PayPal accuses Google of misappropriating trade secrets

Mere hours after announcing its “Google wallet” plans, Google was itself hit with a lawsuit from competitor PayPal, Inc. (and parent company eBay, Inc.) related to the technology.

The thrust of the complaint is that two former PayPal employees (named in the complaint) took PayPal trade secrets and recruited PayPal personnel when they left to work for Google.

PayPal alleges that former executive Osama Bedier spent years negotiating with Google over the terms of a joint venture related to using PayPal on the Android market — and at the same time, was in separate (and secret) negotiations with Google for a job.

Suddenly the deal collapsed, and just days later, Bedier had a job offer from Google.

The complaint accuses a second former PayPal employee, Stephanie Tilenius, of breaching her non-solicitation agreement.  PayPal alleges that Tilenius was the employee at Google who recruited Bedier.

Trade secret litigation in California is fairly common and results from California’s exceptionally permissive policies related to employee mobility.

The general rule in California is that non-compete agreements that prevent an employee from engaging in lawful work are void.  Cal. Bus. & Prof. Code § 16600.

And in general, it is completely lawful for a person to quit a job on Friday and start with a competitor the following Monday.

While employees are generally permitted to use their experience and know-how for their new boss, they are not permitted to use any confidential or proprietary information held by their previous employer.

This is a large gray area that causes considerable tension, especially in technology companies.

The complaint packs a mean punch: PayPal is essentially alleging that Google, through two PayPal employees, stole PayPal’s technology related to mobile payments.  But this case is by no means open and shut:

– Before the lawsuit can proceed, PayPal will need to define its trade secrets with “reasonable particularity.”  Cal. Civ. Proc. Code § 2019.210.  This is a procedural rule that will give Google and the court notice of what PayPal claims was misappropriated.

– PayPal will need to prove that its alleged trade secrets (1) were in fact kept secret; and (2) gave it a competitive advantage over companies like Google.

– “Smoking guns” are rare in litigation, and while possible, it is unlikely that PayPal will discover any key document where Google lays out a master plan to steal PayPal technology.  Instead, PayPal will have to convince a jury that Google’s technology is so similar to PayPal’s that there was no other way for Google to advance its own products absent misappropriation.

This is an exciting lawsuit and it will be interesting to see who wins.  

For years now, Google has cheered itself as a company that literally doesn’t do evil.

But Google’s triumph in the technological marketplace has given it power, and with power comes the inevitable temptation to abuse it.

Should Google win, it can prove that its capacity for innovation extends not only to the mobile space, but also to cutting edge technologies that lay at the intersection of the internet and banking services.

A loss, however, could spell the end to the considerable public faith that has protected the company from closer scrutiny.