Square Settles Morley Litigation For $50 Million

Plenty of start-up companies have interesting origin stories. The credit card processing company, Square, lives true to this claim. On May 5, 2016 the company released their first quarter earnings report. It included an announcement telling shareholders that they amassed $50 million in general and administrative expenses. This is in relation with the Morley litigation. The all-cash settlement put an end to the two-year lawsuit that had beleaguered the company.

Robert Morley is a professor at Washington University. He claimed that he was responsible for creating a dongle which became the signature product of Square. The device reads credit cards by translating information into audio signals, enabling smartphones to process credit card payments. Despite the fact that Morley patented the technology, he found himself outside the ownership of Square.

This shed some light on the rather intriguing story of Square. In 2008, James McKelvey Jr. sought the help of Morley for starting a new business. McKelvey came upon the idea of using smartphones to read credit card transactions. Morley then came up with the necessary technology. He also shared much of his knowledge about the credit card industry, as neither McKelvey nor Jack Dorsey have much experience in this sector.

Dorsey, however, created a new company that would later become Square. It was co-founded by McKelvey, and Professor Morley was left out of the equation. Morley also complained that the additional patents filed by square contained his insights and methods. For this reason, Morley filed a lawsuit against the company and its two cofounders. He wasn’t only seeking for damages but also aiming to be given credit for the Square patents.

Square recently settled the lawsuit, paying Morley a staggering $50 million. Although this all-cash settlement hurt Square’s earnings, the company felt it was a necessary move to move on toward profitability.

In their earnings report for the first quarter of 2016, Square indicated a loss of $97 million. In the same quarter last year, the company only took a loss of $46.3 million. But Square was able to increase revenue by over 50%, totaling $379 million. Despite falling short on analyst expectations, the numbers show that the company is moving closer toward profitability.

Square has remained silent following the details of the settlement with Morley. And now that the lawsuit is settled, it would be interesting to see whether Square sharers would go up after plummeting due to their mixed earnings report.

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