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Square's credit card reader technology is patented. Here's a claim from patent US7810729 for illustration:

1. A card reader device for reading a card having data stored on a magnetic stripe incorporated into the card the device comprising:

  • a read head for passing a magnetic stripe of a card by to read data stored on a magnetic stripe and for producing a signal indicative of data stored on a magnetic stripe;
  • a signal setting device for setting an amplitude of the signal indicative of data stored on a magnetic stripe; and
  • an output jack adapted to be inserted into a microphone input associated with a cell phone for providing the signal indicative of data stored on a magnetic stripe to a cell phone.

In spite of that more and more companies have been using Square's audio jack technology (Payfirma, Payd, Payleven).

Would it be legal to purchase Square credit card readers off of eBay or AT&T and develop my own mobile applications using its technology? This is assuming I sell these applications as a SaaS or off the app store.

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This particular patent covers the card reader device. If you purchase such a device and use it, the patent does not apply to you: it would only apply if you wanted to manufacture or sell a device using the same technology. In effect, you paid for the patent when you bought the device. Software that you might write to run on the device or to interact with the device is unrelated to patent claims on the device itself. There may, of course, be other applicable patents, from Square or others.

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"If you purchase such a device and use it, the patent does not apply to you:" That's not correct. Square may grant you a license to use it, of course, or patent exhaustion may apply (see en.wikipedia.org/wiki/Exhaustion_doctrine) but as a general matter using a device that embodies a patent may be just as much an infringement as manufacturing it. For example, WiFi users have been sued for using WiFi: patentexaminer.org/2011/09/… –  Luis Oct 12 '12 at 2:44
    
@Luis - from a layman's point of view, this particular case with this particular patent seems to fall squarely in Exhaustion territory, doesn't it? I mean, Square has the patent, Square sold the devices, so pretty much Square is finished with them. Unless they were not originally sold (in which case they may technically be stolen goods!) I don't see where Square would have anything that even looks like a leg to stand on for this patent. That doesn't mean there isn't something else, but for this one, I think he's clear. –  Michael Kohne Nov 13 '12 at 20:01
    
Does Square have the patent? I don't see it listed as an inventor or assignee. –  Luis Nov 14 '12 at 0:43
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