Nuance and Vlingo Battle in Court
A federal jury in Boston in early August settled one patent case leveled against Vlingo by Nuance Communications, but the legal battles between the two rival Massachusetts speech companies are far from over. In fact, they've taken a volatile turn that could have harsh civil and potential criminal implications.
In its ruling in the patent case—the first of eight filed between Vlingo and Nuance—the jury upheld Nuance's claim to a patent that Nuance filed in June 2008, which covers a technique for making a speech recognition system more accurate over time using voice samples collected during multiple sessions. However, the jury also maintained that Vlingo did not violate the patent (U.S. patent number 6,766,295).
Vlingo immediately claimed a victory, with its CEO, David Grannan, issuing a statement in which he called the ruling "further vindication that Nuance cannot compete in the market."
Nuance, in the meantime, vowed to appeal the ruling.
Mike Thompson, senior vice president and general manager of Nuance's Mobile Division, says his company "has the incredible responsibility to protect its intellectual property. From the labs to production to commercialization, we take this very seriously."
According to Thompson, Nuance has more than 4,000 patents and will fight doggedly to protect each one of them.
The two companies still have seven other patent cases pending—five filed by Nuance and two filed by Vlingo. The suits cover a total of 20 patents, 14 held by Nuance and six held by Vlingo.
And while the patent litigation is a key fight for both companies, the legal battles between them have escalated far beyond the patent courts.
In June, Nuance charged Vlingo with false advertising for claims the company makes on its Web site. The suit, filed in a Massachusetts superior court, takes issue with Vlingo's statement that its speech recognition technology "has achieved unprecedented accuracy at massive scales," and can automatically adapt to different pronunciations and vocabularies. Nuance also objects to Vlingo's use of the term "new technology," arguing instead that Vlingo's technology is "not new, and was not even invented by Vlingo," but rather "was existing technology taken from others."
Nuance seeks unspecified monetary damages in the suit and an injunction preventing Vlingo from making such claims in the future.
But that's certainly not the worst of the charges being bandied about by these two speech rivals whose corporate offices are less than 10 miles apart. In perhaps the most incendiary of the pending legal proceedings, Vlingo on September 1 filed suit in a U.S. district court in Massachusetts claiming that Nuance engaged in "unfair competition under federal, state, and common law; commercial bribery; breach of contract; and intentional interference with prospective advantageous relationships."
As part of the suit, Vlingo alleges that Nuance tried to acquire Vlingo and is now engaging in an ongoing campaign to "force Vlingo into being acquired by Nuance at an artificially and unreasonably low price."
The suit also alleges that Nuance CEO Paul Ricci tried to coax Vlingo executives into a deal by offering them $5 million apiece. Those offers were allegedly made to Grannan, Mike Phillips, Vlingo's co-founder and chief technology officer, and John Nguyen, Vlingo's co-founder and vice president of engineering, in September 2009.
Vlingo also alleges that Nuance has been filing lawsuits in other jurisdictions, like the Eastern District of Texas, to purposely drive up Vlingo's legal costs.
Ria Farrell Schalnat, a patent attorney with the Ohio law firm of Frost, Brows, and Todd, says it's not uncommon for firms to file patent cases in Eastern Texas, a jurisdiction known to be friendly to patent holders. For a firm like Vlingo to defend itself against a case there, though, does incur extra costs, she says.
But, she adds, "while the money they are paying their attorneys is probably sizable, it wouldn't be enough to cause them to go belly-up."
Vlingo also alleges that Nuance in July 2011 used confidential information to sabotage deals Vlingo was negotiating with AT&T and Nokia.
The entire suit seeks unspecified damages, a reimbursement of all legal fees, and other financial relief, and requests the court to issue an injunction that would prevent Nuance from engaging in such actions toward Vlingo again.
Thompson said during an exclusive interview with Speech Technology that his company "does not normally comment on ongoing litigation." However, he went on to assert that the allegations raised by Vlingo, while serious, were "bombastic" and "preposterous" and constituted an attempt by Vlingo to "generate headlines and use the courts to its advantage."
The recent court filing, he stated, "reads like an episode of 'Jersey Shore' gone bad."
But Vlingo stands by the allegations nonetheless. "We are quite confident in the allegations," Phillips says. "They are all valid complaints."
Vlingo, he continues, "does not want to be bullied or intimidated into selling. We are willing to fight back, and our investors are backing us. The alternative is to give in to unfair business tactics, and we refuse to give in."
The case raises issues with Nuance's acquisition strategy, which has often been criticized by others in the industry as overly aggressive. Nuance has made more than 40 acquisitions since Ricci joined the company in 2000. Most of those deals involved a classic build-it-or-buy-it approach in which the company opted for buying a competitor that could add to its technology portfolio.
But the Nuance Mobile Division is different, according to Thompson.
He argues that Nuance Mobile was built from the ground up and now constitutes a $350 million business for Nuance. "Mobile is one of the fastest growing divisions within the company," he states emphatically. "We're building things that have never been built before." He then noted that Nuance has endowed its Mobile Division with a $60 million research and development budget that has yielded "some of the most exciting products in the industry."
Among those products, Thompson cited Dragon NaturallySpeaking and Dragon Search, the Flex T9 multimodal interface, fully automated voicemail-to-text conversion, and the Ford SYNC system.
Thompson then argues that Phillips, who was employed by Nuance until 2005, was involved in the creation of Nuance's Mobile Division, which officially launched in 2004, and that he had direct knowledge of the projects it was working on from the beginning.
"Mike Phillips was one of the leaders in the labs around the time we had our most important innovation concepts and ideas," Thompson says. "He left. He went and raised a bunch of money and founded a company with a product that did a lot of what we were doing in our labs. That point alone is incredibly important in the totality of this story. The product looked like ours, smelled like ours, and acted like ours. Given our growth and our customer group, we had to explore and protect our intellectual property. We have no choice. The intellectual property stakes in mobile have never been higher."
For his part, Phillips remains committed to fighting Nuance, but would rather see an end to the legal fight altogether. "The best way to compete is with products in the marketplace," Phillips says. "Vlingo would rather spend its time competing in the market instead of spending time in the courtroom, but we feel forced into it."
For both companies, it might be too far along to turn back now. Even after all the current suits are decided, it might not be the end of the legal drama for either company. Though unlikely, state and federal prosecutors could press for criminal investigations if some of the charges leveled are upheld in the civil courts. "At an extreme level, they could lead to criminal charges, but that's a stretch," says Mark Webbink, a visiting professor and executive director of the Center for Patent Innovations at New York Law School. "But, if they can establish that the claims are valid, it could lead to further scrutiny."
The two companies have a storied past that involves many court battles.