Square's small white credit-card dongle is one of the more recognizable pieces of hardware in fintech. Its origin story usually credits cofounders Jack Dorsey and Jim McKelvey, who came up with the idea around 2008 and 2009. For years, that story left out a third person: Dr. Robert Morley, an associate professor of engineering at Washington University in St. Louis, whom McKelvey brought in to help actually build it.
Morley held several patents on magnetic card-reading technology. McKelvey, an old friend, asked him to help develop a working prototype of the reader and the software that would decode a card's magnetic stripe through a phone's headphone jack. According to later court filings, Morley did exactly that: he worked on the initial prototype and the reader's core technology alongside Square's founders. When the business itself took shape, though, he was given the role of advisor, not partner or cofounder, in part because of his continuing commitment to teaching.
The ambiguity around Morley's role became a patent dispute almost immediately. In December 2010, with Square growing fast, a fight arose over inventorship on a patent connected to the technology Morley had helped develop. Litigation over that patent and related ones dragged on for years, and at least one was later canceled by the U.S. Patent and Trademark Office after a review.
In January 2014, Morley went further and sued Square, Dorsey and McKelvey directly, alleging fraud and patent infringement. His claim was direct: that he had effectively been a cofounder of the underlying technology and the venture built on it, and that he had been unfairly cut out of a company by then valued in the billions, with no equity and no ownership of the invention he says he built.
The case was heading toward trial, with jury selection scheduled, when Square settled instead in 2016. The company recorded a $50 million charge in its first-quarter results that year in connection with the Morley litigation, reported at the time as a $50 million cash payment to resolve the dispute.
What founders can learn from this
This case has a slightly different shape than the others in this series, because the disputed contributor was never part of the founding conversation. He was a specialist brought in to solve a technical problem the founders could not solve themselves. That is an extremely common pattern in early hardware and deep-tech startups, and it is exactly the moment IP ownership needs to be nailed down in writing, not assumed. Who owns the IP before incorporation applies just as much to an outside collaborator as it does to a cofounder: if someone else builds a piece of your core technology, what they are owed for it, in equity, in credit, in ownership of the work, needs to be agreed before they build it, not reconstructed years later once the company is worth billions.
The ambiguity about Morley's title, advisor rather than partner, is the real lesson here. Titles are labels; what actually matters is what the paperwork says someone was owed for the specific work they did. A clear IP assignment for anyone contributing core technology, even someone who isn't full-time, even someone with another job, is the difference between a working relationship everyone remembers the same way and one that ends up needing a jury. What should a founder agreement include covers the same ground for the founding team itself.
Sources: TechCrunch, VentureBeat, Fortune, St. Louis Post-Dispatch.