PayPal’s suit against Google claiming the latter misappropriated trade secrets reflects the urgency around being the first to market with a viable mobile payments solution.

Both companies are trying to build a presence for themselves in the growing mobile payments space, which industry believes has significant potential even though there are still a lot of unanswered questions about how it will work. In the suit, eBay-owned PayPal says it has been developing capabilities to provide large retailers with next-generation “mobile payment” point of sale technology and services and that Google is also exploring this market.

“I think the case has to be understood in the larger context of the rush to be the first to market with a viable mobile payments solution,” said David Carter, an attorney at ArentFox, NY.

“This is an area where the first-mover is going to have significant advantage,” he said.

There is a lot at stake here.

Analysts project that the domestic mobile payment market will reach $200 billion to $1 trillion annually within the next few years, according to the suit.

Retailers and consumers are interested in mobile payments and digital wallets because of their flexibility, opportunity for location-based services and targeted advertising possibilities.

Room for two?
There are already a number of players trying to make their mark in mobile payments, which is adding confusion while also making it challenging to determine who will have a stake in mobile payments.

Still, it is obvious that Google and PayPal see a lot of potential here.

“I think the fact that, according to the complaint, Google executives and CEO Larry Page were interviewing Mr. Bedier [one of the former PayPal executives named in the suit] really demonstrates how important mobile payments are to this industry,” Mr. Carter said.

Google will fight the complaint.

“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,” said Aaron Zamost, a Google spokesperson. “We respect trade secrets, and will defend ourselves against these claims.”

PayPal makes the case that there may not be enough room for two major players in the mobile payments space.

“Although PayPal’s services and Google’s services are not mutually exclusive, at this stage it is unlikely that a retailer would invest time and effort in testing both companies’ products,” the suit states.

The suit also reflects a lack of talent who understand both payment systems and mobile.

“The stakes are high, with time-to-market and intellectual property providing the basis for competitive advantage,” said Drew Sievers, CEO of mFoundry, Larkspur, CA.

“People who understand payment systems and mobile are highly coveted and the competition for those resources is intense,” Mr. Sievers said. “This won’t be the last legal action you’ll see in this space.”

San Jose, CA-based PayPal’s suit was filed the same day that Google, Mountain View, CA, introduced two new services to let consumers pay merchants and download coupons with a tap of their mobile phones.

Google said it is partnering with Citi, MasterCard and First Data on a new mobile wallet that lets consumers store all of their cards on one single device and pay for goods and services via one tap. The service is launching in New York and San Francisco, with plans for a nationwide rollout.

No coincidence
“Obviously, the timing is not a coincidence here,” ArentFox’s Mr. Carter said.

While the suit shows PayPal may have legitimate concerns, it also appears to be making a preemptive strike against Google.

“PayPal is also trying to dampen the advantage that Google will have by getting its products out to the market first,” Mr. Carter said.

“It’s not clear from my reading of the complaint what type of injunctive relief PayPal is seeking, but it is possible they are seeking to prevent Google from getting its product into the market if they can demonstrate that product was derived from PayPal’s intellectual property,” he said.

The suit names two former PayPal executives, Osama Bedier and Stephanie Tilenius.

Mr. Bedier worked for PayPal between 2002 and early 2011, when he left to join Google. At the time of his departure, he was vice president of platform, mobile and new ventures.

“In the course of his work at Google, Bedier and Google have misappropriated PayPal trade secrets by disclosing them within Google and to major retailers,” the suit states.

Ms. Tilenius held various positions at eBay and PayPal, including vice president for PayPal merchant services between 2004 and 2008. The suit claims that she violated her contractural obligations to eBay by recruiting Mr. Bedier.

Please click here to read the entire complaint

Final Take