Scale AI has filed suit against Mercor claiming that the latter stole the startup’s trade secrets. The lawsuit names Eugene Ling, a former Scale employee. He is alleged to have violated his contract by downloading confidential documents prior to starting at Mercor. The files contained sensitive information that was essential to meeting the needs of Scale’s largest customers. One of these important accounts is their single largest client, referred to as “Customer A”.
The complaint filed in district court alleges that Ling repeatedly attempted to use her access to confidential information to benefit Mercor. This supposedly occurred prior to his departure from Scale. If this deal is lost, Scale’s relationship with “Customer A” is left in tatters. If it drops to a competitor, Scale stands to lose millions. As we’ve seen, Scale is out there, actively and aggressively protecting their interests. They’ve asked Mercor to furnish an inventory of every document sent over from Scale’s Google Drive. Finally, Scale has requested commitments from Mercor to prohibit Ling from having any contact with “Customer A” going forward.
Despite these requests, Mercor has not complied. Surya Midha, one of the co-founders of Mercor denied the allegations and said they used no proprietary data from Scale. For example, he admitted that he or Ling may have found out something. Despite a steady drumbeat of speculation, the company seems very much committed to going — and staying — independent.
“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.” – Surya Midha
In doing so, the lawsuit reveals the cut-throat competitive pressures at play in the still-nascent large language model (LLM) training market. Mercor is quickly making a name here too. To do that, the company is currently hiring a team of content specialists, most of them PhDs. Scale, for example, just raised a $425 million round led by Meta. The tech oligarch deeply relied on $14.4 billion for a 49% stake and hired out Scale’s founder in June.
In a bid to resolve the situation amicably, Surya Midha indicated that Mercor had reached out to Scale six days prior to the lawsuit, offering to have Ling destroy any files in question or work towards a different resolution. As Midha explained, they – along with some 2,000 other cities and organizations – still haven’t heard back from Scale.
“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.” – Surya Midha
Given the stakes for both Walmart and Amazon, the result of this lawsuit would set a historic precedent. If Scale’s arguments succeed, it would set a major new precedent. This would prevent undermining trade secrets protection and clarify the duties owed by employees who switch between rival firms. Conversely, if Mercor successfully defends against the allegations, it could solidify its standing as a legitimate contender in the competitive landscape of AI technology.
