SAN FRANCISCO — Google Inc.’s ambitious plan to supplant credit cards with smartphones has thrust the Internet search leader into a legal tussle with online payment pioneer PayPal, which contends Google stole its ideas by hiring away two key executives.

PayPal painted a picture of betrayal and corporate espionage in a lawsuit filed late Thursday in a California state court, just hours after the unveiling of the “Google Wallet” payment service in New York.

Additional Photos

Google's Osama Bedier demonstrates how Google Wallet will work during a news conference on Thursday in New York. Bedier left PayPal to become Google's vice president of payments only four months ago. AP

The 28-page complaint alleges the service evolved from research that eBay Inc.’s PayPal had been working on for the past decade.

PayPal fingers two central culprits in the intellectual heist — one of its former executives, Osama Bedier, and former eBay executive Stephanie Tilenius.

In its response today, Google contends it merely identified talented candidates to run its mobile payments service and then made them offers that proved too tempting to refuse.

“Silicon Valley was built on the ability of individuals to use their knowledge and expertise to seek better employment opportunities, a principle recognized by both California law and public policy,” Google spokesman Aaron Zamost said. “We respect trade secrets, and will defend ourselves against these claims.”

The civil complaint alleges Google spent more than two years discussing a partnership that would have relied on PayPal to process payments for an application market set up for Google’s mobile phone software, Android.

Google cut off the Android talks earlier this year after it had poached enough PayPal employees to set up its own mobile payments service, according to the suit. The suit doesn’t directly connect the application markets system with the technology behind Google Wallet.

Google recruited Bedier, a PayPal executive for nine years, while the two companies were in talks about their alliance. After initially waffling, Bedier left PayPal to become Google’s vice president of payments four months ago.

Before leaving, Bedier transferred some of PayPal’s secrets to his computer and also uploaded other sensitive information to an Internet storage locker called DropBox, the suit alleged. Bedier also began lobbying for Google to hire other PayPal employees working on mobile payments before he took the new job, the suit said.

Google wanted to hire Bedier so badly that Eric Schmidt, then Google’s CEO, and company co-founder Larry Page got involved in the recruitment last fall, according to the suit. Page replaced Schmidt as Google’s CEO last month.

Tilenius, now Google’s vice president of commerce, began the wooing of Bedier with a Facebook message on July 15, 2010. As part of an agreement when she left eBay in October 2009, Tilenius had agreed not to recruit eBay employees until March of this year, the suit said.

Google, Tilenius and Bedier are all named as defendants in the suit filed in Santa Clara County. It seeks to a court order protecting PayPal’s trade secrets, punitive damages and royalties from any revenue generated by Google Wallet.

It’s not unusual for a company to go to court when a rival hires away a key executive. Google also was sued six years ago when it hired a top Microsoft Corp. executive to oversee its China operations. Before the case was settled, both companies filed documents that revealed colorful details about their rivalry.

Google, which is based in Mountain View, Calif., also was among six Silicon Valley employers who got into trouble with the U.S. Justice Department for agreeing not recruit each other’s top engineers and other workers with specialized skills. The companies settled the allegations last fall by agreeing not to enter into “no-solicitation” agreements for five years. Neither eBay nor PayPal were among the employers involved in that settlement.

Related Stories