.
- Heightened preparation: Develop detailed restructuring options if adverse judgments, funding difficulties, or major settlements become more plausible.
- Active bankruptcy preparation: Prepare formal insolvency proceedings if the company faces a credible inability to meet obligations as they fall due.
“The first level can be sensible even for a financially healthy company. The third requires a much more concrete financial trigger.”
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