Eliza Labs Sues X, Accuses Elon Musk’s Platform of Copying AI and Cutting Them Off

Eliza Labs and its founder, Shaw Walters, are suing Elon Musk’s X, claiming the company tricked them into handing over technical details about their AI tools, then banned them from the platform and launched copycat products.

The lawsuit says X unfairly used its monopoly power, damaged Eliza’s reputation, blocked its access to customers and investors, and profited from Eliza’s innovations. Eliza Labs isn’t naming a dollar figure, but is asking the court to make X return its “ill-gotten gains,” pay for Eliza’s losses, and add treble damages and punitive damages on top.

Eliza Labs is the company behind ElizaOS, an open-source framework for building autonomous AI agents that can interact and perform tasks across blockchain networks.

The complaint, filed Wednesday in the U.S. District Court for the Northern District of California, claimed Eliza was invited in, mined for information, and ultimately pushed aside—with its own framework allegedly repurposed for X’s competing AI product, Grok.

The lawsuit claims that in early 2025, X invited Walters to meet after Eliza’s open-source tools gained traction with developers. The platform lets users build autonomous AI agents and 3D avatars with real-time chat, voice, video, and phone integration.

Soon after, X allegedly demanded a $50,000-per-month enterprise license to continue operating on the platform, before suspending Eliza Labs and Walters’ accounts for violating X’s terms and conditions. Internal messages cited in the complaint show an X executive warning that Eliza Labs had triggered legal action for API circumvention, unverified government customers, and unapproved use cases. Eliza Labs claimed that X then offered to pause that process in exchange for further talks.

While the accounts remained inactive, Walters says X continued requesting technical documentation under the guise of resolving the issue—then launched nearly identical AI agents under its xAI brand.

According to legal expert Kelly Lawton-Abbott, partner at law firm SSM, the lawsuit breaks new ground in the AI space—but faces long odds.

“There aren’t many cases in the AI space on anticompetitive behavior,” Lawton-Abbott told Decrypt. “Because Eliza is an open-source software platform, they don’t have the same protection of their software that they would have if it were proprietary.”

According to Lawton-Abbott, the burden of proof in federal antitrust claims is high. “For antitrust, it’s a pretty high standard,” she said. “I think that’s going to be a hard one for them to succeed on.”

Still, Lawton-Abbott said the lawsuit may be more about leverage than litigation. “I wouldn’t expect this to move forward,” she said. “I think it’s probably going to be leverage for a settlement.”

Lawton-Abbott also acknowledged the underlying power dynamic between the companies.

The suit claims X never responded to Eliza Labs’ request to have its accounts reinstated, and instead launched its own AI agents with similar features. In July, X’s artificial intelligence division, xAI, rolled out “Companions,” a new feature in the Grok chatbot app. The launch included Ani, a gothic anime-style avatar that greets users with “Hey babe!” and Rudy, a hoodie-wearing red panda for more playful interactions.

X Corp. has not publicly responded to the complaint. However, its AI tool, Grok, was sanguine about Eliza prevailing in court.

“This case has intriguing hooks but faces uphill battles, especially against a platform like X with deep pockets and precedent-favoring defenses.” It said. “Overall, this has 40-50% odds of surviving dismissal—fraud/UCL claims are stickier than antitrust, which often fails against tech giants.”