The company has found itself in a battle over the origins of its namesake card reader and the patents behind the technology.
TechCrunch's Robin Waters broke the story yesterday, writing that "Square has now pinned its hopes on the U.S. justice system." Square filed a lawsuit earlier this week against REM Holdings 3 over a patent for the card reader that makes Square work. VentureBeat, describes the problem in the story of the company's origins.
Based on Square's version of the story, inventor McKelvey couldn't sell a piece of glass art because he couldn't accept a credit card as a payment. He moved on to invent the simple reader device that plugs into a mobile phone and carries out the transaction via the phone network.
McKelvey worked with Jack Dorsey, the co-founder of Twitter, to set up Square as a startup to exploit the invention. About the same time, in February, 2009, McKelvey consulted his friend Robert Morley to help build a prototype magnetic card reader that could be plugged into a cell phone jack.
According to Square, McKelvey's name was left off the patent inadvertently. Morley said in an earlier interview with VentureBeat that he had intended to trade the patent for shares in Square, but an agreement was never reached.
When Dorsey first presented Square at Le Web last year, he said that the company had originally considered using the iPhone's camera to take a picture of the credit card, using OCR software to read the data. The current incarnation of the card reader was reached, however, because the company wanted to be able to offer its service on multiple platforms. Since then, the company has run into a number of issues, from production delays to compatibility issues with the iPhone 4. Now, the company has found itself with a hardware solution that someone else owns the patent to and only the court will decide where to go from here.
Can Square catch a break?