Paypal stole ‘revolutionary’ secrets to build model, says suit
Articles published last year uncovered the alleged misappropriation from more than 20 years ago | Financial company claims Paypal had inauspicious origins but then built its successful business model through improper means.
PayPal has been hit with claims that the global payments provider misappropriated confidential information that it had gained more than two decades ago.
Internet Payments Patents (IPPL) filed the trade secrets complaint on Tuesday, January 23, at the US District Court for the Western District of Texas .
Ireland-based IPPL alleges that PayPal misappropriated its valuable technology following a meeting held in 2002, during which one of its founders and executive officers, Tony Foran, was encouraged to share confidential information with PayPal under the guise of a potential partnership.
IPPL said that it had taken legal action following the discovery that PayPal had published various articles as part of its ‘Business Resource Center’ website in July 2023, which revealed that it had used and adopted the confidential technology that had been presented without consent.
‘Revealing materials’ online
In one article, PayPal describes that “[a]s [the] payment processor, gateway, and online merchant account, PayPal authorises transactions and helps protect electronic payments that come through your website.”
Such a description, said the complaint, exactly “tracks” the IPPL technology shared with PayPal in 2002.
In another article published last year, PayPal also described how its JavaScript software development kit was used, which IPPL said “precisely tracks” the technology as shared with PayPal in 2002.
Additional recently published product manuals, articles, and guides by the US multinational make clear that the payments provider misappropriated IPPL’s technology, added the complaint.
The articles, contend IPPL, show that PayPal misappropriated and misused this confidential information to build its own payment services.
The complaint further outlined how IPPL had licensed the development of payment technologies and systems to build and launch a payments business since its founding in Wicklow, Ireland in 2001.
The company, it continued, had devised elegant solutions to the problems faced by customers during late 1990s and early 2000s, when they tried to buy goods and services over the Internet only to find it was “cumbersome, unreliable, and sometimes dangerous”.
To complete such transactions, the complaint said, customers at that time were forced to provide personal information to the merchant, including credit card numbers, names, and addresses.
This meant that it was then easy for such numbers to get stolen and for thieves to use a stolen number to purchase goods and services.
To overcome such issues, IPPL said that it had invented a system allowing a customer to communicate with a customer accounts server and then a merchant to initiate and complete a transaction.
As a result, the customer could be more confident of their anonymity and security, and the transaction could be completed more efficiently.
The complaint contrasted this innovation with PayPal’s inauspicious origins, arguing that the defendant’s payment system originally consisted primarily of a person-to-person model on an eBay auction site in the early 2000s.
Disruptive influence
IPPL further argued that the largest players in the payments sector in the early 2000s recognised the value of this technology, describing it as “revolutionary,” “a real disruptive technology solution,” and an “elegant solution”.
IPPL insisted that it maintained the secret, confidential information of the alleged trade secrets and had taken reasonable measures to keep the information secret, including through agreements that forbade the disclosure or use of such information.
PayPal’s payment processing system, it added, incorporates the misappropriated trade secrets, which were derived using “improper means” because PayPal knew that any use of the technology was barred by its agreement.
IPPL is represented by David Hecht, partner at Hecht Partners in New York, and the case is Internet Payments Patents v Paypal.
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