After seven years of back-and-forth legal bickering and on the eve of a civil trial, Square on Friday (June 10) blinked and finally settled with Ren Holdings 3 and Robert Morley. The case was the quintessential Silicon Valley founder tiff, involving arguments over who really came up with the key parts of the idea that launched the now-powerful payment facilitator player. (Why do we never see pitched legal battles over who came up with the idea for companies that quickly fizzled and died? Just asking….)
The particular ideas that were mostly at issue were the patent for Square’s payment card reader—seems that glass art business owner Jim McKelvey’s name was left off, after he allegedly pointed out the payment flaw that was the essence of Square’s raison d’etre—and other mobile payment approaches. The argument is that McKelvey came up with the idea and that he discussed it with Jack Dorsey—now the CEO of Square and, in his spare time, Twitter—and Morley.
These arguments are classic Silicon Valley. Whose implementation idea is it? The person who noticed the problem and had a vague idea how to make it work, the more technical person who figured out a precise way to make it work, the specialist (in this case, payments expertise) who amended all of the above to work best with the rules and infrastructure of existing reality or the business person who figured out the way to let it generate revenue and profits?
It’s usually something close to a true collaboration—which makes splitting up the money later more challenging. Also, these interactions are rarely transcribed, beyond some e-mails and texts. If key meetings happened in person, egos and greed-fueled memories dominate. Hello, judge and jury.
Square’s statement was cryptic, short and vague, which is Square’s way of authenticating its communications. Here is the statement, in its entirety: “Square announced that the company has reached a mutually agreeable settlement with Dr. Robert E. Morley, Jr. and his company REM Holdings 3, LLC, resolving litigation between Dr. Morley and the company, Jack Dorsey, and Jim McKelvey. Dr. Morley made valuable early contributions to the company in 2009 when Square was first getting off the ground, and Square is thankful to Dr. Morley for his involvement. Jack Dorsey, CEO of Square, said, ‘We are pleased to put this dispute behind us.’ The terms of the settlement are confidential.”
Although the statement doesn’t say the size of the settlement or why it settled, TechWire did a good job of connecting the dots. The federal trial to try and resolve these charges was slated to start on Monday (June 13) and Square just happens to announce a settlement the workday before.
As for how much, Square “recorded a $50 million charge related to the settlement in its most recent quarter, according to a regulatory filing last month,” the TechWire story said. Here’s what that SEC filing said: Square “recently signed a binding term sheet with Mr. Morley and REM stipulating the material terms of a settlement. While the final definitive agreement has not yet been finalized, (Square) recorded a charge of $50.0 million in general and administrative expenses for three months ended March 31, 2016. Until the Company enters into a final definitive agreement, the Company can make no assurances about the specific settlement terms, including monetary and nonmonetary terms.”