SoundBite Bites Back

SoundBite Communications, a provider of on-demand voice messaging, continues to delay its initial public offering after receiving a letter last Tuesday from Columbus, Ohio-based Universal Recovery Systems (URS), accusing Bedford, Mass.-based SoundBite of violating patents owned by and pending approval for URS.

In a letter filed with the Securities and Exchange Commission (SEC), SoundBite asserts, "We believe the allegations contained in the [URS] letter are without merit, and we would defend vigorously against any claim that our solution violates the referenced patents." SoundBite did, however, postpone its 6 million share initial public offering (IPO) last week, while maintaining the offering price range of between $12 and $14 per share. While SoundBite's initial intention following the URS disclosure was reporedly to price last Thursday and trade Friday, no pricing had taken place as of Monday afternoon. (According to Bloomberg.com, as of Monday afternoon, SoundBite was still a "pending listing.")

A SoundBite representative was unable to reveal when the deal pricing will actually take place, and declined to comment on any other details surrounding the situation, citing the SEC-mandated "quiet period" that surrounds any IPO. Nevertheless, in an SEC filing following URS's accusations, SoundBite executives admit that the ordeal "could result in significant expense and diversion of management resources."

URS has publicly offered to sell its patent rights to SoundBite, an offer that expires this Wednesday. If unclaimed by SoundBite, URS publicly disclosed its intent to extend the offer to at least one of SoundBite's competitors.

As the details of URS's patent are unclear to the public, industry analysts have been unable to comment directly on the circumstances. However, many experts feel that SoundBite has a stronghold in the realm of automated voice messaging solutions. "I do believe that SoundBite is in a good position in the market and that it can use the capital generated from an IPO to expand its leadership in outbound communications," says Daniel Hong, senior analyst at Datamonitor.

This is hardly the first instance of a company facing accusations of infringement on the eve of a public offering. "Who doesn't file a patent claim before an IPO?" said Tom Taulli, founder of DealProfiles.com, an IPO and venture capital markets research firm in a statement to TheDeal.com. A simple Google search for "patent" "IPO" and "lawsuit" brings up various instances:

• In June 2007, Ottawa-based Mitel Networks, a provider of integrated communications solutions, filed suit against Sunnyvale, Calif.-based ShoreTel, a provider of pure IP telephony solutions, for patent infringement, the day before ShoreTel was set to announce its IPO. As the Web site Xconomy.com pointed out last week, that deal was delayed for about a week, and ultimately re-priced slightly lower, but within its originally stated target range.
• In 2006, Bedford, Mass.-based NetClarity, a provider of solutions dealing with vulnerability management, intrusion prevention, and network admission control (NAC), filed suit against Columbia, Md.-based Sourcefire, a provider of intrusion-prevention system (IPS) technology, for stealing intellectual property shortly after Sourcefire announced its IPO. The lawsuit was terminated in June 2007.
• In 2004, Mountain View, Calif.-based Google gave Sunnyvale, Calif.-based Yahoo! 2.7 million shares of Google stock before its IPO to drop a patent lawsuit regarding online advertising technology.

Not every vendor in the voice messaging space is daunted by URS's move, and not all are currently bound by SEC-mandated gag orders. Louis Summe, CEO of LiveVox, a privately held SoundBite competitor, has a definitive response to the news of the URS's patent-infringement claim, but seems to grasp the nature of his marketplace's rising visibility. "LiveVox's outside counsel has advised us that any claims that URS may be attempting to enforce in the market are not applicable to LiveVox," Summe says. "As with any high-growth, emerging market, the outbound contact market will attract attention, some of which may require market leaders to react, but we don't think this marks the beginning of a wave of patent claims for this market space."