Scale AI has taken legal action against a former sales representative and emerging rival Mercor, alleging theft of trade secrets and misuse of confidential business information. The lawsuit, filed on Wednesday, accuses ex-employee Eugene Ling of stealing more than 100 sensitive documents containing customer strategies and proprietary data before joining Mercor, a fast-rising competitor in the AI training sector.
According to the complaint, Ling began engaging with one of Scale’s most valuable accounts, referred to as “Customer A,” even before officially resigning. Scale alleges the confidential records in Ling’s possession contained crucial details on serving Customer A and other major clients. If Mercor were to secure this customer, the contract could be worth millions of dollars, significantly impacting Scale’s business.
Scale is suing Mercor for misappropriation of trade secrets and Ling for breach of contract. The company is seeking to prevent Ling from working with Customer A and to restrict Mercor from using any confidential data.
Mercor’s Response
Mercor, which has been gaining traction in the large language model (LLM) training market, rejected the allegations. Co-founder Surya Midha acknowledged that Ling had personal files stored on Google Drive but denied that Mercor accessed them.
“Although we have hired several former Scale employees, we have no interest in their trade secrets and operate differently as a company,” Midha told TechCrunch. He added that Mercor contacted Scale nearly a week prior, offering to destroy the files or resolve the matter, but was still waiting for a response.
Midha emphasized that the company is investigating the situation and has not used any of the documents in its business operations.
Ling’s Position
Ling also shared his perspective on social media, acknowledging that he had old files from his time at Scale but insisted they were never used in his role at Mercor.
“When Scale contacted me about the files, I asked if I could delete them. They told me not to do anything, so I am waiting for their guidance,” Ling wrote on X. He stressed that there was no malicious intent and apologized to his new team at Mercor for the disruption caused by the lawsuit.
Ling admitted that leaving Scale may have frustrated his former colleagues but maintained that he had not misused confidential information.
Stakes for Scale and Mercor
The case highlights growing competition in the AI infrastructure market, particularly in the LLM training space. Scale AI, backed by Meta’s $14.3 billion investment for a 49 percent stake, has faced challenges in retaining key clients who see conflicts of interest in working with a Meta-linked provider.
In contrast, Mercor has positioned itself as an independent alternative, known for hiring PhDs and subject matter experts to annotate and prepare specialized data. This approach has helped it secure contracts with customers that continue to rely on non-Meta-affiliated providers.
If Mercor were to win Customer A, it would be a significant blow to Scale, underlining the financial and competitive stakes involved in this lawsuit.
Industry Implications
Beyond the courtroom, this legal battle underscores the intense rivalry within the AI ecosystem. As major players like Meta, OpenAI, and Anthropic push the boundaries of AI models, service providers such as Scale and Mercor are in a parallel race to supply high-quality data pipelines.
The lawsuit suggests Scale views Mercor as a serious competitive threat, particularly as the startup continues to attract talent and clients away from its larger rival. This reflects a broader trend across the industry where competition for talent, intellectual property, and customers is as fierce as the race to develop cutting-edge AI models.
Conclusion
The Scale AI lawsuit against Mercor and Eugene Ling pits an established industry leader against an ambitious challenger. For Scale, the case is about protecting its proprietary data and maintaining credibility. For Mercor, it could either solidify its reputation as a rising star or entangle it in a costly legal dispute.
The outcome will be closely watched across the AI sector, with millions of dollars, high-value clients, and corporate reputations hanging in the balance.
