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Innovation Economy

Legal strategy

Finding itself subject to a patent lawsuit, Vlingo says its competitor's strategy stifles progress

Email|Print|Single Page| Text size + By Scott Kirsner
June 22, 2008

Dave Grannan was leading an afternoon product development meeting last Wednesday at the Harvard Square offices of Vlingo Inc. when he was rudely interrupted by a process server bearing a lawsuit. His 35-person speech recognition start-up was being sued for patent infringement by the biggest company in its business, Burlington-based Nuance Communications Inc.

For Nuance, the suit against Vlingo is only the latest in a string of lawsuits in defense of the speech-recognition patents Nuance has amassed through more than 20 acquisitions - none of which it has won in court. Nuance says it is only protecting its intellectual property, but some industry observers think otherwise.

"They're a monopolist, and who loves a monopolist?" says Walt Tetschner, an analyst at Voice Information Associates Inc. in Concord. "They don't want any competition, and that leaves you with a pretty crummy market, with no progress happening."

For start-ups like Vlingo, lawsuits can be distracting - and financially draining. Grannan, Vlingo's chief executive, acknowledges that "it interferes with our business, and our customers have concerns about whether the suit is legitimate."

The roots of the suit trace back to 2003, when Nuance (then known as ScanSoft) purchased a Boston company called SpeechWorks International Inc. for $132 million. SpeechWorks had been developing voice-controlled phone systems for companies such as Amtrak and E-Trade, to allow customers to make train reservations or stock trades. With the acquisition came two key SpeechWorks engineers: Mike Phillips, who'd been a founder of the company, and John Nguyen.

Phillips became the chief technology officer at Nuance, a company that started off in the document scanning business. (Nuance was a spinoff from Xerox Corp.) In 2001, Nuance began acquiring speech-recognition companies to expand its business, starting with the bankrupt Belgian company Lernout & Hauspie Speech Products NV. That gave the company the popular PC dictation software Dragon Naturally Speaking, developed in Massachusetts. Nuance's shopping spree accelerated after SpeechWorks. (When the company wanted to leave the ScanSoft name behind, even its new name, Nuance, came from the acquisition of a California company.)

But Phillips says he was underwhelmed by the amount of resources Nuance put into improving the accuracy of speech recognition and developing new products.

"When you grow through acquisitions, it makes it very difficult to maintain an internal culture of innovation, because the entire management team and engineering team are spending all their time trying to figure out who to acquire next, or working on integrating a new team and product into the company," he says. Part of his job also involved helping the company craft patent suits against competitors.

"For someone like me, who likes to develop new technologies, it just wasn't personally fulfilling or interesting," he says.

Phillips left the company in June 2005; Nguyen had already departed to work for a company that was delivering music to cellphones. Phillips spent a year at MIT as a visiting scientist, so as not to violate his noncompete agreement with Nuance.

In 2006, Phillips and Nguyen started the company that would become Vlingo. Vlingo focuses on using speech recognition on mobile phones to limit the amount of typing that must be done to compose text messages or search the Web.

One of the company's innovations allows for "free-form" speech. While most speech-recognition systems prompt you to say a word by asking "What city?" - Vlingo allows you to simply utter a phrase. So rather than initiating a Web search by saying "Somerville, Massachusetts," then "restaurants," then "Tibetan," you can simply say, "Tibetan restaurants in Somerville, Massachusetts."

When it makes the occasional mistake, the system lets you choose words you might have meant using a pull-down menu (offering "John," for instance, as an alternative to "Juan") or enter corrections using the phone's keyboard. All the while, the Vlingo system is learning from its mistakes and improving its accuracy.

Phillips and Nguyen built their first demo on top of a speech-recognition "engine" from Nuance. (The engine is what translates the sounds of speech into words; Vlingo's software then tries to make sense of the words. Nuance offered Vlingo a free "evaluation license" of its engine.) In October 2006, Phillips and Nguyen decided to spend a few thousand dollars to sponsor Nuance's annual "Conversations" conference in Orlando, where employees, customers, and business partners gather. Vlingo had a booth showing off its technology.

"A lot of the Nuance salespeople were looking at what we were doing," Phillips says. "They asked if we could work more closely together, and talked about selling our solution."

Nuance chief executive Paul Ricci also saw the demo, and began discussions with Vlingo about bringing Phillips and Nguyen back into the fold - though there was never a formal acquisition offer with a price attached.

After two conversations with Ricci, Phillips decided against it. "Doing this as a start-up just felt like a more nimble way to innovate, and it's our view that there's a lot of innovation needed here," he says. After that, Vlingo received a letter from Nuance saying that it wouldn't license its speech-recognition engine to Vlingo.

Nuance spokesman Richard Mack wouldn't comment on specifics of the relationship between the two companies. "There is a lot of context here, and we will choose to litigate this in the courts, and not in the press," he said.

When Grannan, a former Nokia executive, took over as chief executive at Vlingo last year, discussions about licensing resumed, but Grannan didn't like Nuance's terms, which involved a $1.5 million up-front payment and 25 percent of the start-up's revenues. So Vlingo licensed a speech-recognition engine from IBM instead. Grannan said that was the last he heard from Nuance until last week's lawsuit - though Vlingo competed against Nuance earlier this year for a deal to supply speech-recognition technology to a Yahoo service for cellphones called OneSearch. Vlingo won.

The lawsuit alleges that Vlingo is violating a Nuance patent that enables a speech-recognition system to adapt to the speech patterns of an individual over multiple separate sessions. Phillips says he was assiduous in avoiding Nuance's patents when he started Vlingo - and he may know more about Nuance's patent position than just about anyone else.

Phillips was well aware of Nuance's willingness to litigate; while he was at the company, Nuance sued a Woburn company called Voice Signal Technologies Inc. for infringing a patent related to voice-driven dialing on mobile phones. Voice Signal executives publicly asserted that Nuance had earlier tried to acquire the company, and called the suit "an intimidation tactic." That suit was tabled when Nuance bought Voice Signal last year for $293 million.

Nuance, for its part, characterizes itself as "a pioneer and an innovator in speech," according to Mack, the Nuance spokesman. He acknowledges that while the company has never given birth to a new speech-recognition product of its own, it is dedicated to continually improving the products it acquires. Earlier this month, it showed off some new speech software that works with Apple's iPhone that duplicates some of Vlingo's features.

In patent cases, courts face the challenge of determining whether patents are being violated or not, or whether a patent is invalid or overly broad. In doing so, the court balances the merits of innovation with the rights of companies like Nuance that have developed (or purchased) valuable intellectual property.

But for small companies like Vlingo, lawsuits have no upside. Though the company has raised $26.5 million in venture capital funding, and will soon reveal a new voice-driven application for BlackBerry users, Vlingo doesn't have a single attorney on staff. Its outside counsel charges $500 an hour (and up) for a partner's time.

"The whole discovery process eats up management time that could be used for more constructive ends," says Michael Barron, a partner at the Boston office of DLA Piper. "For a start-up, it's a huge issue."

Inside Vlingo, Grannan is trying to use the suit to rally his employees. "I've told them that it's a validation for them," he says. "We've got the big boys in Burlington scared."

Scott Kirsner can be reached at kirsner@pobox.com.

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