It’s hard to believe that two companies that have spent the last three years suing each other really mean it when they say that together they will be stronger. I’m talking about speech recognition competitors Cambridge, MA-based Vlingo and Burlington, MA-based Nuance Communications.

The two software makers announced Tuesday that Nuance would acquire the younger, smaller Vlingo. It came as a shock, just months after Cambridge, MA-based Vlingo hit Nuance (NASDAQ: NUAN) with a lawsuit that included allegations like commercial bribery and unfair competition.

On the surface it looks like a potential last resort option for the smaller startup after years of costly legal battles (covering patent infringement, false advertising, and more). But the marketing machines of Apple and Google and their newest voice-controlled smartphones, such as the iPhone 4S, could mean a host of new threats in the speech software space, causing the formerly embattled companies to join forces to survive, a number of Boston mobile experts have said.

All pending lawsuits between the companies are now “stayed,” Vlingo CEO Dave Grannan told me, meaning that they’ll be put in limbo until the acquisition closes, at which point they’ll be officially dismissed. Grannan has previously said he’d be open to an acquisition by Nuance if the terms were favorable. In a phone interview Tuesday afternoon, Grannan declined to discuss how much Nuance paid for Vlingo, but did want to talk “the timing of the transaction.”

The shotgun marriage of Nuance and Vlingo comes two months after Apple introduced its iPhone 4S with the built-in voice-controlled virtual assistant Siri, which can handle everything from searching for weather information to calling a cab.

“That has caused just a legion of new competitors to enter the space,” Grannan said. His company makes voice-recognition software that exists as a standalone application sold in the Google Android, Blackberry, and Apple iTunes app stores, and built into devices like Samsung mobile phones.

Facing other voice recognition startups doesn’t seem as menacing, but confronting one major Internet giant does. “It’s more scary for us that Google is going to double down its investment to try to catch Apple’s Siri,” Grannan said. “Both sides realized that we’ve long since passed the value of competing. If we’re going to survive in this marketplace we need to cooperate.”

Mountain View, CA-based Google (NASDAQ: GOOG) recently acquired Clever Sense, the maker of a mobile assistant app called Alfred that makes recommendations on nearby bars and restaurants. The purchase has been pegged as part of Google’s strategy to take its share of the voice-enabled virtual assistant space.

“Rather than spend the next year in legal battles, [Nuance and Vlingo] decided to join forces on this,” said Mark Lowenstein, managing director for the consulting firm Mobile Ecosystem. The acquisition … Next Page »

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All this talk about quarterly earnings and venture stats reminded me: I never posted my favorite stories from Xconomy Boston’s third quarter.

Yes, I know it’s almost the end of October, and the third quarter ended a month ago. I must have been traumatized by the collapse of the Red Sox or something (is baseball still going on?). Go ahead, run me out of town like Theo and Tito.

This time, I’m not consulting with my colleagues. I’m a rebel, a maverick. I work alone. Without further ado, here are my favorite stories from July through September:

Top 10 Tech Stories:

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A federal jury in Boston found Cambridge, MA-based Vlingo’s speech recognition software did not infringe on a patent owned by Nuance Communications (NASDAQ: NUAN), the companies said in two separate announcements (here and here). Burlington, MA-based Nuance has alleged that Vlingo has infringed on a number of its patents, but this particular patent, 6,766,295, covers the technique for making computerized transcription of a users’ speech more accurate over time using audio samples from multiple sessions. The jury of the Federal District Court in Boston found that Vlingo did not infringe on any of the 30 claims Nuance had alleged in this particular patent case, but it did find that the Nuance patent was valid—Vlingo had claimed it was not.

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Seattle-based MOD Systems, a developer of digital-media delivery systems, has had a rocky couple of years, but now it has found a new lifeline in the form of a $6 million investment.

The company, which develops technologies that allow consumers to purchase digital movies, TV shows, and music, and load them onto SD cards portably through touch-screen kiosks, raised an impressive $35 million Series A in September 2008, led by Toshiba, NCR, Deluxe Entertainment Services, and private investors. But the company drew less glowing attention after its co-founder and then CEO Mark E. Phillips was sued by an investor for fraud, embezzlement, misrepresentation, and breach of fiduciary duty in February 2009.

However, despite the public and drawn-out case—resulting in Phillips being charged in a federal wire fraud case in March—the company has found a way to regain confidence of investors, through a $6 million Series B round being announced today.

“When we raised money two years ago, the purpose of that money was to do what we’re doing now—relaunch the company and implement the technology we’re doing now,” says MOD co-founder, chairman, and chief executive Anthony Bay.

The new round of financing is being used to deploy the company’s digital entertainment download kiosks in the market. MOD’s first commercial customer, InMotion Entertainment, rolled out around 20 of the 57 kiosks it will deploy at InMotion stores in airports nationwide—including SeaTac International Airport, which was the first to host a kiosk—two months ago. Bay says the company expects to install the rest before the end of the year.

MOD chose airports as the first locations to host kiosks because of the large market for travelers who are looking for entertainment while they’re traveling by plane. Through one of these kiosk systems, consumers will be able to browse, rent, or purchase digital movies and TV shows, and load them onto an SD card (or purchase one on the spot) before boarding a flight.

“This is the first real commercial deployment of major studio content through kiosks,” Bay says. “With movies and television shows, the studios are very, very picky about content protection. SD cards are the only format that allow you to protect the content on the card—SD cards are standard secured digital. Using SD cards, we can protect the movie or the TV show, and then essentially either make it permanent use so you can keep it, or you can rent it, so you have 48 hours to watch it.” This capability means the studios don’t have to worry about content protection, and consumers still have the ability to watch a movie or TV show streaming right from their computer, without an Internet connection.

“There’s a lot of buzz about the world moving to digital content distribution. Most companies are focused on content delivery system to the home. MOD is focused on content delivery outside … Next Page »

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[Updated: 1:07 pm] Sammamish, WA-based tech startup Infoflows has been awarded over $20 million in damages in an intellectual property dispute with Seattle-based photo library and licensing company Corbis Corporation. Infoflows, started by a group of Microsoft employees in 2004, develops software to track digital content online. The company entered into a multimillion-dollar development agreement with Corbis, whose chief shareholder is Bill Gates, in 2006, resulting in a battle between the two companies over the ownership of a particular piece of technology. Ultimately a King County Superior Court judge ruled against Corbis for two counts of fraud, trade secret misappropriation, and breach of contract. The New York Times published an in-depth piece about the trial and its outcome yesterday, however according to an announcement posted on the Infoflows website, the verdict was reached back in February.

[Updated: 1:07 pm] Corbis spokesperson Scott Baldwin provided the following statement from the company regarding the case: “Corbis is disappointed by the outcome in the trial and believes the trial court made substantial legal errors, resulting in an unjustified windfall verdict for Infoflows…Corbis will vigorously pursue its appeal and is confident that it will ultimately prevail.”

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Redmond, WA-based Microsoft has filed a federal lawsuit against its rival Salesforce.com, claiming the online customer relationship management (CRM) company infringes on nine of its patents. Microsoft is seeking a jury trial, damages, and injunctions. The news was reported earlier by CNET and other media outlets. The patents cover technologies such as display and user-interface features. The move is significant in part because it is reportedly only the fourth time that Microsoft has initiated a patent suit against a competitor.

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In the past week, the Northwest has seen its share of debt financings in medical devices and bio-IT, small funding deals and partnerships in Internet software, and mounting interest in an impending IPO.

—Amazon (NASDAQ: AMZN) rolled out a new mobile payments service that lets applications developers and distributors tap into the e-commerce giant’s one-click checkout system on mobile devices. As part of the rollout, Amazon has formed partnerships with mobile content distributors like Kansas City, MO-based Handmark, which sells games, apps, ringtones, and the like. Financial terms were not given.

—Seattle’s Theraclone Sciences formed a partnership with Tokyo-based Zenyaku Kogyo, worth up to $18 million over time, to discover antibodies that could protect millions of people in a flu pandemic, as Luke reported. Under the deal’s terms, Theraclone has given Zenyaku an option for exclusive rights to new flu antibodies in certain Asia-Pacific countries, while Theraclone gets an undisclosed amount of upfront cash and royalties on future product sales in Zenyaku’s territories.

—Seattle-based Omeros, the developer of anti-inflammatory treatments and other biotech therapies, is on the docket to go public this week and raise more than $80 million, as Luke reported. The company is also defending itself against accusations from its former chief financial officer that it filed false records with the National Institutes of Health and then wrongfully terminated him after he reported it to the board’s audit committee under the company’s whistleblower policy.

—Seattle-based Teranode raised $900,000 in debt financing, as Luke reported. The investors weren’t disclosed, although Bellevue, WA-based Ignition Partners has invested in the past. Teranode, a maker of software to organize life sciences labs, was founded in 2002 out of the University of Washington.

—Seattle-based Founder’s Co-op, a seed-stage investment organization, has backed two local Internet startups, Nearlyweds and BigDoor Media. Financial details of the deals were not announced, but Founder’s Co-op says it typically invests $250,000 or less in its portfolio companies.

—Redmond, WA-based Spiration raised $7 million in debt financing out of a $10 million offering, as Luke reported. The financing came from the company’s partner in Europe and Japan, Olympus Medical Systems. Spiration, which makes an implantable device to treat deadly lung diseases like emphysema and chronic bronchitis, has raised about $97 million since its founding in 1999.

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In what is shaping up as the battle of San Diego’s biotechnology tools titans, Life Technologies (NASDAQ: LIFE) has filed a patent-infringement suit against rival Illumina, claiming that some of Illumina’s best-selling genetic-sequencing products violate Life Tech’s intellectual property.

The suit, filed in U.S. District Court in Delaware, claims that certain Illumina products, including the Genome Analyzer and the second-generation Genome Analyzer II, infringe upon three Life Tech patents. The suit seeks an unspecified amount in damages, and a permanent injunction restraining Illumina (NASDAQ: ILMN) from further infringement. If granted, the injunction would prevent Illumina from selling its equipment.

Telephone and e-mail messages to an Illumina spokesperson were not returned.

Illumina’s Genome Analyzer products are a mainstay of the company’s genetics analysis business, and are important to Illumina’s growth. The $50,000 whole-genome analysis that Illumina began offering to the public in June uses the Genome Analyzer. The company has stated that one of its corporate goals is to make the Genome Analyzer the industry standard for genetic analysis. Last year, the device accounted for the bulk of Illumina’s $64.8 million increase in instrument sales.

Life Technologies, formed last November through the merger of Invitrogen and Applied Biosystems, claims it is the leader in the genetic sequencing business. The Carlsbad, CA-based company had revenue of $3.1 billion in 2008, dwarfing Illumina’s 2008 revenue of $570 million.

Listed as plaintiffs along with Life Tech are patent owners Alexander Chetverin and Helena Chetverina, both of Russia; The Institute for Protein Research of the Russian Academy of Sciences; and William Hone of New York. According to the suit, the patents cover certain methods of amplifying and expressing nucleic acid, a building block of DNA. Applied Biosystems had an exclusive license to the patents, which issued in the late 1990s.

Illumina subsidiary Solexa is also named as a defendant.

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DivX (NASDAQ: DIVX), the San Diego video codec developer, says it has settled a lawsuit with Yahoo (NASDAQ: YHOO) over an advertising agreement that triggered some turmoil at DivX last fall. Terms were not disclosed, but DivX says the settlement will boost its third-quarter operating income by 29 cents per share. With about 32.8 million shares outstanding, that suggests a settlement of $9.5 million. DivX sued Yahoo in November, alleging the Internet search engine company had backed out of a two-year deal on toolbar distribution reached in September 2007.

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Hard times can make for hard feelings between former drug development partners, which seems to be what’s happening between Novato, CA-based BioMarin (NASDAQ: BMRN) and San Diego’s ailing La Jolla Pharmaceutical (NASDAQ: LJPC). Once the love was gone, BioMarin just couldn’t get rid of the La Jolla Pharmaceutical shares it owned fast enough. So it sued.

Accusing its former partner of breach of contract, BioMarin filed suit last month in California Superior Court against La Jolla Pharmaceutical for failing to speed registration of its shares with the SEC, a step that must be completed before the shares can be sold. La Jolla denied the allegation, which it disclosed in an SEC filing.

The lawsuit arose from an ill-fated partnership deal between the two biotech companies. In January, BioMarin paid $7.5 million for a 15.5 percent stake in La Jolla as a part of a transaction that gave BioMarin marketing rights to La Jolla’s experimental lupus drug, abetimus sodium (Riquent). A month later, the drug failed to work in a late-stage clinical trial, driving La Jolla’s shares down 90 percent.

The month-old partnership blew up. La Jolla stopped work on the failed drug, and BioMarin asked La Jolla to accelerate registration of the shares so it could unload them. La Jolla countered that it wasn’t required to move quickly.

Now La Jolla is trying to get the lawsuit dismissed. Worries about its litigation with BioMarin derailed talks with an unidentified party interested in buying La Jolla, the company said in its SEC filing. La Jolla further disclosed that its board has decided to wind down the business because a merger is no longer likely. In April, the company cut 75 of its 86 employees.

Calls to La Jolla executives weren’t returned. Ryan A. Murr, a San Diego-based attorney for La Jolla Pharmaceutical, said he wasn’t authorized to comment.

La Jolla sent the registration documents to the SEC at the end of May and the shares held by BioMarin were cleared for sale last week. In three days, the Novato company unloaded 5.7 million shares, about half its total stake, at share prices ranging between 20 cents and 23 cents, for a total of about $1.2 million.

“We’re selling shares and are continuing to sell them,” said Eric Davis, BioMarin vice president and general counsel. Davis said BioMarin would settle the suit if it made $3 million on the sales – the amount it would have made if it could have sold the shares sooner. During May, La Jolla shares closed as high as 42 cents. BioMarin may continue the suit if it gets less than $3 million, Davis said.

He said BioMarin had no regrets about the partnership deal, which also involved a $7.5 million upfront payment to La Jolla. “The product was very interesting scientifically,” he said. “We knew the challenges with it and structured the deal in a way that gave us a really good risk profile and went in with out eyes open.” Davis noted that a price tag of $15 million for a drug in a late-stage trial was “remarkably low.”

“We still feel good about the price and the way the deal was structured,” he said. “Unfortunately, it didn’t work out.”

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Seattle-based MOD Systems, a maker of music and video downloading technology for retail stores, placed its chief executive, Mark Phillips, and chief operating officer, Kenneth Gordon, on administrative leave Friday. I heard a rumor about this move over the weekend, and TechFlash confirmed the news yesterday, adding some important details. A phone message left with a MOD Systems spokesperson has not been returned.

The move comes on the heels of a lawsuit filed by MOD investor Robert Arnold in February against Phillips, Gordon, and MOD vice chairman Anthony Bay, alleging blatant misuse of funds, embezzlement, and misrepresentation. Bay is now the acting CEO of MOD Systems, according to TechFlash. Phillips and Gordon remain employed by the company, which isn’t giving any reasons for the latest move.

MOD Systems was co-founded by Phillips and Bay in 2005. Last September, the firm scored a $35 million equity investment from Toshiba, NCR, and others. The money was supposed to be used to develop MOD’s media software for use with touch-screen kiosks and secure digital memory cards. In the meantime, the company has been demonstrating its product at IT shows, and Bay is still scheduled to speak on May 7 at the Digital Hollywood conference in Santa Monica, CA.

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Qualcomm has taken a beating in the courtroom in recent years through its patent disputes with Irvine, CA-based Broadcom. So the San Diego wireless giant (NASDAQ: QCOM) was no doubt relieved when a San Diego federal judge dismissed three class-action consumer complaints against the company yesterday.

U.S. District Court Judge William Q. Hayes granted Qualcomm’s request to dismiss the consolidated consumer cases. In one case, Oakland, CA, resident Jesse Meyer, who bought a Motorola Razr cell phone in 2007 through AT&T/Cingular, argued  he was harmed by Qualcomm’s “anti-competitive technology licensing practices.” Qualcomm announced the ruling today.

In a ruling that closed all three cases, Hayes said the plaintiffs lacked standing to bring antitrust claims, because the injuries they alleged were too remote to be traced to allegedly anticompetitive conduct by Qualcomm. The judge also ruled that other allegations raised in the suits did not give the plaintiffs any right to compensation from Qualcomm under California’s unfair competition law.

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Seattle-based MOD Systems and three of its top executives are being sued by investor Robert Arnold for fraud, embezzlement, misrepresentation, and breach of fiduciary duty, among other complaints. That’s according to a lawsuit filed in King County superior court last Wednesday. Arnold’s investigation into the company was first reported by TechFlash.

In the suit, MOD Systems’ co-founder and CEO Mark Phillips is accused of using corporate funds for his personal benefit—including the purchase of a vehicle, travel and entertainment, and rent for his personal residence. Phillips is also accused of misrepresenting the digital-media-delivery company’s intellectual property to Arnold, who reportedly invested $3 million in the company. Arnold is a prominent philanthropist who donated $15 million to the Fred Hutchinson Cancer Research Center in 2005, and previously invested in Starbucks and other companies.

The lawsuit also names MOD’s co-founder and vice chairman, Anthony Bay, and chief operating officer Kenneth Gordon as defendants. In response, MOD’s chief financial officer Richard Barber said in a statement, “The company believes that the claims Mr. Arnold is asserting against MOD Systems itself are unfounded and without merit.”

Last September, the company received a $35 million strategic investment from Toshiba, NCR, and others. That deal figures prominently in some of the suit’s specific allegations. For instance, Arnold claims the deal gave Toshiba the power to use MOD’s intellectual property for its own interests, and that Phillips and Bay were given special treatment, such as the right of first refusal to buy preferred shares—and because of these “conflicts,” the suit says, Arnold’s approval was required by law for the transaction to proceed. Arnold owned 7.8 percent of MOD, and was the largest shareholder entitled to vote on the transaction. (He did not give approval.)

MOD Systems, which was founded in 2005, makes music and video downloading technology for touch-screen kiosks. Just last month, MOD signed deals with Warner Bros. and Paramount Digital Entertainment to allow retail stores to distribute videos by having customers download content to secure digital cards. MOD is also involved in another lawsuit with the former head of Warner Home Video, Warren Lieberfarb, who claims MOD owes him unpaid consulting fees.

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Shares of San Diego digital video provider DivX (NASDAQ: DIVX) fell more than 17 percent in early trading, hitting $4.53 a share shortly before noon ET, after DivX said its financial results would be hurt following Yahoo’s decision to breach a two-year advertising deal. In a regulatory filing last night, DivX said it had filed a lawsuit against Yahoo in California Superior Court in Santa Clara County, seeking damages and to enforce specific terms of the 2007 agreement.

“Yahoo’s decision to breach is unjustified given DivX’s fulfillment of its obligations under the agreement,” DivX CEO Kevin Hell said in the company’s statement. CFO Dan Halvorson said in the same statement that Yahoo’s action will have an immediate effect on the San Diego company’s fourth-quarter financial results.

DivX says its 2008 revenues are now expected to fall within a range of $90 million to $92 million, down from its previous estimates of $95 million to $97 million. The company lowered its non-GAAP earnings per share estimate by 9 cents—to 49 cents to 51 cents.

Yahoo told Reuters it has been working with DivX to restructure their previous agreement, but the two companies could not come to an amicable resolution.

“Yahoo is disappointed with DivX’s decision to pursue legal action rather than renegotiate this agreement,” said a company spokesman. “We intend to vigorously defend ourselves in court, but will reserve further comment until we’ve had an opportunity to review the suit.”

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San Diego’s Qualcomm and Irvine’s Broadcom continue to exchange legal blows like a pair of prize fighters in a slugfest. In the latest round, Broadcom asked a federal judge in San Diego yesterday to declare that Qualcomm’s patents and patent licenses are unenforceable. Broadcom argues that Qualcomm’s sales and marketing practices constitute “patent misuse.” As a result, Broadcom contends the San Diego wireless giant has “exhausted” patents that control its post-sale use of products in the wireless communications industry. Qualcomm did not immediately respond to a request for comment. 

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Natick, MA-based Boston Scientific (NYSE: BSX) announced this morning that it will pay up to $240 million to cover 8,550 patient claims related to defibrillators from Guidant, which Boston Scientific acquired last year. This settlement is expanded from a $195 million agreement announced in July, and covers “substantially all currently asserted claims in the United States” related to a series of recalls and warnings on the Guidant devices.

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