Quibi announced a deal last week with Roku, which acquired the bulk of the failed mobile startup’s streaming rights — some 75 shows, which the streaming platform plans to make available for free on the Roku Channel.
But even though Quibi has now mostly wound down operations, the Jeffrey Katzenberg-founded company has retained a legal team to deal with the pending legal fight with New York-based interactive video company Eko involving Turnstyle: the technology that Quibi used to determine the orientation of a viewer’s phone (either horizontal or vertical) and present content in the appropriate mode.
The Turnstyle assets weren’t part of the Roku deal; that involved the transfer of Quibi’s seven-year content licensing rights, which a source said was worth “significantly” less than $100 million. Quibi has set up a holding company to handle the litigation with Eko and the potential sale of the Turnstyle assets.
In a ruling Dec. 30 (which was unsealed in redacted form Jan. 8), the federal judge hearing the case denied Eko’s motion for a preliminary injunction seeking to freeze Quibi’s financial assets, finding that “Eko has not shown it will more likely than not succeed on its [patent] infringement claims.”
“The Court concludes that Eko has not submitted evidence that satisfies its burden that a freeze of Quibi’s financial assets is warranted,” Judge Christina Snyder of the U.S. District Court for the Central District of California wrote in the ruling. Eko failed to show that Quibi is “fraudulently concealing or transferring assets or has otherwise engaged in a pattern of financial misconduct” in a way that would cause “irreparable harm” to Eko, as Eko asserted.
Snyder ordered Quibi to inform the court and Eko of any sale or transfer of technology or intellectual property assets or within 48 hours of determining to take such an action. Quibi also is required to notify both the court and Eko at least 60 days in advance of any distribution of funds or assets to Quibi’s investors.
However, the judge sided with Eko in finding that the company’s three patents at issue in the case are likely valid, contrary to Quibi’s assertion that those patents are invalid.
In addition, and perhaps more significantly, Snyder found there was “sufficient” circumstantial evidence to suggest that three former Snap employees — who had received an NDA briefing from Eko CEO Yoni Block on Eko’s interactive-video tech before joining Quibi — had engaged in theft of trade secrets.
“The Court agrees that the weight of circumstantial evidence is sufficient at this stage to suggest the Snapchat-turned-Quibi employees took the ORTS method [Eko’s Optimized Real Time Switching technology] with them to Quibi and used it to assist with the development of Turnstyle,” Snyder wrote in the Dec. 30 decision. Specifically, she noted that two of the ex-Snap staffers joined Quibi on Oct. 15, 2018, about two weeks before Quibi CTO Rob Post declared “that his development team settled on five candidates for its rotation technology.”
In a statement, Neel Chatterjee, Eko’s counsel at Goodwin Procter, said, “The Court took the appropriate steps to make sure that Eko has a say in whatever Quibi intends to do with its assets. In addition, the Court recognized that the weight of the evidence suggested that Quibi stole our trade secrets and used them to build Turnstyle. Eko will continue to protect its rights and pursue remedies for the harm that Quibi has caused.”
On Monday, Quibi filed a response to Eko’s most recent amended lawsuit. Among other things, Quibi cited the Dec. 30 order to reiterate that the company “does not and has not infringed, induced infringement of, or contributed to the infringement of” the Eko patents. Quibi’s legal response also alleged that Eko’s claims for misappropriation of trade secrets “are barred because the alleged trade secret is not a trade secret, but rather was readily ascertainable by persons of ordinary skill in the pertinent art(s)” and furthermore that Quibi independently developed Turnstyle.
In addition, Quibi said in the Jan. 11 filing, “Any claim by Eko for damages is negated by the existence of noninfringing alternatives to the Patents in Suit. Defendants will identify noninfringing alternatives following claim construction and in connection with damage-related disclosures.” Quibi’s lawyers have asked the court to deny Eko’s bid for an injunction and demands for monetary damages.
In previous court filings, Eko said 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 alleged that Quibi planned to retain a reserve of about $60 million in cash to wind down operations.
Quibi, after raising $1.75 billion, is said to have told investors including Disney, NBCUniversal and WarnerMedia that it would return $350 million of its cash on hand to them.
Eko’s lawsuit against Quibi is being funded by activist hedge fund Elliott Management, which took a minority equity stake in the company last year.