Summary:

Google (NSDQ: GOOG) held a high-profile launch event for its new mobile payment system today. But now it looks like another big player in th…

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Google (NSDQ: GOOG) held a high-profile launch event for its new mobile payment system today. But now it looks like another big player in the payment-processing market is seeking to crash that party, and not in a fun way.

PayPal filed a lawsuit against Google today, alleging that Osama Bedier, a key employee who was working on mobile payments at PayPal left for Google, and misappropriated PayPal trade secrets on his way out the door. The suit was filed in state court in California’s Santa Clara county, which includes much of Silicon Valley. The suit also says that another Googler and former PayPal employee, Stephanie Tilenius, violated her agreement with PayPal by recruiting Bedier.

Osama Bedier, “is now leading Google’s efforts to bring point of sale technologies and services to retailers on its behalf,” PayPal states in its complaint. “”Bedier and Google have misappropriated PayPal trade secrets by disclosing them within Google and to major retailers.” Another employee, Stephanie Tilenius, is accused of violating contractual obligation because she recruited Bedier.

Tilenius and Bedier were actually two of the Google employees who unveiled the new product at Google’s New York headquarters today.

Some quick legal background about these types of disputes: California has strong legal protections for workers that choose to move from one company to a competitor. State courts have generally refused to enforce the kind of “non-compete” agreements that are common in many other states. However, California also has strong trade secret laws, which include tough penalties. So sometimes trade secret laws are used as a weapon to attempt to control the movement of key employees.

PayPal has made the lawsuit available in a post on its corporate blog, which also includes a brief explanation about the company’s decision to file suit. Key details from the complaint:

»  Google was actually working together with PayPal on a payment system that would work for Android, and Bedier was in charge of the negotiations for PayPal. But then-just as the deal was scheduled to be signed-Google reneged, sensing that it could hire Bedier and create its own mobile payments system rather than work with PayPal, according to the complaint.

»  Bedier was “extremely involved in PayPal’s efforts to become a payment option at the point of sale in retail stores.” He has detailed knowledge of PayPal’s operations in that area, and he knew PayPal viewed Google as a competitor.

»  PayPal claims that Bedier actually transferred up-to-date PayPal strategy documents to his personal computer “just days before leaving PayPal for Google on Jan 24, 2011.”

»  “By hiring Bedier, with his trade secret knowledge of PayPal’s plans and understanding of Google’s weaknesses as viewed by the industry leader, Google bought the most comprehensive and sophisticated critique of its own problems available.” By putting him in charge of Google’s mobile payment initiative, Google “virtually ensur[ed] that Bedler would misappropriate PayPal’s trade secrets,” the complaint states.

»  Google offered Bedier a job in late October; he told his PayPal bosses about it on Nov. 1, and they told him it would be a huge conflict of interest, and that his move “would as a matter of course” misappropriate PayPal trade secrets. That caused Bedier to flip-flop about what he was going to do; in December he said he was committed to staying at PayPal. But on Jan. 24 he left for Google.

»  PayPal also says that Bedier admitted he had confidential information on his personal computer, email account, and DropBox account; but Bedier hasn’t handed over that data, despite requests from PayPal.

»  Tilenius is involved in the lawsuit because she supposedly violated her agreement not to recruit any PayPal employees for at least a year after she joined Google in 2009. Tilenius recruited Bedier and guided him through the Google hiring process, including interviews with then-CEO Eric Schmidt and current CEO Larry Page.

»  Bedier and Google have continued to recruit other key PayPal employees, whom PayPal says also have knowledge of PayPal trade secrets. “On April 7, 2011, they successfully recruited Usman Abbasi, a director-level engineer and key player in PayPal’s mobile payment operations, to work for Google… Google had abandoned the plans that had developed over more than two and a half years of collaboration with and learning from PayPal, and instead sought to hire away employees who knew PayPal trade secrets.”

Google hasn’t yet responded to the lawsuit.

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