By Laura Whiteside
Robert Morley, Professor at Washington University in St. Louis, recently filed a patent infringement claim against Jack Dorsey and Jim McKelvey, founders of Square, Inc. Square, a startup based in San Francisco, is responsible for the white plastic card readers that plug into the audio jack of mobile devices and are used to send and receive money electrically.
In the complaint, Professor Morley claims he was the original and sole inventor of the card reader. In 2008, Morley assisted McKelvey in creating a new business, and together they formed a joint venture along with Dorsey. Morley was cut out of the company when Dorsey and McKelvey incorporated. Square subsequently filed various patents that Morley claims used his insights and methods. Morley alleges that he planned to use the value of his patentable ideas to exchange for shares in the company. A court must now decide if Morley was an unfortunate victim or is simply making baseless allegations. Either way, Dorsey and McKelvey will undoubtedly keep riding the success of Square as it grows and transforms into a business that may replace the cash register and change the way large corporations process transactions.
As this lawsuit shows, founder issues can be a serious problem for startups. This is unsurprising given the fact startups are temporary organizations that make it their goal to grow—which might also mean growing out of some of their initial members. Discussions of equity splits, division of labor, and allocation of credit for ideas might not seem as pressing as creating an actual product. However, in order to avoid future litigation, it would be wise for new companies to determine these issues at the outset—before mere ideas ripen into successful billion dollar companies.