(Bloomberg) — Scale AI Inc. sued rival data-labeling startup Mercor, accusing the firm and a former Scale employee of stealing trade secrets to attract new business. 

The suit, filed in San Francisco federal court Wednesday, alleges that Scale’s former head of engagement management, Eugene Ling, downloaded more than 100 customer strategy documents and other proprietary documents to a personal Google Drive while in communication with Mercor.

Ling allegedly met with Mercor Chief Executive Officer Brendan Foody while working at Scale, and other Mercor employees discussed Scale’s business strategies and products with Ling, according to the lawsuit.

Surya Midha, a Mercor co-founder, said the company is investigating.

“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,” Midha said in a statement. “Eugene informed us that he had old documents in a personal Google Drive, which we have never accessed and are now investigating. 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.”

The suit highlights the fierce competition in a key part of the AI industry. Founded in 2016, Scale has long been the best-known name in the market for helping tech firms label and annotate the data needed to build artificial intelligence models. But it has faced growing pressure from rivals in recent months.

“Scale has become the industry leader on the strength of our ideas, innovation, and execution,” Joe Osborne, a Scale spokesperson, said in a statement. “We won’t allow anyone to take unlawful shortcuts at the expense of our business.” 

In June, Meta Platforms Inc. finalized a $14.3 billion investment in Scale, taking a 49% stake in the company. Following the deal with Meta, some of Scale’s most prominent customers have phased out work with the startup — including OpenAI and Alphabet Inc.’s Google — according to reports by Bloomberg News and others. OpenAI, in particular, has turned to Mercor to meet its needs for more and increasingly specialized data, Bloomberg has reported.

The suit alleges that Mercor recruited Ling in order to expand its relationship with one of Scale’s large customers, claiming that a significant portion of the documents Ling stole pertained to that unidentified customer. 

Ling allegedly contacted the customer on behalf of Mercor while still employed at Scale, according to the suit. Mercor still uses Ling on the customer’s account, according to the complaint.

The case is Scale AI Inc. v. Mercor.io Corporation, 25-cv-07402, US District Court, Northern District of California (San Francisco).

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