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Summary:

Here’s a phrase PayPal might want to keep in mind as it wages a civil battle against two former executives who defected to Google. Location, location, location. When it comes to employment breach of contract and trade-secret cases, California is a hard state to win in.

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Here’s a phrase PayPal might want to keep in mind as it wages a civil battle against two former executives who defected to Google: Location, location, location.

Because when it comes to employment breach of contract and trade-secret cases, California can be a much pricklier state for a spurned employer to prevail within than many others.

“California law is very hostile to these types of suits,” said Jason Shultz, acting director of the Samuelson Law, Technology & Public Policy Clinic at the UC Berkeley School of Law, “I’d say over at PayPal, they have a little bit of uphill battle.”

While much of PayPal’s allegations against Stephanie Tilenius and Osama Bedier revolve around alleged  breach of employment contract and non-compete violations, provisions within the California Business and Professional Code actually limit the enforceability of non-compete disclosures that companies like Pay Pal make employees sign.

The result — regardless of whatever contracts an employer forces a worker to sign when they start a job —  is that contracts often fall apart when they get in front of a judge.

“California is very pro-competition, especially here in the Silicon Valley. Think of startup culture. We like to entice employees to jump ship and compete with former employers,” Shultz said. “This state has a very free-trade approach to labor markets. You can’t lock in your employees forever. You have to compete to keep them.”

PayPal filed suit in Santa Clara County Thursday, accusing former employees Stephanie Tilenius and Osama Bedier, as well as Google, of 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.

Other aspects of PayPal’s claims could be held up to extra scrutiny in California as well. In its legal complaint, the company argues Bedier’s defection from PayPal’s mobile payments division to Google’s will result in the “inevitable disclosure” of unspecified proprietary trade secrets. It’s called the inevitable disclosure doctrine. “Essentially they are saying he’s the man who knows too much and can’t leave and work elsewhere,” Schulz said. “California has rejected that doctrine as well.”

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  1. Philip Cohen Saturday, May 28, 2011

    PayPal, Google, Schmoogle, whatever

    Good to see the boys squabbling, and threats to PayPal coming thick and fast. It’s interesting times for all we eBay “haters” (oops, I mean “watchers”). I hope that someone has remembered to bring the popcorn.

    The rusting old hulk eBay is presently being kept afloat by PayPal. PayPal is usually registered in various places only as a “money transmitter” (like Western Union), and PayPal actually claims to be not a “payment processor”, and there is a minute degree of truth in that claim because it could be, nonsensically, claimed that they do no more than facilitate the transmission of money by riding on the back of the retail banks’ existing payments processing systems.

    In fact, the only thing creative about PayPal has been their use of the email address as an identifier for online transactions. Regardless, PayPal is literally no more than a blood-sucking parasite on, and in the main cannot function except via, the retail banks’ existing payments system (via their banker, GE Money Bank).

    PayPal, outside of whatever will ultimately be left of the Donahoe-devastated eBay Marketplace, will undoubtedly eventually be consigned to the history books by all those same banks/Visa/Mastercard once those players get their “online” act together.

    Some people may not like the “banks” but all those participating banks at least supply a professionally run payments processing system; even PayPal concurs with that assessment—they use that system all the time and simply could not exist without it.

    Regardless, all the above comments apply equally to all of the other third-party payments processors that are emerging out of the woodwork and wanting to have access to your banking account. Unless they have formal arrangements with all the participating retail banks, as do the likes of Visa/Mastercard, then the result is invariably going to be as potentially problematic as is PayPal’s clunky operation.

    All anyone needs to know about the clunky PayPal:
    http://forums.auctionbytes.com/vbulletin/showthread.php?p=165263

    Is that PayPal’s blood in the water I can see, and are those sharks (oops, banks) I can see circling?

    Enron / eBay / PayPal / Donahoe: Dead Men Walking.

  2. I dont understand this issue at all. These companies are so huge, why don’t they work it out? I’ve “vested interest” in both these companies :/ Its like mom and dad want to divorce and the kids are suffering.

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