Eliza Labs and its founder Shaw Walters are suing Elon Musk’s X, claiming the company has handed over technical details about AI tools, banned them from the platform, and launched imitation products.
The lawsuit states that X unfairly used the monopoly rights, damaging Eliza’s reputation, blocking access to customers and investors, and profiting from Eliza’s innovations. Rather than naming the dollar figures, Eliza Labs asks the court to return “unfair profits” to X, pay Eliza’s losses, and add treble damages and punitive damages.
Eliza Labs is the company behind Elizaos, an open source framework for building autonomous AI agents that can interact and execute tasks across blockchain networks.
The complaint filed Wednesday in the U.S. District Court for the Northern District of California alleged that Eliza was invited, mined for information and eventually pushed aside.
The lawsuit alleges that in early 2025, X invited Walters to meet after Eliza’s open source tools gained traction with the developers. The platform allows users to build autonomous AI agents and 3D avatars through real-time chat, voice, video and phone integration.
Shortly afterwards, X reportedly requested an enterprise license of $50,000 per month to continue operating on the platform before suspending its Eliza Labs and Walters accounts for breach of X’s Terms of Use. The internal message cited in the complaint shows X Executive warning that Eliza Labs has caused legal action for API circumvention, unverified government customers, and unapproved use cases. Eliza Labs claimed that X offered to suspend the process in exchange for further consultations.
Although the account remained inactive, Walters continued to demand technical documentation under the guise of X solving the problem, launching a nearly identical AI agent under the Xai brand.
The lawsuit breaks new ground in the AI space, but faces long odds, according to legal expert Kelly Lawton-Abbott, a partner at law firm SSM.
“There are not many cases of anti-competitive behavior in the AI space,” Lawton-Abbott said. Decryption. “Eliza is an open source software platform, so it doesn’t have the same protection as its proprietary software.”
According to Lawton-Abbott, the burden of proof in federal antitrust claims is high. “For the antitrust, that’s a pretty high standard,” she said. “I think it’s going to be difficult for them to succeed.”
Still, Lawton-Abbott said the lawsuit may be more about leverage than the lawsuit. “You don’t think this will move forward,” she said. “I think it will probably be used for settlement.”
Lawton-Abbott also acknowledged the dynamics of fundamental power between businesses.
The lawsuit claimed that X never responded to Eliza Labs’ request to restore the account, and instead launched its own AI agent with similar capabilities. In July, Xai, the artificial intelligence division of X, launched a new feature in the Grok Chatbot app, “Companions.” The release included Ani, a Gothic anime style avatar that greets users on “Hey Babe!” And Rudy, a red panda wearing a hoodie for a more playful interaction.
X Corp. has not publicly responded to complaints. But its AI tool, Grok, was optimistic about Eliza’s victory in court.
“There’s an interesting hook in this case, but it’s facing an uphill battle, especially against platforms like the X, with deep pockets and precedent defenses,” he said. “Overall, this has odds of 40-50% of fire. FRAUD/UCL’s claims are more sticky than antitrust laws and often fail against high-tech giants.”
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