PayPal Sues Google, Sees Powerful Threat To Its Future In Google Wallet

In California it’s almost impossible to stop a key employee from jumping ship to a rival company. The law heavily favors the employee’s right to earn a living and typically won’t permit the former employer to prevent the employee from working for a rival.

California law does, however, protect “trade secrets” and will sometimes permit company A to block a former employee from working in an identical role at rival company B if trade secrets are implicated or at stake.

This is the scenario at the heart of a lawsuit announced yesterday by eBay/PayPal against Google following the public introduction of Google Wallet.

Google Nabbed Key PayPal Employees

According to the facts laid out in the 28-page complaint in early 2010 Google hired Stephanie Tilenius, a former PayPal and eBay executive. She in turn hired Osama Bedier in January of this year. Bedier was a key executive developing PayPal’s mobile payments platform. Bedier is alleged to have lured other PayPal employees to come to Google.

Tilenius and Bedier were the two Google employees who introduced Google Wallet yesterday on stage.

PayPal is suing Google for a range of contract and “tort” claims including breach of contract, misappropriation of trade secrets, unfair competition and breach of fiduciary duty. The company is asking for a variety of remedies and damages, including punitive damages and, interestingly, “royalties” on future profits that Google makes via Google Wallet. However Google Wallet is free; Google will be monetizing deals and other activities associated with Google Wallet — unlike PayPal there are no transaction fees involved.

Five of the nine “causes of action” are plead against Google and four against Tilenius and Bedier as individuals. PayPal claims that a range of its trade secrets are being used or will be used in the development and roll out of Google Wallet.

PayPal: Google Stole Our Lead Negotiator

PayPal alleges that for over two years it was negotiating with Google to make PayPal a payment option in the Android Market and that it “educated” Google during that period about mobile payments. The complaint also says that PayPal and Google had a deal that was “signature ready” but that Google had a change of heart after it began to recruit the lead PayPal executive, Bedier, who was negotiating the deal with Google.

It’s interesting that eBay/PayPal waited to sue until Google Wallet was made public. The company new that Tilenius and Bedier went to Google. The company also knew that other PayPal employees had left for Google. And it knew Google was developing a mobile payments platform. PayPal says it has been negotiating with Bedier, since his departure in January, for the return of information that it claims are its trade secrets and he’s refused to comply.

Had PayPal sued prior to the public unveiling of Google Wallet — which Google says it has been working on for over a year — PayPal might have been able to delay the launch of the product.

PayPal Vulnerable to Google Wallet

While the outlook for Google Wallet is somewhat uncertain at this point — it’s an impressive product but not clear how many consumers will adopt it — the potential damage to PayPal’s mobile business is clear. PayPal wants to build out a mobile developer ecosystem around payments with itself at the center; this is also what Google seeks to do.

Between PayPal and Google the latter offers the stronger value proposition to consumers, merchants and advertisers. This doesn’t mean that PayPal mobile won’t be able to develop a strong business. In some respects Google Wallet might help PayPal by accelerating the growth of mobile payments generally.

As we also know Google doesn’t win every market segment it enters: Google Checkout, when it was introduced, was briefly called a “PayPal killer.” Needless to say it didn’t turn quite that way. However Android has arguably become Google’s second most successful product after search and Wallet can piggyback to some degree on Android.

Yet there are also numerous other parties competing in the mobile payments realm: banks, credit card companies, Intuit, mobile carriers and startups. It’s still too early to pick winners; but Google must be seen as one of the favorites.

In terms of the outlook for the litigation, PayPal does appear to have a factual basis for some of its claims. But all the facts will come out in discovery. Ultimately PayPal is probably going to be unable to prevent Tilenius and Bedier from working in their current roles at Google. It also won’t be able to stop Google Wallet from rolling out.

If successful, the best PayPal can probably hope for from the litigation is monetary damages. And money won’t matter as much to Google as the payments business itself.

Related Topics: Channel: Mobile | Google: Android | Google: Employees | Google: Legal | Google: Mobile | Google: Wallet | Top News

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About The Author: is a Contributing Editor at Search Engine Land. He writes a personal blog Screenwerk, about SoLoMo issues and connecting the dots between online and offline. He also posts at Internet2Go, which is focused on the mobile Internet. Follow him @gsterling.

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  • Jordan Thoms

    I have no sympathy for PayPal. They screw everybody every chance they get and have succeeded only because they are often the only viable provider. I hope google becomes strong in this market and manages to be less evil than paypal. (Not very difficult)’

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