PayPal Sues Google for Stealing Employees, Trade Secrets

An early PayPal employee jumped ship and took confidential information with him

Like smoke over a battlefield, a shadow has been cast over Google's moment in the spotlight this week. PayPal and eBay opened fire on the GOOG apparently hours after the company announced its breakthrough new product Google Wallet, a mobile payment system that runs off of Android. With it, Larry Page and friends hope to wedge themselves into an estimated trillion dollar pie for mobile payments. But according to PayPal, the longtime leader in the online payment business, and eBay, its parent company, Google is weaseling their way in, greased by a trove of trade secrets provided by recently hired executives Osama Bedier and Stephanie Tilenius. The two jumped ship at PayPal and eBay respectively in order to help Google reinvent their mobile commerce strategy and allegedly took all kinds of privileged information with them.

Big companies suing former employees is not a new idea, but as Om Malik argues, PayPal isn't just doing it out of spite. Osama Beider, the real target in the litigation attack, worked at PayPal almost from the beginning, and before Page wooed him over the Google with a seductive seven-figure salary package, many insiders believed Beider would ultimately take over the division. After all, his latest project at PayPal working on a new strategy for point-of-sale transactions and mobile payments was poised to lead the company's charge into a new, not-just-online era. (They're announcing a major new product very soon--it's not a coincidence.) Reports Reuters on that strategy, "PayPal and Google worked closely together for three years until this year on developing a commercial deal where PayPal would serve as a payment option for mobile application purchases on Google's Android phones." Beider fled PayPal for Google in the final days of negotiating a joint product launch but not before transferring up-to-date, top secret documents onto his personal computer, the current lawsuit claims.

This must happen all the time, right? As The New York Times recently reported, headhunting top talent has become a pretty ruthless business in Silicon Valley. The latest trend is simply to acquire companies with the desired employees, shut down their business and set the all-star engineers or strategist on building something better. Facebook recently "acqhired" Hot Potato, drop.io and nextstop to do just that; they really just wanted the companies' founders Justin Shaffer, Sam Lessin and Carl Sjogreen. Were Google to take this approach, they likely would have needed to shell out billions of dollars for PayPal. The company sold to eBay in 2002 for $1.5 billion and is surely worth several multiples of that today. Since Google has so far floundered in implementing a payment product of its own, they needed to make an aggressive move, but the partnership would have meant diluting what could easily be Google's next big fire hose of revenue. (PayPal also sued Google in 2006 over the Google Checkout product, but Google failed to challenge PayPal's dominance.) Easy, sleazy solution? Just spend a few million to hire the guy with access to PayPal's future plans and technology, beef up the legal team and hopefully ride it out.

Meanwhile, Apple is still sitting on the sidelines of the mobile payment battlefield. Letting these two duke it out, expose their back room dealings to the media and look a little bit evil in the process, isn't a bad lack of strategy. When we wrote about the mobile payment wars getting underway earlier this week, we called Apple's strategy Machiavellian. Here's a quote from The Prince:

The prince must consider, as has been in part said before, how to avoid those things which will make him hated or contemptible … when neither their property nor honour is touched, the majority of men live content, and he has only to contend with the ambition of a few, whom he can curb with ease in many ways.

Somewhere, Steve Jobs is counting his money on his iPad 3 and waiting to strike.

UPDATE (12:56 p.m.): Google responded to the announcement of the lawsuit today with the following statement: “Silicon Valley was built on the ability of individuals to use their knowledge and expertise to seek better employment opportunities, an idea recognized by both California law and public policy. We respect trade secrets, and will defend ourselves against these claims.”

In other words, people have the right to get a better job.