A long-running dispute between former business partners has dissolved into a federal lawsuit filed by one of the parties. The former partner claims he was elbowed out of the business and denied the profits after developing the technology that made the company successful.
The case, Morley v. Square Inc., filed in the U.S. District Court for the Eastern District of Missouri, reveals how quickly business partnerships can crumble, and how carefully-drafted contracts can help to spare litigation.
Boston small business attorneys recognize that while the company in question, Square Inc., isn’t small now (it’s most recent valuation was somewhere around $5 billion), it started out with just three men and an idea a few short years ago.
According to the complaint filed by the plaintiff, a professor at Washington University in St. Louis, he was approached by Square Inc.’s co-founders (before there was a Square Inc.) back in 2008 about the possibility of starting a new business. At the time, both the other men were in the glass-blowing business, with one serving as an intern.
The professor agreed to be on board and, after exploring several ideas, the trio settled on a type of technology that could essentially turn a smartphone into a cash register. Specifically, they wanted to come up with a device that could be attached to a smartphone and allow it to scan credit and debit card information, which would allow transactions to be processed on personal phones.
The professor, who had experience with the credit card industry, says he developed the technology and even secured a patent for it. He and the other two formed a joint venture that focused on furthering this initiative.
However at some point, he alleges, the other two decided to strike out on their own. They formed another business and subsequently redirected all the revenue from the original joint venture into the new firm.
While the professor lacked any ownership stake in the new company, he figured he would simply sell the patent to the company in exchange for shares of the firm.
This did not happen because the Square co-founders, he said, developed their own (very similar) technology and obtained their own patents. The professor claimed the two used his methods and insights in order to develop their own technology – to his detriment.
A spokesman for the firm indicated the company intends to vigorously fight the claim, and noted that previous attempts by the professor to claim infringement with the U.S. Patent and Trademark Office have so far been unsuccessful. He went so far as to call the professor’s action “desperate.”
A patent is one important way that developers of new technology and ideas can protect their intellectual property. But sometimes, that may not be enough. New ideas, inventions and systems are what allow industry to thrive. However, the incentive to create is significantly reduced when those creations aren’t adequately protected.
Successful commercialization of intellectual property requires guidance on licensing, merchandising and corporate contracts.
We’re here to help.
The Brown Law Firm, LLC, has offices in Belmont and Boston. For a free and confidential consultation, call 617-489-0817 or contact us online.
Another ugly cofounder dispute: Square sued by Washington University professor, Jan. 30, 2014, By Christina Farr, VentureBeat.com
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Boston Businesses Strive to Protect Intellectual Property, Defend Against Hackers, Aug. 26, 2013, Boston Small Business Lawyer Blog