'Square' iPhone Credit-Card Reader Facing Patent Trouble

square reader

Twitter creator Jack Dorsey's much-vaunted Square device, the iPhone plug-in credit card reader, may have bigger problems than formidable competition. It seems someone other than Square owns the patent on the technology.

In fact if it proceeds with a launch, Square may be being guilty of outright IP theft--a hot topic at the moment it seems. The chap concerned is Bob Morley, an electrical engineering professor at Washington University and longtime family friend to Square's co-founder Jim McKelvey. Morley is the guy who actually built the prototype audio-based credit card reader when McKelvey and Dorsey started to develop the idea, using expertise built up from his day job of working on magnetic strip security. It's pictured below, and though it's very different to the tiny plastic gizmo that is the final Square product, the key (patentable) aspects are the same: A magnetic reader, with electronics to convert the read data into an audio signal.

Morley prototype

At some point Morley had a disagreement with McKelvey and Dorsey. Which is a problem, since in June he filed a patent in his name for the key card-reading tech that makes Square work. Though it's not been granted yet, there's no reason to suspect it won't be...it's a unique solution. And when it is granted, it'll mean Morley--not Square--owns the patent for the very technology that makes the whole system tick.

What's going on? It's all about money, of course. Morley apparently wanted to assign ownership of the patent to Square in return for ownership of shares, but the two parties couldn't agree. Apparently it's a relatively animosity-free situation, and Morley doesn't intend to hold Square over a barrel--he just wants fair his fair due. Coincidentally, that could be a serious pile of cash if Square becomes the rocketing, market-disrupting technology Dorsey is really hoping it can be.

The situation is unclear, of course. Morley doesn't own the patent yet, so Square can pretty much go ahead and launch...with something of a Damoclean sword hanging over it in the way of future licensing payments or a cash patent buy-out with Morley. That's not the most promising situation in which to launch a business marketing something so very novel as Square. It might limit how successful the thing can be--particularly if legal issues hold up the project and Apple and VeriFone swoop in and sew-up the market before Square can.

[Via VentureBeat]

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