Startup sues Rippling over product cloning, drops case — but founders get a stark warning

Runlayer and Rippling have dropped their respective lawsuits against each other, according to court documents reviewed by TechCrunch. No settlement was reached, no money changed hands, and neither side paid the other's legal fees. Immediately after the dismissal, Rippling released its MCP gateway — the very product at the heart of the dispute and a direct competitor to Runlayer's offering.

The legal battle, though short-lived, serves as a cautionary tale for startup founders. In the age of AI, where building new software has become almost trivial, you never know who your next competitor will be — it might even be a prospective customer.

Runlayer is an early-stage startup that emerged from stealth in November 2025 and has raised $42 million from prominent venture capital firms including Khosla Ventures (partner Keith Rabois) and Felicis. The company is led by third-time founder Andrew Berman, who previously built Nanit, a baby-monitor maker, and Vowel, an AI video conferencing tool that was sold to Zapier in 2024.

According to Runlayer's lawsuit, Rippling tested Runlayer's MCP gateway for more than a year, with engineering teams from both companies working closely together. Despite this collaboration, Rippling never signed on as a customer. Instead, Berman received a text message from a Rippling employee stating that his employer was building its own MCP gateway and planned to release it as a product. The employee described Rippling's product as a clone of Runlayer's.

Runlayer sued, claiming that Rippling violated contractual agreements covering the testing of its products. The lawsuit alleged that Rippling used confidential information obtained during the trial period to develop a competing solution.

An MCP gateway securely handles an enterprise's AI agent requests for data from other software systems, acting as a central access point for AI-driven automation. The product is critical for companies looking to integrate AI agents into their workflows without compromising security.

The case highlights a growing risk for startups: as AI makes software development faster and cheaper, the line between customer and competitor blurs. Founders must now be wary of sharing proprietary technology with potential clients, especially those with the resources to build their own versions.