Scale AI sues rival Mercor over alleged trade secret theft

Scale AI has filed a lawsuit against Mercor, accusing the rival data labeling firm of misappropriating trade secrets.

The San Francisco-based company alleges former executive Eugene Ling downloaded over 100 confidential documents before joining Mercor and shared strategic information about a major customer.

Scale said Mercor’s lawyer acknowledged the documents remain on Ling’s personal Google Drive, and Ling is now working on the large customer’s account.

Scale AI is valued at around US$29 billion, with investors including Meta, Accel, and Amazon.

Mercor, recently valued at US$2 billion, counts Felicis, General Catalyst, and Sequoia Capital among its backers.

Mercor’s co-founder said the company has not accessed Scale’s trade secrets and is investigating the situation.

🔗 Source: Axios

🧠 Food for thought

1️⃣ Explosive data labeling market growth intensifies competitive pressures

The fierce legal battle between Scale AI and Mercor reflects the massive stakes in data labeling, a market projected to grow from $6.5 billion in 2025 to $19.9 billion by 20301.

This 25% annual growth rate makes proprietary strategies and customer relationships extremely valuable assets worth protecting through litigation.

Scale’s $29 billion valuation compared to Mercor’s $2 billion demonstrates the significant market share advantages that incumbents defend against rapidly growing competitors.

The outsourced data labeling segment, which both companies operate in, accounts for 69% of the total market and is growing even faster at nearly 30% annually1.

With manual labeling still dominating 75% of the market despite automation advances, companies heavily depend on human expertise and refined processes that can easily transfer between firms through departing employees.

2️⃣ Employee departures with confidential documents follow predictable legal patterns

The Scale-Mercor dispute mirrors established patterns in tech trade secret theft cases, particularly the 2019 Huawei indictment for stealing T-Mobile’s phone-testing robot technology.