In a significant legal development within the artificial intelligence (AI) industry, Scale AI, a prominent data-labeling firm, has initiated legal proceedings against its former sales employee, Eugene Ling, and rival company Mercor. The lawsuit, filed on September 3, 2025, alleges that Ling misappropriated confidential documents containing proprietary information about Scale AI’s customer strategies and shared them with Mercor, thereby facilitating the solicitation of Scale AI’s major clients.
Background on Scale AI and Mercor
Scale AI, headquartered in San Francisco, specializes in providing data-labeling services essential for training AI models. The company has established itself as a key player in the AI sector, collaborating with numerous tech giants to enhance their machine learning capabilities. In contrast, Mercor, founded in 2023 by three 21-year-old Thiel Fellows, has rapidly emerged as a formidable competitor. The startup focuses on AI-driven recruitment solutions and has attracted significant investment, including a $100 million Series B funding round in February 2025, which valued the company at $2 billion. ([techcrunch.com](https://techcrunch.com/2025/02/20/mercor-an-ai-recruiting-startup-founded-by-21-year-olds-raises-100m-at-2b-valuation/?utm_source=openai))
Allegations in the Lawsuit
According to the lawsuit, Ling, during his tenure at Scale AI, allegedly downloaded over 100 confidential documents detailing the company’s customer strategies and proprietary information. These documents reportedly included sensitive data that could enable a competitor to effectively serve Scale AI’s major clients. The suit further claims that Ling began pitching Mercor’s services to one of Scale AI’s largest customers, referred to as Customer A, even before officially departing from Scale AI.
Scale AI contends that Mercor’s actions constitute misappropriation of trade secrets, while Ling is accused of breaching his contractual obligations to his former employer. The company seeks legal remedies to prevent Mercor from utilizing the allegedly stolen information and to hold Ling accountable for his purported misconduct.
Responses from Mercor and Ling
Mercor’s co-founder, Surya Midha, has denied any wrongdoing on the part of his company. In a statement to TechCrunch, Midha acknowledged that Ling may have retained some documents from his time at Scale AI but emphasized that Mercor has neither accessed nor utilized this information. Midha stated, 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. He further noted that upon learning about the documents, Mercor reached out to Scale AI six days prior to the lawsuit, offering to have Ling destroy the files or reach a different resolution, and is awaiting Scale AI’s response.
Ling, on his part, addressed the allegations via a post on X (formerly Twitter), expressing surprise at the lawsuit and indicating his willingness to cooperate with Scale AI to resolve the matter. He mentioned that he had offered to delete the files upon Scale AI’s request but was advised to await further instructions.
Implications for the AI Industry
This legal confrontation underscores the intense competition and high stakes within the AI industry, where proprietary data and client relationships are invaluable assets. The outcome of this case could set a precedent for how trade secret disputes are handled in the rapidly evolving AI sector.
Similar cases have emerged in the tech industry, highlighting the critical importance of safeguarding intellectual property. For instance, in June 2025, Tesla filed a lawsuit against a former engineer for allegedly stealing trade secrets related to its humanoid robotics program, Optimus, to launch a competing startup. ([techcrunch.com](https://techcrunch.com/2025/06/12/tesla-sues-former-optimus-engineer-over-alleged-trade-secret-theft/?utm_source=openai)) Such incidents reflect the broader challenges companies face in protecting their innovations and maintaining a competitive edge.
Conclusion
As the legal proceedings between Scale AI, Mercor, and Eugene Ling unfold, the case will be closely watched by industry stakeholders. It serves as a stark reminder of the importance of ethical conduct and the protection of proprietary information in the highly competitive and fast-paced world of artificial intelligence.
