X.AI Corp. v. OpenAI—Why Every Business (and Start-Up) Needs an Employee Governance Policy for Managing Confidential Business Information and IP Risk

A string of recent high-profile disputes, involving xAI suing both ChatGPT owner (OpenAI)¹ and a former xAI engineer², shows how quickly job transitions can escalate into trade-secret crises for all parties involved. When the engineer attempted to join OpenAI, xAI alleged he had retained confidential information relating to its Grok generative-AI platform. In September, xAI won a court order temporarily blocking the engineer from working on or communicating about AI technologies with OpenAI.

This case underscores how easily the line between “general experience” and “protected proprietary knowledge” can blur during these job transitions. As discussed here, a clear confidential information and intellectual property (CI&IP) governance policy helps define that line and can provide the structure needed to prevent these situations before they arise.

What is a CI&IP Employee Governance Policy?

In a nutshell, a CI&IP policy gives businesses a clear framework for handling their own confidential information and IP, as well as equally importantly, any third-party information and IP they receive. More generally, these policies are designed to:

• prevent unauthorized disclosure of a business' confidential information, know-how, data and technology
• set rules for handling third-party confidential information and IP so the business does not inadvertently breach someone else’s rights or its third-party contractual obligations; and
• maintain clear ownership rights over innovations, branding, copyrights, and other IP developed within the organization.

It is important that these policies work hand-in-hand with other related internal organizational policies, along with strong employment agreement IP/confidentiality clauses.

Why Draft a CI&IP Policy—Managing Risk

A clear CI&IP policy reinforces the business across three key risk areas:

• Managing "Trade Secret" Misappropriation Disputes: Many trade secret claims fail because the plaintiff cannot define its "confidential information", or show it was treated as secret. In Lac Minerals Ltd. v. International Corona Resources Ltd.³, the Supreme Court of Canada made clear that in breach of confidence disputes, a court should examine whether the information truly was confidential and whether the business took reasonable steps to protect it. A CI&IP policy therefore strengthens this position by establishing an internal process for documenting what the company considers confidential and showing that it was consistently handled and protected.
• Compliance With Third-Party Contractual Obligations: A strong CI&IP policy also provides clear guidance for handling external third-party confidential information and IP. This reduces the risk of misuse in collaborations and partnerships and lowers the likelihood of contractual disputes with external parties.
• Confirming Ownership of Confidential Information / IP: These policies further establish how the company tracks, assigns, and owns the confidential information and IP its employees generate. In turn, this reduces internal disagreements and strengthens the company’s position in both enforcement and defense.

Bottom Line

Every business, from early-stage start-ups to established companies, depends on its confidential business information and IP to stay competitive. A clear and well-implemented CI&IP policy is one of the most effective ways to avoid costly mistakes, and protect key assets.

If your organization needs assistance preparing or updating a CI&IP policy, our team can help.