In Legal Battle With Google, Paypal Faces Uphill Battle in California

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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.”

BUSINESS AND PROFESSIONS CODE
SECTION 16600-16607

16600.  Except as provided in this chapter, every contract by which
anyone is restrained from engaging in a lawful profession, trade, or
business of any kind is to that extent void.



16601.  Any person who sells the goodwill of a business, or any
owner of a business entity selling or otherwise disposing of all of
his or her ownership interest in the business entity, or any owner of
a business entity that sells (a) all or substantially all of its
operating assets together with the goodwill of the business entity,
(b) all or substantially all of the operating assets of a division or
a subsidiary of the business entity together with the goodwill of
that division or subsidiary, or (c) all of the ownership interest of
any subsidiary, may agree with the buyer to refrain from carrying on
a similar business within a specified geographic area in which the
business so sold, or that of the business entity, division, or
subsidiary has been carried on, so long as the buyer, or any person
deriving title to the goodwill or ownership interest from the buyer,
carries on a like business therein.
   For the purposes of this section, "business entity" means any
partnership (including a limited partnership or a limited liability
partnership), limited liability company (including a series of a
limited liability company formed under the laws of a jurisdiction
that recognizes such a series), or corporation.
   For the purposes of this section, "owner of a business entity"
means any partner, in the case of a business entity that is a
partnership (including a limited partnership or a limited liability
partnership), or any member, in the case of a business entity that is
a limited liability company (including a series of a limited
liability company formed under the laws of a jurisdiction that
recognizes such a series), or any owner of capital stock, in the case
of a business entity that is a corporation.
   For the purposes of this section, "ownership interest" means a
partnership interest, in the case of a business entity that is a
partnership (including a limited partnership a limited liability
partnership), a membership interest, in the case of a business entity
that is a limited liability company (including a series of a limited
liability company formed under the laws of a jurisdiction that
recognizes such a series), or a capital stockholder, in the case of a
business entity that is a corporation.
   For the purposes of this section, "subsidiary" means any business
entity over which the selling business entity has voting control or
from which the selling business entity has a right to receive a
majority share of distributions upon dissolution or other liquidation
of the business entity (or has both voting control and a right to
receive these distributions.)



16602.  (a) Any partner may, upon or in anticipation of any of the
circumstances described in subdivision (b), agree that he or she will
not carry on a similar business within a specified geographic area
where the partnership business has been transacted, so long as any
other member of the partnership, or any person deriving title to the
business or its goodwill from any such other member of the
partnership, carries on a like business therein.
   (b) Subdivision (a) applies to either of the following
circumstances:
   (1) A dissolution of the partnership.
   (2) Dissociation of the partner from the partnership.



16602.5.  Any member may, upon or in anticipation of a dissolution
of, or the termination of his or her interest in, a limited liability
company (including a series of a limited liability company formed
under the laws of a jurisdiction recognizing such a series), agree
that he or she or it will not carry on a similar business within a
specified geographic area where the limited liability company
business has been transacted, so long as any other member of the
limited liability company, or any person deriving title to the
business or its goodwill from any such other member of the limited
liability company, carries on a like business therein.




16603.  Every person who, as a condition to a sale or consignment of
any magazine, book, or other publication requires that the purchaser
or consignee purchase or receive for sale any horror comic book, is
guilty of a misdemeanor, punishable by imprisonment in the county
jail not exceeding six months, or by fine not exceeding one thousand
dollars ($1,000), or by both.
   This section is not intended to prohibit an agreement requiring a
person to purchase or accept on consignment a minimum number of
copies of a single edition or issue of a magazine or of a particular
book or other particular publication.
   As used in this section "person" includes a corporation,
partnership, or other association.
   As used in this section "horror comic book" means any book or
booklet in which an account of the commission or attempted commission
of the crime of arson, assault with caustic chemicals, assault with
a deadly weapon, burglary, kidnapping, mayhem, murder, rape, robbery,
theft, or voluntary manslaughter is set forth by means of a series
of five or more drawings or photographs in sequence, which are
accompanied by either narrative writing or words represented as
spoken by a pictured character, whether such narrative words appear
in balloons, captions or on or immediately adjacent to the photograph
or drawing.



16604.  Every person who, as a condition to a sale or consignment of
any magazine, book, or other publication, requires that the
purchaser or consignee purchase or receive for sale any other
magazine, book, or other publication is guilty of a misdemeanor,
punishable by imprisonment in the county jail not exceeding six
months, or by fine not exceeding one thousand dollars ($1,000), or by
both such imprisonment and such fine.
   This section is not intended to prohibit an agreement requiring a
person to purchase or accept on consignment a minimum number of
copies of a single edition or issue of a magazine or of a particular
book or other particular publication.
   As used in this section, "person" includes a corporation,
partnership, or other association.
   This section does not apply with respect to any contract relating
exclusively to the sale or consignment of any newspaper of general
circulation as defined by Section 6000 of the Government Code.




16605.  Every person engaged in the business of distribution of
books, magazines or publications of any kind to retail dealers shall
remove from the possession of a retail dealer, within 10 days after
notification by the dealer, any material which he delivered to the
dealer which the dealer did not specifically request, if such dealer
notifies such person that he does not want the material within 48
hours of receipt of the material.
   Any person who refuses to transact business with a dealer because
of any action taken by the dealer under this section is guilty of a
misdemeanor.
   As used in this section "person" includes a corporation,
partnership or other association.



16606.  The customer list, including the names, addresses, and
identity of customers, of a telephone answering service shall
constitute a trade secret and confidential information of, and shall
belong to, the owner of the telephone answering service.




16607.  (a) Except as provided in subdivision (b), the customer
list, including the names, addresses and identity of all employer
customers who have listed job orders with an employment agency within
a period of 180 days prior to the separation of an employee from the
agency and including the names, addresses and identity of all
applicant customers of the employment agency, shall constitute a
trade secret and confidential information of, and shall belong to,
the employment agency.
   (b) Notwithstanding the provisions of subdivision (a), no
liability shall attach to, and no cause of action shall arise from,
the use of a customer list of an employment agency by a former
employee who enters into business as an employment agency more than
one year immediately following termination of his employment.


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