Scale AI Files Lawsuit Over Alleged Theft of Trade Secrets
A second lawsuit has emerged in California involving allegations of trade secret theft within the artificial intelligence sector. Just days after Elon Musk‘s company, xAI, claimed it had fallen victim to corporate espionage, Scale AI, a prominent AI data-labeling firm, filed suit against competitor Mercor Inc.. The lawsuit, lodged in the U.S. District Court for the Northern District of California on Wednesday, accuses Mercor and a former Scale employee, Eugene Ling, of misappropriating confidential information to gain a competitive edge.
The lawsuit indicates that Scale AI, which boasts a valuation of approximately $29 billion following a significant $15 billion investment from Meta, is seeking damages and an injunction against Mercor. The case, officially titled Scale AI Inc. v. Mercor.io Corporation, 25-cv-07402, claims that Ling downloaded over 100 confidential documents to a personal Google Drive while still employed at Scale. This alleged breach occurred shortly after Ling had meetings with Mercor’s CEO.
According to the complaint, Ling subsequently contacted one of Scale’s top clients, referred to as “Customer A,” to pitch Mercor’s services, all while still representing Scale. The lawsuit asserts that this was an attempt to siphon business potentially worth “millions of dollars.” Attempts to connect with Ling’s attorney yielded no response. However, Ling addressed the allegations on social media, stating that he “never used” any Scale files and expressed remorse towards his new team at Mercor, insisting that there was no “nefarious intent.”
Surya Midha, co-founder of Mercor, has vehemently denied any misuse of Scale’s intellectual property. He noted that while several former Scale employees have joined Mercor, the two companies maintain “intentionally different” business strategies. Midha confirmed that Mercor is conducting an internal investigation into the matter and had reached out to Scale six days prior to offer Ling’s cooperation in deleting any documents in question.
Scale contends that forcing Ling to destroy the files would eliminate essential evidence. The company is looking for not only damages and legal fees but also the return of all allegedly misappropriated documents. This legal battle comes at a time of significant upheaval for Scale, following Meta’s investment and the recent hiring of Scale’s CEO, Alexandr Wang, by Meta, alongside a 14% reduction in workforce.
The heightened competition within the AI industry is underscored by this case, where intellectual property—including data strategies and client relationships—has become paramount for market leadership. The situation echoes another recent lawsuit involving Musk’s xAI, which accused former engineer Zhihao “Zack” Li of stealing confidential information upon his departure to rival OpenAI. The complaint against Li alleges that he copied proprietary materials related to the development of xAI’s chatbot, Grok, shortly after accepting a position at OpenAI.
Both lawsuits reveal significant risks for investors and the AI landscape. The potential theft of complex and valuable trade secrets can drastically shift competitive dynamics, especially in a market where trust and proprietary data are considered vital currency. Furthermore, these incidents indicate a growing trend among AI startups to utilize legal channels to protect their interests and maintain competitive advantages.
As the AI industry continues to expand, companies are increasingly prioritizing the safeguarding of their innovations and client relationships. Joe Osborne, a spokesperson for Scale, stated, “Scale has become the industry leader on the strength of our ideas, innovation, and execution. We won’t allow anyone to take unlawful shortcuts at the expense of our business.” This sentiment resonates as the future of AI development becomes intertwined with legal strategies designed to protect valuable intellectual property.
