PayPal Lawsuit Against Google Reveals Recruiting Saga And A Deal Gone Sour

Google is making a bold play to enter mobile payments, and PayPal doesn’t like it one bit. Shortly after Google announced its new mobile wallet for Android phones today, Paypal filed a lawsuit against Google and two former PayPal executives who now are in charge of mobile payments at Google (Osama Bedier and Stephanie Tilenius).

The complaint (embedded below) alleges “misappropriation of trade secrets, and “breach of fiduciary duty.” It revolves around Osama Bedier, who was the VP of Platform, Mobile, and New Ventures at PayPal before he was recruited to work at Google by Android chief Andy Rubin, Google co-founder Larry Page, and Bedier’s former PayPal colleague Stephanie Tilenius (who now heads up Commerce and Payments at Google, and I interviewed yesterday onstage at Disrupt NYC).

The lawsuit reveals that Google was negotiatiating with PayPal for two years to power payments on mobile devices. But just as the deal was about to be signed, Google backed off and instead hired the PayPal executive negotiating the deal—Bedier. The lawsuit lays out the sequence of events:

By 2010, the executive in charge of the negotiations for PayPal was Osama Bedier. The executive in charge of the negotiations for Google was Andy Rubin. PayPal and Google had a deal finalized and signature-ready on October 26, 2010. By that time, unknown to PayPal, Bedier had just finished a series of job interviews with Google senior executives, culminating with a meeting on October 21 between Bedier, Google Senior Vice President Jonathan Rosenberg, and then-President of Google Larry Page.

Though Google’s leadership had directed negotiations toward the October 26 finalization months earlier, it now balked when presented with the very deal they had requested. The companies had a term sheet, a two phase roll-out with dates, and all other details nailed down. But, in the interim, Google’s leadership had interviewed Bedier, Rather than inking the October 26 deal, Google instead at the last minute professed a shift in mindset on the entire structure of the deal.

Bedier was offered a job at Google on October 31. He didn’t take it immediately, but after a few months of back and forth, he finally accepted the job in January, 2011. All of this coincided with Larry Page taking over as CEO, and a shift in Google’s strategy to build instead of partner in mobile payments.

The lawsuit notes that Bedier knew all of PayPal’s future plans for mobile payments, as well as an internal detailed analysis of Google’s weaknesses in the area. Not only that, it accuses him of storing “confidential eBay information in locations such as his non-PayPal computers, non-PayPal e-mail account, and an account on the remote computing service called ‘DropBox.'”

What did Bedier do with all of these “trade secrets”? The implication is that he used his knowledge of PayPal’s strategy to craft Google’s mobile wallet strategy (yup, the same one revealed today). He also used that knowledge to sell Google’s mobile wallet to big retailers:

Bedier has also been part of a Google team making sales calls to major retailers, PayPal is informed and believes and on that basis alleges that during these sales efforts, Bedier has been and is improperly comparing Google’s products and services with PayPal’s products and services in discussions with customers that both PayPal and Google are courting. In particular, on information and belief, Bedier’s comparisons incorporate PayPal trade secrets, including PayPal’s schedule for deployment, anticipated features, and back-end approach to mobile payment, point of sale, and the benefits of a wallet in the cloud.

And finally, he actively recruited other PayPal employees, just as Tilenius helped to recruit him (which is why she is named in the suit as well). Assuming this thing gets settled before it goes to court, how much is hiring Bedier going to end up costing Google?

Update 5/27: I asked Google for a comment last night about this lawsuit. Today, a spokesperson gave me this 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.”

Photo credit: Flickr/Henk-Jan Winkeldermaat

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