Vlingo Lawsuit Charges Nuance With Unfair Competition and Commercial Bribery

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Messrs. Grannan, Phillips and Nguyen $5 million dollars each if they could convince the Vlingo board of directors to approve the acquisition of Vlingo on the terms previously proposed by Nuance. Mr. Ricci made an alternative offer in the event that they were unsuccessful in convincing the Vlingo board to accept the acquisitions term proposed by Nuance. Alternatively, Mr. Ricci offered Messrs. Phillips, Grannan and Nguyen $5 million each plus the monies they would have received had the acquisition went through, if they would quit Vlingo and work for Nuance. Mr. Ricci made this offer knowing full well that Messrs. Grannan, Phillips and Nguyen were key persons whose departure from Vlingo would cripple the company and, thus put Vlingo out of business.” None of the three Vlingo executives accepted the offer, according to the complaint.

(Note: Grannan and Phillips told me they accepted the major Series C financing investment from Nuance very soon after this meeting in part because they believed it would pave the way toward a better relationship in the future—and because the financing round was being conducted at what they considered a fair valuation for Vlingo, unlike Nuance’s offers to buy the company outright.)

The AT&T and Nokia Stories

Another key part of Vlingo’s complaint alleges Nuance’s interference with its attempts to make separate deals with Nokia, the Finnish mobile giant, and AT&T.

The complaint says that in the late summer of 2010, Vlingo was attempting to sell its products and services to Nokia—at a time when Nuance was also attempting to make a deal with the Finnish concern. As part of the negotiations, Vlingo alleges, Nokia executive Bruce Bowden requested “a detailed analysis of Vlingo’s patent portfolio and Vlingo’s patent strategy.” Vlingo provided the requested documents on August 30 and September 1, 2010. After that, things seemed to be going well. “In a telephone call with Nokia’s Janne Karjalainen on September 15, 2010, Vlingo was informed that Nokia and Vlingo were in agreement in principal on the terms laid out in Nokia’s Request for Proposal and that Vlingo should plan to have the appropriate personnel travel to London to start drafting a contract with Nokia’s attorneys on September 23 and 24, 2010.”

But less than a week later, on September 21, Vlingo was told by Nokia that the Finnish company had decided to move forward with a different vendor, according to the filing. That same day, it continues, Bowden informed Vlingo that he was leaving Nokia and had a conflict that prevented him for working with Vlingo. The Cambridge company soon learned that Bowden had joined Nuance, where he currently serves as EVP for corporate development. What’s more, according to the complaint, a letter filed with the SEC revealed that Bowden’s deal included a base salary of $350,000, plus other forms of compensation.

“Nuance lured Mr. Bowden away from Nokia with unrealistic higher salary and other remuneration in order to obtain valuable, confidential information about Vlingo in order to interfere with the prospective advantageous business relationship between Vlingo and Nokia and obtain the Nokia business for Nuance,” Vlingo alleges. As a result, it adds, “Nuance obtained business from Nokia that, absent Nuance’s intentional interference, would have been given by Nokia to Vlingo.”

The AT&T situation took place this summer. The complaint says that in July, Vlingo and Nuance entered into two confidentiality agreements under which Vlingo gave Nuance confidential information regarding certain transactions it was negotiating with AT&T. Grannan told me on our phone call that Vlingo shared this information with Nuance as part of efforts to resolve their litigation and either arrive at a fair price for an acquisition or enter into a cross-licensing deal—only the filing indicates it didn’t turn out like he expected. “Nuance used confidential information provided by Vlingo to Nuance under the protection of the agreements to communicate with at least AT&T in order to interrupt and interfere in Vlingo’s attempts to enter into a commercially advantageous business relationship with AT&T,” the filing alleges. “More particularly Steve Chambers, Executive Vice President of Nuance, called AT&T and urged AT&T not to form a syndicate with Vlingo because Nuance was forming its own syndicate that Nuance urged AT&T to join.”

It turned out that Vlingo got the deal with AT&T anyway. But Grannan says that isn’t the point—and that anything that slows down a deal costs his company money, both in direct costs for things like paying lawyers more than it would have, and by delaying the start of revenues from the agreement.

The complaint, which seeks unspecified damages, attorney costs, and other relief as the court sees fit, maintains that “Nuance has caused damage, reparable and irreparable, to Vlingo.”

Despite it all, Grannan and Phillips say they are not against selling Vlingo to Nuance, at least in principle. Phillips, who has already been through just such an acquisition (Scansoft’s 2003 purchase of SpeechWorks) says, “We certainly understand what these guys are like and what they’re doing in the market. That being said, we’re not against selling the company to them if it makes sense—but we don’t want to be forced into doing it at a low price based on these tactics that they use.”

In the meantime, says Grannan, “We want to build product and innovate, and not focus on all this legal shenanigans that they create.”

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Bob is Xconomy's founder and chairman. You can email him at bbuderi@xconomy.com. Follow @bbuderi

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