(Bloomberg) – Scale AI Inc. sued startup Melkor, which signed rival data, accusing the company and former Scale employees of stealing trade secrets and attracting new businesses.
The lawsuit, filed Wednesday in San Francisco federal court, alleges that during communications with Mercor, former head of Scale's former engagement manager, Eugene Ling, downloaded more than 100 customer strategy documents and other proprietary documents to personal Google Drive.
The lawsuit allegedly Lynn met Brendan Hooty, the CEO of Melkor, during his large-scale work while working on scale.
Surya Mida, co-founder of Melkor, said the company is investigating.
“Melkor has hired many people who have left Scale, but we have no interest in Scale's trade secrets and in fact we are intentionally running our business differently,” Mida said in a statement. “Eugene informed us that he had an old document on his personal Google Drive, which we had never accessed and is currently investigating. Six days ago, we offered to Eugene to destroy the files or reach a different resolution.
The suit highlights fierce competition in key parts of the AI industry. Founded in 2016, Scale was the most famous name on the market to help label and annotate the data needed to build artificial intelligence models. However, in recent months, it has faced growing pressure from its rivals.
“Scale has become an industry leader in the strength of our ideas, innovation and execution,” Scale spokesman Joe Osborne said in a statement. “We won't allow anyone to take illegal shortcuts at the expense of our business.”
In June, Meta Platforms Inc. completed a $14.3 billion investment in size and acquired a 49% stake in the company. Following its agreement with Meta, some of Scale's most prominent clients have phased out work with startups, including Openai and Google at Alphabet Inc., according to reports by Bloomberg News and others. In particular, Openai is turning to Mercor to meet its needs for more specialized data, Bloomberg reports.
The lawsuit alleges that Melkor recruited Lin to expand his relationship with one of the large clients of scale, claiming that a significant portion of the document relates to that unknown customer.
The lawsuit allegedly Lynn contacted clients while he was employed on a large scale on behalf of Marker. According to the complaint, Mellcole still uses ling on customer accounts.
Cases are Scale Ai Inc.v, U.S. District Court, 25-CV-07402, 25-CV-07402 (San Francisco). Mercor.ioCorporation, 25-CV-07402.
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