UPDATED: Eko is seeking a payout of at least $96.5 million from Quibi — which is shutting down after founder Jeffrey Katzenberg acknowledged the mobile-video startup isn’t viable — for allegedly infringing Eko’s intellectual property.
As part of its bid to get paid, interactive-video firm Eko on Wednesday filed an ex parte application asking a federal district court in California to issue a temporary restraining order “preserving the status quo by freezing Defendant Quibi Holdings, LLC’s (‘Quibi’) bank accounts and assets related to the intellectual property at issue in this case.” The filing is the latest from Eko in its litigation targeting Quibi’s Turnstyle mobile-viewing feature.
Asked for a response, a Quibi spokeswoman said, “This is just another attempt by Eko to abuse the legal system. Quibi’s announcement that it is beginning an orderly wind-down changes nothing with respect to the litigation. We strongly believe the law and facts are on our side and we will continue to vigorously defend against this meritless lawsuit.”
Quibi, which had raised $1.75 billion, last week reportedly told investors including Disney, NBCUniversal and WarnerMedia that it would return $350 million of its cash on hand to them. The company has said it will distribute assets to investors only after it has satisfied all “outstanding liabilities” in accordance with law. Quibi, led by Katzenberg and CEO Meg Whitman, informed users that the streaming service would end on or around Dec. 1.
Meanwhile, Quibi has planned to retain a reserve of about $60 million in cash to wind down operations and try to sell assets, which would be “thus insufficient to cover the amount of a potential judgment for Eko,” according to Eko’s motion for a TRO. Eko added that “to the extent that the Court desires confirmation of Quibi’s assets that need to be restrained from sale or dissipation, Eko requests an equitable accounting of Quibi’s assets.”
Eko, whose backers include Walmart, sued Quibi earlier this year. The lawsuit alleges that Quibi’s Turnstyle feature infringed several Eko-owned patents and that Quibi stole trade secrets. Turnstyle was used to determine the orientation of a Quibi viewer’s phone (either horizontal or vertical) and present content in the appropriate mode, and Katzenberg and Whitman had touted it as a key feature.
According to its Oct. 28 motion, Eko estimated the value of the IP that Quibi “misappropriated and infringed” to be at least $96.5 million, or at least $101.9 million when factoring in prejudgment interest and fees.
Eko claims that Quibi has “refused to expressly confirm that it would preserve its assets” for payment of damages in the case. In addition, per Eko’s motion, Quibi and Katzenberg refused to commit to not sell off the Turnstyle technology or the patent that Quibi was granted related to the feature. Instead, “Quibi stated only that it would ‘comply with its legal obligations related to the winding down of its business, including Quibi’s obligations under the Delaware Limited Liability Company Act.'”
It’s not the first time Eko claimed it needed immediate relief or it would suffer irreparable harm: The judge in the case previously rejected Eko’s request for an injunction seeking to block Quibi’s app from using the allegedly stolen technology. In July, the judge dismissed three of Eko’s nine claims, leaving in place its core complaints over the theft and infringement of its mobile-video playback technology.
Eko’s lawsuit is being funded by activist hedge fund Elliott Management, which took a minority equity stake in the company this spring. In 2018, Walmart invested $250 million in Eko (formerly known as Interlude) as part of a content-development pact.
In its legal filings, Eko has claimed that Quibi’s Turnstyle employs one of its key patents, U.S. Patent No. 10,460,765, covering a system for interactive video playback, along with two other related patents. Quibi said it began developing Turnstyle in September 2018 and noted that in February 2020 it was granted U.S. Patent No. 10,554,926 covering aspects of the tech. Quibi also claims Eko had tried to “coerce” payments from Quibi related to Eko’s own patent.
As part of its litigation, Eko has asked the court to reassign ownership of Quibi’s ‘926 patent to Eko. Eko further alleges that Quibi has filed at least five still-pending patent applications “based upon Eko’s technology.”