xAI v. Li Trade Secret Litigation Heats Up: Criminal Exposure and Fifth Amendment Battles

The litigation storm surrounding xAI is no longer just a civil employment dispute. In the case against its former engineer, Xuechen Li, there are now high-stakes battles implicating both the civil trade secret misappropriation claim, and the federal criminal investigation that is also taking place. 

The Fifth Amendment and the Li Case

xAI’s case against its former engineer, Xuechen Li, took a dramatic turn when it emerged that federal prosecutors were investigating him for trade secret theft. According to Li’s filings, the day before xAI filed its civil complaint, the FBI executed coordinated search warrants on his residence, his vehicle, his person, and his hotel room. Agents seized three cell phones, multiple computers, notepads, notebooks, books, bank receipts, keys, and a flash drive. Li has been formally informed that he is the subject of a federal criminal investigation.

This backdrop has shaped the discovery fight. xAI obtained a temporary restraining order on September 2 requiring Li to turn over devices, accounts, and identify all storage locations where xAI’s confidential information might be found. But Li’s lawyers argue that compliance would effectively force him to admit the possession and movement of stolen data—admissions that could be used against him in a criminal case. In their briefs, they describe xAI’s requests as “wide-ranging, broad-sweeping discovery specifically designed to provide a ‘link in the chain’ to be used by law enforcement.”

Li has therefore invoked the Fifth Amendment against many of xAI’s interrogatories and production requests, particularly those requiring him to identify devices, accounts, or people to whom xAI data may have been disclosed. He argues that responding would not just be embarrassing or inconvenient but would directly map onto the factual questions prosecutors are pursuing.

Judge Rita Lin’s September 9 order struck a middle ground: Li must appear for deposition and respond to discovery, but he may assert the Fifth Amendment on a question-by-question basis. The court also authorized xAI to begin third-party discovery “without further delay.” The preliminary injunction hearing is scheduled for December 2, 2025.

The practical reality is stark: Li faces a choice between protecting himself in the criminal action with his silence, and the civil consequences of doing so. Refuse to answer, and xAI could argue adverse inferences; answer, and the responses could feed the criminal case. For xAI, leveraging that tension is now surely part of its litigation strategy, not just against Li, but against his new employer, OpenAI.

Why the FBI Is Involved: Theft of Trade Secrets Under 18 U.S.C. § 1832

To understand the gravity of the situation, it is instructive to look at how aggressively the U.S. government prosecutes trade secret theft. These aren’t run-of-the-mill civil cases — in many instances, they are high-stakes criminal prosecutions.

• In May 2022, Dr. Xiaorong You (aka Shannon You) was sentenced to 168 months (14 years) in prison plus three years of supervised release and a $200,000 fine after a jury convicted her of conspiracy to commit trade secret theft, economic espionage, and wire fraud. Her offenses involved stealing proprietary formulations for BPA-free coatings during her work at major chemical companies.

• On December 16, 2024, Klaus Pflugbeil was sentenced to 24 months in prison after pleading guilty to conspiring to send trade secrets belonging to a U.S.–based electric vehicle company.

• In January 2022, Xiang Haitao, a Chinese national, pleaded guilty to conspiracy to commit economic espionage. His scheme involved the theft of proprietary software developed by Monsanto’s subsidiary to improve crop yields, with the intent of benefiting a foreign entity.

These prosecutions underscore how seriously federal authorities treat trade secret failures. Under § 1832, to obtain a conviction the government must prove that:

1. The defendant improperly obtained or stole the information. 
2. The defendant knew it was proprietary. 
3. The information qualified as a trade secret. 
4. The defendant intended to use it for someone other than the owner. 
5. The defendant knew the owner would be harmed. 
6. The trade secret related to a product or service in interstate or international commerce. 

Under § 1832, the sentence has the potential to be steep. Each count under § 1832 carries a maximum of 10 years in prison, along with substantial fines. That context makes it clearer why Li is fighting so hard to avoid admitting where he stored data, which devices he used, or whether information was transmitted internationally. Doing so could provide prosecutors the missing link in a criminal case against him.

The Broader xAI v. OpenAI Case

The developments in the Li case also implicate xAI’s broader lawsuit against OpenAI, which I wrote about in a previous post. That complaint alleges that OpenAI recruited Li and other employees to bring over Grok’s source code, inference systems, business strategies, and confidential data center deployment methods. If the civil case establishes that OpenAI knowingly benefited from misappropriated information, remedies could even include injunctions that affect OpenAI’s flagship products.

The Fifth Amendment issues in xAI v. Li may reverberate in the OpenAI case. If key witnesses refuse to answer discovery on criminal grounds, xAI will need to rely heavily on forensic evidence, third-party records, and circumstantial proof to connect the dots back to OpenAI. And if prosecutors bring a criminal case against Li, the effects could be dramatic: a conviction or guilty plea would essentially establish that xAI’s trade secrets were stolen, easing xAI’s burden in the civil action. It could also create reputational and regulatory pressure on OpenAI, even if the company is not a criminal defendant, by reinforcing xAI’s narrative of systematic misappropriation. Finally, evidence generated in a criminal prosecution (such as transcripts, forensic reports, or plea admissions) could provide xAI with powerful new material to use in its case against OpenAI.

In short, a criminal prosecution against Li could transform the OpenAI case. Today, xAI has to overcome Li’s Fifth Amendment silence with circumstantial evidence. If prosecutors secure a conviction or guilty plea, xAI would suddenly have a government-backed record that its trade secrets were stolen. That shifts the battleground in xAI v. OpenAI from “was there a theft?” to “what did OpenAI know, and when did it know it?”

Why It Matters

The FBI investigation into Li highlights the grim reality that in any high-stakes AI disputes, like high-stakes trade secret disputes more generally, the exposure may not just be civil liability; individuals may face criminal exposure. For xAI, the Fifth Amendment fights may delay discovery but also amplify the gravity of the underlying claims. For Li, silence may be the safest legal posture, but it comes with significant risk in the civil litigation.

And for OpenAI, the outcome of a potential prosecution against Li could be pivotal. A conviction would validate xAI’s claims of theft and shift the focus of the civil litigation away from whether xAI’s trade secrets were taken, and onto what OpenAI did with them. That reframing would dramatically strengthen xAI’s position, leaving OpenAI to defend not the existence of a theft, but its own knowledge and conduct.

As xAI presses forward against both Li and OpenAI, the fight over AI’s next frontier is playing out not just in labs and markets, but in courtrooms where the stakes include market dominance, criminal exposure, and the integrity of some of the most valuable trade secrets in the world.

Sarah Tishler is the author of this article. Sarah is a commercial litigator whose practice focuses on complex business disputes in state and federal courts, including intellectual property, breach of contract, and fraud claims. Her experience also includes regulatory investigations, international arbitration, securities litigation, shareholder litigation, class-action litigation, and pre-transactional advising.