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Online payment company PayPal wasted little time in giving its review of the new Google Wallet, filing suit against the two Google executives who led the unveiling of the NFC wallet yesterday–accusing the executives of stealing PayPal's trade secrets.

PayPal, a unit of eBay, charges that Osama Bedier, Google’s vice president of payments, and Stephanie Tilenius, the Web giant’s vice president of commerce, made illegal use of the confidential PayPal information and strategy they had gleaned as former executives of PayPal or its parent eBay to help them build the Google Wallet. Tilenius and Bedier demonstrated the wallet and its payment and Google Offers promotion services yesterday at a press event in New York City.  

The complaint, filed yesterday in California Superior Court, also charges that the pair breached their contracts by trying to lure away other PayPal employees to Google to work on the mobile-commerce project. The suit also names Google, itself.

Google has declined to comment on the suit. 

Seeking First-Mover Advantage
The battle between the Silicon Valley rivals, both of which are trying to make the jump from the online world to the physical point of sale, highlights what is at stake in the budding mobile-payment business–which PayPal in its court petition calls a $200 billion to $1 trillion market within the next few years.

PayPal notes that the first-mover advantage will be just as important for staking a solid claim to the mobile-payment market as it was on the Internet, where PayPal is a major payments player, generating $3.4 billion in revenue last year. At the same time, revenue for Google’s later entry into the Web-payment market, Google Checkout, is negligible, notes PayPal. Other erstwhile competitors, Citigroup, Yahoo! And Western Union, all have closed their Internet payment services, PayPal added.

The petition doesn’t reveal any specifics of the trade secrets PayPal is accusing Tilenius or, in particular, Bedier of “misappropriating,” and doesn’t mention NFC.

But it contends there has been damage done already, and it will continue, since Bedier, who was PayPal’s vice president of platform, mobile and new ventures when he left in January 2011, was “extremely involved” in PayPal’s ongoing efforts to become a payment brand at the physical point of sale.

“Bedier’s role at Google is in part to remedy Google’s weaknesses in this area, already identified by PayPal,” states the complaint. “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.”

Trashing PayPal with Merchants?
PayPal also charges that Bedier disparaged PayPal after he'd joined Google, when he made sales calls on major merchants that both companies are trying to woo for their m-payment services. In those discussions, Bedier revealed PayPal’s confidential deployment plans, product features, its back-end approach to mobile payments and what PayPal sees as the “benefits of a wallet in the cloud” concept, contends PayPal.

Google in its wallet announcement, disclosed a number of major retail U.S. chains that have agreed to participate in its mobile-commerce launch this summer, including the huge Subway sandwich shop, which has more than 34,000 outlets worldwide; the largest retail pharmacies in the United States, including Walgreens; and well-known department store brands Macy’s and Bloomingdale’s.

PayPal reveals little in the court filing of its own plans for moving its payment service to the physical world, though it makes at least one other reference to its cloud-based approach to mobile wallets and applications.

“One form of digital-wallet technology is the ‘wallet in the cloud,’ where a customer’s financial data, payment options and preferences are stored online in addition to or instead of the mobile device itself, and is accessed on demand by whatever device or service a customer seeks to use.”

Although PayPal has been experimenting with mobile payment using contactless stickers that store the payment application, and which consumers could stick to the backs of their phones, some observers expect PayPal to enable consumers to make network-based payments away from the traditional point of sale and conventional contactless POS terminals. They might make the PayPal transaction in the store aisle, for example. This could still use NFC technology for tag reading to deliver offers, product information and open the payment application, itself.

Bedier may have disparaged this approach with merchants, since the Google Wallet does not propose cloud-based payment–putting a MasterCard PayPass application on a secure chip in the Google Nexus S phone.

Apart from the wallet, the complaint also contends that Bedier helped scuttle a three-year pending deal that would have enabled PayPal to serve as a payment option for app purchases by consumers on their Android phones.

This could merely be hard feelings on the part of PayPal over losing some high-priced talent, not unusual in the buzz-driven world of Silicon Valley, say some observers. And, at present, mobile payment and m-commerce are hot topics. Ironically, rumors are afoot that Tilenius herself is on her way out at Google, as well.

The fact that PayPal has gone to court over what it considers a breach of its trade secrets and raiding of its staff by a competitor shows that the company is “very serious about their move into the physical payments world,” said Tim Jefferson, head of UK-based consulting firm, The Human Chain.

PayPal in its complaint mainly accuses Tilenius, who left eBay in October 2009 as senior vice president of North America and Global Products, of breaching the terms of her contracts by poaching Bedier from PayPal to join her at Google, where she had been hired as head of commerce in February 2010. 

She had agreed not to recruit anyone from eBay or PayPal for one year after she left eBay. Her consulting contract contained a similar clause, alleges PayPal. 

Facebook Friends and ‘Little Birdie’
The petition prints Facebook messages Tilenius sent to Bedier, among other evidence, to back up its claim, including one she sent in mid-July 2010, nine months after she left her fulltime job at eBay. She served as an eBay consultant until early 2010.

According to the Facebook message, Tilenius talks of a “HUGE” opportunity for Bedier, then a nearly 8-year veteran of PayPal:

“How are you? Hope the wife and kids are well…hard to believe you have 4 kids, they all must be so big now,” wrote Tilenius, according to the petition. “I heard from little birdie that you might be open to bigger and better challenges, I have a HUGE opportunity for you, would love to chat if you are interested.”

She continued her efforts to recruit Bedier for Google for the next month and a half, alleges PayPal. 

The court filing does not reveal the identity of “little birdie.”