Scale AI Sues Rival Mercor Over Alleged Trade Secret Theft

Scale AI is suing a former employee and rival Mercor, alleging they tried to steal its biggest customers | TechCrunch

Scale AI, which helps tech companies prepare data to train their AI models, filed a lawsuit against one of its former sales employees and its rival Mercor on Wednesday. The suit claims the employee, who was hired by Mercor, "stole more than 100 confidential documents concerning Scale's customer strategies and other proprietary information," according to a copy seen by TechCrunch. Scale is suing Mercor for misappropriation of trade secrets and is suing the former employee, Eugene Ling, for breach of contract. The suit also claims the employee was trying to pitch Mercor to one of Scale's largest customers before he officially left his former job. The suit calls this company "Customer A." Mercor co-founder Surya Midha denies that his company used any data from Scale, although he admits that Ling may have been in possession of some. "While Mercor has hired many people who departed Scale, we have no interest in any of Scale's trade secrets and in fact are intentionally running our business in a different way. Eugene informed us that he had old documents in a personal Google Drive, which we have never accessed and are now investigating," Midha told TechCrunch in an emailed statement. "We reached out to Scale six days ago offering to have Eugene destroy the files or reach a different resolution, and we are now awaiting their response," Midha said. Scale alleges that these documents contained the specific data that would allow Mercor to serve Customer A, as well as several other of Scale's most important clients. Scale wanted Mercor to give it a full list of the files in the drive, and to prevent Ling from working with Customer A. It alleges in the suit that Mercor refused. Ling did not immediately respond to TechCrunch's request for comment. There are scant clues in the suit about the identity of Customer A. The suit does say that if Scale's rival did win this customer away, it would be a contract "worth millions of dollars to Mercor." Whatever the details of this suit, it does show one thing: Scale is clearly concerned enough about the threat of Mercor to pursue legal action. As TechCrunch previously reported, even with Meta's multibillion-dollar investment into Scale, TBD Labs -- the core unit within Meta tasked with building AI superintelligence - is still using Mercor and other LLM data training service providers. Mercor is rising in the LLM training arena because it is known for hiring content specialists, often PhDs, to train LLM data in their areas of expertise. In June, Scale announced that Meta was investing $14.3 billion for a 49% stake in Scale and was hiring away its founder. Shortly after that, several of Scale AI's largest data customers, who are competitors to Meta's efforts, reportedly cut ties with it.

Elon Musk, AI Startups, and The Case of The Allegedly Missing Trade Secrets

A second lawsuit filed by an artificial intelligence company alleging a former employee stole trade secrets has been filed in California, just days after Elon Musk's xAI alleged it had recently experienced corporate espionage. In this case, Scale AI, a leading AI data-labeling firm, sued competitor Mercor Inc. in federal court Wednesday, accusing the startup and a former employee of misappropriating trade secrets to win new business. Scale is valued at approximately $29 billion following a massive $15 billion Meta investment. The lawsuit, filed in the U.S. District Court for the Northern District of California, targets Eugene Ling, Scale’s former head of engagement management, and his new employer, Mercor. The case is Scale AI Inc. v. Mercor.io Corporation, 25-cv-07402. In its court filing, Scale alleges Ling downloaded over 100 confidential documents, including proprietary customer strategy materials and product information, to a personal Google Drive while still employed at the company and after meeting with Mercor’s CEO. According to the complaint, Ling then contacted one of Scale’s top clients, referred to as “Customer A,†on behalf of Mercor while still at Scale, even arranging calls to pitch Mercor's services. The lawsuit claims this effort was an attempt to steal business worth “millions of dollars." Attempts to reach Ling's attorney were unsuccessful. But on his social media, Ling posted that he “never used†any of the Scale files and is “still waiting for guidance on how to resolve this.†“I just wanted to say that there truly was no nefarious intent here,†he wrote. “I’m really sorry to my new team at Mercor for having to deal with this.†Mercor co-founder Surya Midha denied any misuse of Scale’s intellectual property, stating that while several former Scale employees have joined Mercor, the two firms operate under “intentionally different†strategies. He added that Mercor is investigating the matter and had offered to have Ling delete any documents in his possession. “While Mercor has hired many people who departed Scale, we have no interest in any of Scale’s trade secrets and in fact are intentionally running our business in a different way,†Midha said in a statement. “Eugene informed us that he had old documents in a personal Google Drive, which we have never accessed and are now investigating," it reads. "We reached out to Scale six days ago offering to have Eugene destroy the files or reach a different resolution, and we are now awaiting their response.†Scale, in turn, argues that ordering Ling to destroy the files would eliminate crucial evidence. The company is seeking damages, legal fees, an injunction barring Mercor from using the stolen material, and the return of all misappropriated documents. Scale’s legal move is another headache for a turbulent period for the company, which has recently experienced Meta’s massive investment, the hiring of Scale’s CEO Alexandr Wang by Meta, and a 14% workforce reduction. The case underscores the fiercely competitive nature of the AI space, where intellectual propertyâ€"particularly data strategy and customer relationshipsâ€"is the key to market dominance. The situation mirrors another recent trade secret lawsuit, when Elon Musk’s xAI sued a former engineer for allegedly stealing confidential information on his way to a rival. In that case, Musk's company is alleging Zhihao “Zack†Li stole confidential files tied to the development of Grok, the company’s chatbot, before departing for rival OpenAI. The complaint, filed in California state court, accuses Li, who joined xAI last year as an engineer, of copying proprietary materials in July 2025 shortly after agreeing to take a job at OpenAI. Court filings say Li also sold $7 million worth of vested xAI stock ahead of his departure. According to the lawsuit, Li admitted during an internal meeting on Aug. 14 that he had taken sensitive documents, though xAI alleges he attempted to “cover his tracks†by deleting files. Forensic checks later uncovered additional materials still stored on his devices, the company alleges. Musk’s startup argues that the stolen information could allow OpenAI to enhance ChatGPT with what it describes as xAI’s “more innovative AI and imaginative features.†That case is xAI Corp v. Xuechen Li, U.S. District Court, Northern District of California, No. 3:25-cv-07292-RFL For investors and the AI industry in general, the lawsuit highlights two key risks. Firstly, the theft of highly complex and coveted intellectual property, or even the appearance of it, can rapidly alter competitive positioning in a market where trust and proprietary data are currency. Secondly, it signals that AI startups may increasingly turn to legal avenues to enforce boundaries and protect their turf. As AI becomes a part of so much of the technology we see and use all the time, the companies that make it are going to become even more fiercely protective of their products and brands. The value of proprietary data and client relationships makes legal protection, and the precedents set through lawsuits like this, the next frontier for companies looking to safeguard their tools and reputations. “Scale has become the industry leader on the strength of our ideas, innovation, and execution,†Joe Osborne, a spokesperson for Scale, said in a statement. “We won’t allow anyone to take unlawful shortcuts at the expense of our business.â€

Scale AI sues rival "unicorn" Mercor for allegedly stealing trade secrets

Why it matters: Data labeling is unheralded work that underpins generative AI models. Zoom in: Scale's complaint focuses on a former executive named Eugene Ling, who last month joined Mercor. Ling also is named as a defendant. * It alleges that Ling downloaded more than 100 confidential documents, including strategies about a large customer, and shared them with his new employer. * Per the complaint, filed in California: "As a small and new competitor vying for a share of the market, Mercor sought to bypass the time and investment required to develop its own business strategies by illicitly acquiring those of Scale, the industry leader." * Scale also claims that it contacted Mercor about the documents, after which Mercor's lawyer "conceded" that they remain on Ling's personal Google Drive and that Ling is working on the large customer's account. By the numbers: Scale currently is valued at around $29 billion, per a recent deal whereby Meta invested $15 billion for a 49% position. That agreement also included several Scale employees joining Meta, including CEO Alexandr Wang. * Other Scale investors include Accel, Spark Capital, Thrive Capital, and investments arms of Amazon, Nvidia, and Cisco. * Mercor was valued at $2 billion upon raising new money this past February from such investors as Felicis, General Catalyst, Benchmark, Sequoia Capital, and Menlo Ventures. What Scale is saying, via spokesperson Joe Osborne: "We won't allow anyone to take unlawful shortcuts at the expense of our business." What Mercor is saying, via co-founder Surya Midha: "While Mercor has hired many people who departed Scale, we have no interest in any of Scale's trade secrets and in fact are intentionally running our business in a different way. Eugene informed us that he had old documents in a personal Google Drive, which we have never accessed and are now investigating. We reached out to Scale six days ago offering to have Eugene destroy the files or reach a different resolution, and we are now awaiting their response."

Scale AI Files Lawsuit Against Rival Startup Mercor for Stealing Confidential Documents

"We won't allow anyone to take unlawful shortcuts at the expense of our business." Scale AI, an AI data-labelling company, has filed a lawsuit in the US District Court, Northern District of California, against rival startup Mercor and a former Scale AI executive, Eugene Ling. According to reports, the complaint alleges that Ling misappropriated over 100 confidential documents, many of which detailed key customer strategies, by transferring them to his personal Google Drive shortly after meetings with Mercor leadership. Mercor, however, denies using any of Scale's proprietary information. Co‑founder Surya Midha acknowledged that Ling had access to some documents stored on his personal drive, which Mercor claims they did not access. Mercor offered to have Ling destroy the files or reach an alternative resolution, but Scale responded that such an actio

Scale AI Is Accusing Rival Mercor of Stealing 'Trade Secrets' in New Lawsuit

On Wednesday, a new front in the battle for data labeling supremacy opened when Scale AI sued rival Mercor, alleging it obtained trade secrets through a former executive. In the complaint, filed Wednesday in Northern California District Court, Scale accuses a former employee, Eugene Ling, of purloining internal documents that contained "trade secrets and propriety information," and bringing them to Mercor, his current employer. The suit alleges: "In the weeks leading up to his departure, Mr. Ling stole more than 100 confidential documents concerning Scale's customer strategies and other proprietary information." Scale AI provides data labeling services, which involves using contract laborers to train Large Language Models before the models are commercially deployed. Without quality data, major generative AI tools such as chatbots wouldn't provide accurate information. Scale is a major player in the space, valued at $29 billion after Meta acquired a 49 percent stake in the company through a $14 billion investment in June. Mercor, an AI-based talent engine and hiring platform, was founded in 2023 by former Thiel fellows Brendan Foody, Adarsh Hiremath, and Surya Midha. More recently, the company has expanded into data labeling, positioning itself as a key rival to Scale. It's backed by a range of prominent venture capitalists including Peter Thiel and Jack Dorsey. Currently valued at $2 billion, Mercor has reportedly been courted by offers to take its valuation as high as $10 billion, the Information reported on Thursday. Ling worked at Scale as its head of engagement management until last month, when he was hired by Mercor as its general manager. Ling's previous role involved building out Scale's contracts with clients, many of whom have been the biggest names in the industry, including OpenAI and Google. The suit alleges Ling met with Mercor CEO Brendan Foody while still employed by Scale, and "dramatically increased his downloads of confidential Scale documents" immediately after the meeting. The suit repeatedly cites "Company A" as the primary client that Ling worked with at Scale and allegedly sought to bring to Mercor. "A significant portion of the stolen documents relate to a client ("Customer A") that Mercor had failed to win over on its own. Mercor recruited Mr. Ling specifically to expand its relationship with this customer," lawyers for Scale wrote in the complaint. Mercor did not respond to a request for comment by press time. In a written statement to Inc., Scale AI spokesperson Joe Osborne said of the suit: "Mercor delayed meaningful communication for weeks, initially denied the theft, and refused to remove the employee from the very account he stole documents from. We won't allow anyone to take unlawful shortcuts at the expense of our business." Ling, for his part, has publicly acknowledged the documents in his position. On Thursday, Ling addressed the complaint in a LinkedIn post, noting the documents were downloaded on a personal drive and there was "no nefarious intent" behind it. He wrote: "Just heard I'm getting sued by Scale. Last month, I left Scale to work at Mercor. I know this was frustrating for my old team, and I feel bad about that. When Scale reached out about some files I had in my personal drive, I asked if I could just delete them. But Scale asked that I not do anything with them, so I'm still waiting for guidance on how to resolve this." The final deadline for the 2025 Inc. Best in Business Awards is Friday, September 12, at 11:59 p.m. PT. Apply now.