Trade Secrets, Talent Wars Fuel AI Industry Espionage Lawsuit

Scale AI, a leading provider of data preparation services for artificial intelligence model training, has filed a lawsuit against former employee Eugene Ling and his current employer, Mercor, a rival in the AI data training space, alleging corporate espionage and misappropriation of trade secrets. According to the lawsuit, Ling, formerly Scale’s head of engagement management, downloaded over 100 confidential documents containing proprietary information, including customer strategies, just days after meeting with Mercor’s CEO. The documents reportedly included information about one of Scale’s most important clients, referred to as "Customer A" in the lawsuit [1].

Scale claims that Ling attempted to solicit Customer A while still employed at the company and was in communication with researchers at the client, attempting to transition them to Mercor’s services. According to internal correspondence cited in the suit, Ling told the customer representative, “I’m staying within the data space and I’m actually really excited about [how] this new company can support you,” leading to discussions about a potential call between the two parties [1]. Mercor’s co-founder, Surya Midha, denied any misuse of data, stating that Mercor had no interest in Scale’s trade secrets and had no access to the files in question, which were stored in Ling’s personal Google Drive [1].

Scale seeks legal remedies including the return of all proprietary documents and an injunction preventing Mercor from using the information. The lawsuit also demands damages and legal costs. The legal dispute comes amid a broader industry trend of high-stakes competition for talent and client relationships in the AI sector. Mercor has risen in prominence by employing specialized content experts, including PhDs, to train large language models in niche areas, directly competing with Scale’s data-labeling and training services [1].

The case highlights the intensity of the AI arms race, where companies such as OpenAI, Anthropic, and Google are investing heavily in new tools, computing resources, and talent. In a related development, Elon Musk’s xAI recently filed a lawsuit against former employee Xuechen Li for allegedly copying trade secrets before joining OpenAI [3]. The growing frequency of such legal actions underscores the sensitivity of intellectual property and client relationships in the rapidly evolving AI industry.

Scale AI has also experienced significant internal restructuring this summer, including a major investment from Meta, which acquired a 49% stake in the company for $14.3 billion and hired its founder. Despite the investment, some of Scale’s largest clients have reportedly cut ties with the company amid competitive pressures from Meta’s internal AI initiatives [1]. The lawsuit against Mercor reflects Scale’s aggressive strategy to protect its market position and proprietary data in an increasingly fragmented and competitive landscape.

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[1] Scale AI is suing a former employee and rival Mercor ... (https://techcrunch.com/2025/09/03/scale-ai-is-suing-a-former-employee-and-rival-mercor-alleging-they-tried-to-steal-its-biggest-customers/)

[2] Bitcoin Fund Strategy Lawsuit Dropped, Claims Misleading ... (https://www.mexc.co/news/bitcoin-fund-strategy-lawsuit-dropped-claims-misleading-information/79255)

[3] Scale AI still exists and it's suing an ex-employee over ... (https://www.theverge.com/ai-artificial-intelligence/770410/scale-ai-corporate-espionage-data-labeling-mercor-meta)