AT&T Backs Vlingo as Nuance Lawsuit Looms

vlingoAT&T has taken a minority stake in Vlingo in a move that could have major repercussions for Nuance’s (s nuan) patent infringement suit against the voice navigation startup. As part of the deal, Vlingo will integrate its offerings with AT&T’s Watson, a core speech recognition technology that serves as a foundation for voice-activated products. Vlingo will all but abandon the IBM-developed technology that it had been using — and which is at the heart of Nuance’s lawsuit.

“Our goal is to move everything to AT&T (s t),” Vlingo CEO Dave Grannan told me this morning. “If Nuance decides to proceed, they’ll essentially be suing us for violating patents — and this is the crazy thing — and the alleged violation occurs in the IBM engine Nuance licensed to us and, by the way, we don’t use anymore.”

Nuance executives were not immediately available for comment.

Grannan said the Watson engine is “superior” to the IBM-developed technology and will help Vlingo build better voice navigation offerings. AT&T and Vlingo will begin rolling out new products later this year for AT&T customers and plan to market the joint solution to other industry players, including device manufacturers and other carriers.

The cutthroat nature of the speech recognition space underscores the increasing attention it’s attracting from investors, as voice is positioned as a superior navigation tool to device keypads and touchscreens -– especially for users behind the wheel. A Boston-area outfit, Vlingo began to gain traction in early 2008 when Yahoo (s yhoo) tapped it to add a speech recognition component to its oneSearch offering. The agreement –- which followed Vlingo’s $6.5 million Series A round in 2007 -– saw Yahoo lead a second round of funding that brought in $20 million.

But Vlingo isn’t the only startup getting funded; the space has attracted hundreds of millions of dollars, and competition is fierce. Microsoft Corp. (s msft) joined the field two years ago with its $800 million acquisition of Tellme, whose technology it’s using to incorporate speech into its upcoming Windows Mobile 6.5. Google (s goog) has invested heavily as well, and is deploying voice navigation with its Android platform. As for the voice recognition companies themselves, outside of Vlingo, smaller players such as V-Enable and Promptu are also vying for attention. Meanwhile Nuance, the dominant pure play on the field, has spent $1 billion or so in acquisitions.