Jeffrey Katzenberg is facing a big new foe — notorious activist hedge fund Elliott Management — in a legal fight accusing his mobile-streaming startup Quibi of patent infringement and theft of trade secrets, Variety has confirmed.
Elliott Management, which claims to have some $40 billion in assets under management, has made an investment in interactive-video company Eko to fund its litigation against Quibi, as first reported Sunday by the Wall Street Journal.
With the funding, Elliott Management will receive a minority equity stake in Eko, sources confirmed, adding that Eko’s shareholders have not yet approved the deal. Investors in Eko also include Walmart, which invested $250 million in the company as part of a content-development pact.
A rep for Eko declined to comment; Elliott Management did not respond to requests for comment.
Eko in March sued Quibi for allegedly infringing one of Eko’s patents and misappropriating trade secrets. The dispute centers on Quibi’s Turnstyle feature, which determines the orientation of a viewer’s phone (either horizontal or vertical) and presents content in the appropriate mode.
Quibi has argued that Eko’s legal claims are baseless. “Our Turnstyle technology was developed internally at Quibi by our talented engineers and we have, in fact, received a patent for it,” a company rep said in a statement last month. “These claims have absolutely no merit and we will vigorously defend ourselves against them in court.”
On April 1, Eko filed a motion seeking a preliminary injunction April 1 enjoining Quibi from “misappropriating Eko’s proprietary technology for mobile device optimized ‘Real Time Switching.’” On April 21, Quibi filed a motion to dismiss Eko’s claims. The court has scheduled a hearing on Eko’s motion for a preliminary injunction on Thursday, May 7, by telephone. If the court grants Eko’s request for an injunction, it could force Quibi to redesign the app.
Elliott Management has a history of buying shares in companies it believes are undervalued and agitating for changes to their businesses. Last fall it won several concessions from AT&T including a commitment by the telco to refrain from major acquisitions. More recently, Elliott was party to a deal to add three new directors to Twitter’s board.
In court filings, Quibi claims it began developing Turnstyle in September 2018 and notes that in February 2020 it was granted a patent covering various aspects of the technology. Quibi also asserts that Eko has tried to “coerce” payments from Quibi related to Eko’s own patent.
According to the Eko lawsuit, Eko’s patented technology was shared with Quibi employees under multiple non-disclosure agreements. After being contacted by Eko about the issue, “Quibi ignored Eko’s warnings and Quibi secretly misappropriated Eko’s proprietary technology,” the Eko suit claims. “It hid its theft until making a massive public splash in a keynote address at the January 2020 Consumer Electronics Show… proclaiming it as Quibi’s own ‘Turnstyle’ technology.”
Quibi launched April 6 with a slate of 50 short-form shows featuring a range of notable talent including Jennifer Lopez, Chance the Rapper, Chrissy Teigen, Liam Hemsworth, Sophie Turner, Lena Waithe, Nicole Richie and Reese Witherspoon. The company’s service — as the fight over Turnstyle underscores — is built for on-the-go mobile viewing. But with millions of Americans quarantined, Quibi has accelerated development of a streaming-to-the-TV option, promised later in May.
Last week, Quibi said its app had been downloaded more than 3.1 million times since the April 6 launch. How that translates into number of active viewers is unclear, and it remains to be seen how many of those who opted to sample Quibi under the 90-day free trial period will convert into paying subs after the promo period expires.
In its legal filing Eko claimed it has “suffered reputational harm” and said it filed the motion for a preliminary injunction “to stop Quibi from capitalizing on its theft of Eko’s proprietary mobile device optimized RTS technology and to preserve the status quo.”
Prior to Eko’s original lawsuit, Quibi proactively filed a federal lawsuit seeking a judgment that its Turnstyle mobile-video technology does not infringe Eko’s patent and that Quibi did not steal trade secrets.
(Pictured above: Jeffrey Katzenberg speaks at Quibi’s press conference at the 2020 CES in Las Vegas in January.)