Et Tu Bedier? Why PayPal Is Suing Google, Execs

PayPal, the e-payments subsidiary of eBay (s EBAY), has sued two of its former executives — Stephanie Tilenius and Osama Bedier — who defected to Google (s GOOG) and have helped the search giant ramp up its mobile payments offering, including its newly announced Google Wallet NFC platform. The lawsuit, which also names Google, alleges misappropriation of trade secrets, breach of contract and a host of other claims related to the recruitment of PayPal employees and the alleged improper use of PayPal’s confidential information.
Large companies often sue former employees — mostly out of spite — without much success. But this time around, PayPal is serious, as the company feels these former executives threaten its future business. The lawsuit also highlights the huge stakes in mobile payments, as giants like eBay and Google jockey to win a piece of an estimated $630-billion market by 2014.
While Tilenius might be getting hit with the lawsuit, the real target is Bedier, whose departure on Jan. 24 wasn’t received well inside the eBay executive suite. Bedier was one of the earliest PayPal employees and was widely viewed as one of its future leaders if eBay decided to spin-off the division. EBay CEO John Donahue viewed Bedier favorably, and our sources say the legal wheels were set in motion for this lawsuit the day Bedier switched loyalties to Google.

PayPal’s Forthcoming Announcements

When we asked our sources if PayPal was spooked by Google’s entry into the mobile payments business, we were told not really. Instead, PayPal believes that Bedier, who was leading the company’s mobile payment and point-of-sale offerings, had access to all its trade secrets — information on technology, strategies, partnerships etc. — which could cause material damage to the company and its prospects. PayPal is getting ready to make a sweeping product announcement in the coming days that talks about open commerce platforms and mobile payments, which sounds eerily similar to Google’s song-and-dance from Thursday.
PayPal alleges Bedier took trade secrets with him on his own computer, as well as through a Dropbox account, and has refused to return any of the data taken. PayPal says Bedier used the information in meetings with clients of both Google and PayPal, and that the information — which covered Bedier’s knowledge of Google’s own shortcomings in this area — is critical to the battle over mobile payments.

“Despite Bedier’s assurances and protests to the contrary, the point of his departure to Google has been to lead Google’s efforts in mobile payments, particular mobile payment at the point of sale. Bedier is willfully usurping PayPal’s trade secrets in these areas as well as well as its digital wallet in the cloud strategies for Google’s and his own gain. Both Bedier’s departure itself and Bedier’s actions after his departure have damaged plaintiffs,” the complaints reads.

Money Buys Everything

PayPal had been in close negotiations with Google from 2008 to 2010 to become the payment option on Google’s Android platform, mostly to compensate for the shortcomings of Google’s own Google Checkout platform. Andy Rubin and Bedier were spearheading the conversations between the two companies, which were close to being finalized in the fall of last year, according to the lawsuit.
Meanwhile, PayPal alleges Bedier had been interviewing with Google at the same time and was finally convinced to jump ship after meeting with Google’s senior management, including now-CEO Larry Page. The PayPal executive waffled, but was finally won over after Google offered him multiple millions of dollars, according to our sources, and this decision sent shock waves inside PayPal according to our sources.
The other causes of action in the lawsuit have to do with breach of contract and similar violations by Tilenius and Bedier in recruiting PayPal employees, despite contractual agreements to abstain from that. Tilenius recruited Bedier, who in turn lured away at least two PayPal employees, and Google is cited for interference for encouraging the actions of Tilenius and Bedier.

Bedier, however is merely a pawn in the much larger game of mobile payments. PayPal, Amazon (s AMZN) and Apple (s AAPL), along with the major carriers, have access to what Google sorely lacks: an entry to the customer’s wallet. And because the company doesn’t have access to these wallets, it’s locked out of the most lucrative part of the mobile ecosystem, and is left to pick up the crumbs via mobile advertising.
All is not well at Google, even with the help of its new hires. Our sources say there is a lot of internal debate at Google about its payment strategy, with some folks wanting to appease the carriers and have them become the payment options. Others disagree and are insistent that Google develop its own payment system – and rightfully so. Multiple sources have described the internal debates as political.

Tilenius’s Tumultuous Tenure

Tilenius, our sources say, has been in a sticky situation for a while at PayPal, and was described as a curious hire for Google. Furthermore, it’s said Tilenius’s championing of questionable acquisitions such as Jambool cost her political capital. Apparently, Bedier didn’t take too kindly to reporting to Tilenius either, and last month, Google appointed Jeff Huber (another eBay alum) as the SVP of commerce and local — Tilenius and Bedier now report to him.
It’s still early in the mobile payments wars, but with so much money at stake, PayPal is making it clear it’s not going to be shy about turning to its lawyers. And it sounds like it has something to be angry about. If its account is true, Bedier is in a key position to help Google compete with PayPal by tapping what he knows about PayPal’s work in this space. There’s two sides to every lawsuit so we’ll have to see how this turns out. But make no mistake, this is just one salvo in what could be a big messy war.
Check out a video we shot with Bedier just after the Google Wallet announcement: