27
May
paypal-android1

Disclaimer: I'm not an attorney. This is not legal advice.

The PayPal and Google lawsuit is just another one of Google's seemingly endless big-name legal tangles over the last couple of years. Why is Google litigation such a frequent topic?

At least in part, it's because Google has one of the most aggressive stances towards litigation of any member of the tech industry. Google's reputation for taking its battles to court has become almost notorious (well, except for the "Buzz" incident) - regardless of cost or, sometimes, likelihood of victory. Google's approach is one of the modern corporation - during the 1990's and 80's, when civil litigation was actually more prevalent, in-house counsels for major corporations often preferred to settle potentially high-dollar suits rather than risk wasting piles of cash on defending them, only to lose in the end.

Google's response today to PayPal's lawsuit over the newly unveiled Google Wallet service, then, was not exactly a surprise - they're willing to defend their product:

“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.”

That statement came from a Google spokesperson, speaking to TechCrunch.

What exactly are "trade secrets," though? The State of California defines a "trade secret" as follows:

(d) "Trade secret" means information, including a formula,

pattern, compilation, program, device, method, technique, or process,

that:

(1) Derives independent economic value, actual or potential, from

not being generally known to the public or to other persons who can

obtain economic value from its disclosure or use; and

(2) Is the subject of efforts that are reasonable under the

circumstances to maintain its secrecy.

As one of my professors would say: clear as mud, right? The definition of a trade secret in California is really quite broad - because proving that a trade secret has actually been misappropriated (used without permission) is in itself a tremendously difficult thing to do. Why?

California, where the suit has been filed, takes a unique (and very hard-line) approach to handling trade secrets. The state is one of only three to have actually banned non-compete agreements (trade secrets are a type of non-compete agreement), and trade secrets constitute one of several exceptions to that ban. California's attitude toward any agreement restricting competition or employment for skilled individuals, then, is a very skeptical one.

Trade secrets have been historically difficult to enforce in California, which is ironic, considering California is bar-none home to the most trade secret litigation in the country by a wide margin (largely thanks to Silicon Valley.)

Still, NDAs (non-disclosure agreements) remain a very common condition of employment for high-ranking individuals at major tech companies in California - and are legally enforceable. In fact, violating an NDA can have truly disastrous consequences for the company accused of misappropriating trade secrets related to that NDA. Bedier, the PayPal VP who left for Google, signed such an agreement when he started at PayPal.

Proving damages in trade secret cases is difficult - because who's to say how much money the company alleging the misappropriation really lost because it no longer has exclusive use of that secret? Injunctive relief is generally limited to the time before the case is decided - and rarely awarded unless the plaintiff can prove that the secret is (a) still secret (it's obviously not here), and (b) so valuable that letting the defendant continue to use it during the litigation would cause astronomically high damages to the plaintiff (let me be clear: no court is going to tell Google to put a stop to Wallet.)

The preferred resolution to trade secret disputes is almost always settlement - because the primary remedy is either to enforce the contractually stipulated provisions regarding breach in the NDA (which are likely pretty harsh) or, if the damages exceed what the NDA allows, actual damages (which could be even worse, especially if the breach is considered "willful.") A royalty agreement is unlikely in a case involving business plans, strategy, or future product release schedules.

So what trade secrets are PayPal accusing Google (and former PayPal VP Osama Bedier) of misappropriating? PayPal, in its complaint (courtesy of TechCrunch), asserts that:

Bedier transferred up-to-date versions of documents outlining PayPal’s mobile payment and point of sale strategies to his non-PayPal computer just days before leaving PayPal for Google on Jan 24, 2011. On information and belief, Bedier had already decided to move to a job at Google when he did this, and he had no legitimate reason for obtaining an update on PayPal’s strategies.

We'll likely never see those documents - as the court will, during the discovery process, probably allow PayPal to keep all of this documentation off the public record. That's pretty much the meat on the means of the misappropriation. PayPal then proceeded to explain how it has been damaged by this misappropriation:

PayPal is informed and believes and on that basis alleges that during ... 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.

If true, PayPal's accusation is a fairly serious one. However, it will all come down to just what those alleged documents contain, and just what information Bedier was privy to during his time at PayPal. If PayPal can't show that those documents or Bedier's knowledge are trade secrets (that's the big one) and that the unauthorized disclosure thereof is actually happening and is harming PayPal, there's no case to be made.

It's also worth noting that California courts sometimes refuse to enforce NDAs or trade secret allegations for vagueness or on grounds of public policy, in the name of facilitating employment and competition.

PayPal alleges numerous contractual breaches and interference in its complaint, as well - though in terms of damages, those allegations are likely secondary to the trade secret misappropriation PayPal wants the court to recognize. If they can get that cause of action nailed down, the others become much less important to making PayPal's case as a whole.

In a situation like this, where the alleged damage has probably already been done (Google probably knows everything of value Bedier knows at this point), PayPal is probably looking for a payout. Whether or not they'll get it remains to be seen.

Thanks to TechCrunch for PayPal's Complaint and Google's response

David Ruddock
David's phone is whatever is currently sitting on his desk. He is an avid writer, and enjoys playing devil's advocate in editorials, and reviewing the latest phones and gadgets. He also doesn't usually write such boring sentences.

  • Jon Garrett

    It seems to me that the new way to deal with competition is NOT by being competitive but by filing an endless array of frivolous lawsuits.

  • Richard Yarrell

    Another Apple move by paypal Google will move forward with em or without them. Life will be life.

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