Elon Musk, AI Startups, and The Case of The Allegedly Lacking Commerce Secrets and techniques

A second lawsuit filed by a man-made intelligence firm alleging a former worker stole commerce secrets and techniques has been filed in California, simply days after Elon Musk’s xAI alleged it had recently experienced company espionage.

On this case, Scale AI, a number one AI data-labeling agency, sued competitor Mercor Inc. in federal court docket Wednesday, accusing the startup and a former worker of misappropriating commerce secrets and techniques to win new enterprise.

Scale is valued at roughly $29 billion following a large $15 billion Meta funding.

The allegations

The lawsuit, filed within the U.S. District Courtroom for the Northern District of California, targets Eugene Ling, Scale’s former head of engagement administration, and his new employer, Mercor.

The case is Scale AI Inc. v. Mercor.io Company, 25-cv-07402.

In its court docket submitting, Scale alleges Ling downloaded over 100 confidential paperwork, together with proprietary buyer technique supplies and product info, to a private Google Drive whereas nonetheless employed on the firm and after assembly with Mercor’s CEO.

Based on the grievance, Ling then contacted one among Scale’s high shoppers, known as “Buyer A,” on behalf of Mercor whereas nonetheless at Scale, even arranging calls to pitch Mercor’s providers. The lawsuit claims this effort was an try and steal enterprise price “hundreds of thousands of {dollars}.”

Makes an attempt to achieve Ling’s legal professional have been unsuccessful. However on his social media, Ling posted that he “by no means used” any of the Scale recordsdata and is “nonetheless ready for steerage on the way to resolve this.”

“I simply wished to say that there actually was no nefarious intent right here,” he wrote. “I’m actually sorry to my new crew at Mercor for having to take care of this.”

Mercor’s response

Mercor co-founder Surya Midha denied any misuse of Scale’s mental property, stating that whereas a number of former Scale staff have joined Mercor, the 2 companies function beneath “deliberately completely different” methods. He added that Mercor is investigating the matter and had provided to have Ling delete any paperwork in his possession.

“Whereas Mercor has employed many individuals who departed Scale, we have now no real interest in any of Scale’s commerce secrets and techniques and actually are deliberately operating our enterprise another way,” Midha said in a statement.

“Eugene knowledgeable us that he had outdated paperwork in a private Google Drive, which we have now by no means accessed and are actually investigating,” it reads. “We reached out to Scale six days in the past providing to have Eugene destroy the recordsdata or attain a unique decision, and we are actually awaiting their response.”

Scale, in flip, argues that ordering Ling to destroy the recordsdata would remove essential proof. The corporate is looking for damages, authorized charges, an injunction barring Mercor from utilizing the stolen materials, and the return of all misappropriated paperwork.

Scale’s authorized transfer is one other pace bump for a turbulent interval for the corporate, which has not too long ago skilled Meta’s large funding, the hiring of Scale’s CEO Alexandr Wang by Meta, and a 14% workforce discount.

Cutthroat competitors involves the courts

The case is a glimpse into the fiercely aggressive nature of the AI sector, the place mental property—significantly knowledge technique and buyer relationships—is the important thing to market dominance. The scenario mirrors another recent trade secret lawsuit, when Elon Musk’s xAI sued a former engineer for allegedly stealing confidential info on his approach to a rival.

In that case, Musk’s firm is alleging Zhihao “Zack” Li stole confidential recordsdata tied to the event of Grok, the corporate’s chatbot, earlier than departing for rival OpenAI.

The grievance, filed in California state court docket, accuses Li, who joined xAI final yr as an engineer, of copying proprietary supplies in July 2025 shortly after agreeing to take a job at OpenAI. Courtroom filings say Li additionally offered $7 million price of vested xAI inventory forward of his departure.

Based on the lawsuit, Li admitted throughout an inside assembly on Aug. 14 that he had taken delicate paperwork, although xAI alleges he tried to “cowl his tracks” by deleting recordsdata. Forensic checks later uncovered further supplies nonetheless saved on his units, the corporate alleges.

Musk’s startup argues that the stolen info may enable OpenAI to reinforce ChatGPT with what it describes as xAI’s “extra progressive AI and imaginative options.”

That case is xAI Corp v. Xuechen Li, U.S. District Courtroom, Northern District of California, No. 3:25-cv-07292-RFL

What are the broader implications?

For traders and the AI business basically, the lawsuit highlights two key dangers.

Firstly, the theft of extremely advanced and coveted mental property, and even the looks of it, can quickly alter aggressive positioning in a market the place belief and proprietary knowledge are foreign money. Secondly, it indicators that AI startups might more and more flip to authorized avenues to implement boundaries and defend their turf.

As AI turns into part of a lot of the know-how we see and use on a regular basis, the businesses that make it are going to develop into much more fiercely protecting of their merchandise and types. The worth of proprietary knowledge and shopper relationships makes authorized safety, and the precedents set by way of lawsuits like this, the subsequent frontier for corporations seeking to safeguard their instruments and reputations.

“Scale has develop into the business chief on the power of our concepts, innovation, and execution,” Joe Osborne, a spokesperson for Scale, stated in an announcement. “We received’t enable anybody to take illegal shortcuts on the expense of our enterprise.”