No startup wants to deal with IP disputes, especially around the time their product or service is launching. But high-profile startups often launch with a bull’s-eye on their backs, particularly when an erstwhile vendor to that startup feels aggrieved about being passed over with respect to a feature that makes its way into the startup’s launch offering. When that dynamic is present, IP fireworks are always a possibility. Sprinkle in some Hollywood glamour squaring off against Wall Street financial backing, and what would normally be a relatively run-of-the-mill IP quibble quickly morphs into a headline-a-day IP battle for the ages. Such a battle is currently playing out in the Central District of California, in a case that has already packed a year’s worth of twists and turns in just its opening months.
The combatants are already fully engaged. Backed by litigation funding provided by leading activist hedge fund Elliott Management, IP owner Eko — which counts Walmart as an investor and is known for its “choose-your-own adventure style” or “branching” videos — is taking on one of the streaming wars’ newest contenders, Jeffrey Katzenberg’s prestigious “short bites” streaming startup Quibi. I first flagged the case as one to watch in a May 4 blog post for our patent consultancy. The action has only intensified since my initial review of the issues presented by the case.
Armed to the teeth with Biglaw IP heavyweights leading their representation, both sides have filled the case docket with filings, headlined by Eko’s preliminary injunction motion on its allegedly misappropriated trade secret as well as two amended complaints. One can only imagine what will happen once the case inevitably expands to incorporate Quibi’s expected IPR filings, as well as whatever additional claims the parties can unearth during discovery. Already, the case has taken on quite an unusual posture for an IP dispute, with numerous individuals named as defendants, coupled with the specter of Elliott looming large over settlement negotiations, considering it has already been reported to have taken an equity stake in Eko.
The presence of Elliott’s funding makes the case an interesting study in how IP owners litigate when cost is no option, aside from the interesting aspects of the case generated by the involvement of entertainment industry participants. To that point, Eko has embraced an escalation-at-every-turn approach, clearly designed to force Quibi to the negotiating table hat-in-hand. From naming Quibi executives personally, to filing for the preliminary injunction, to adding patents in amended complaints, Eko’s aims are transparent. First, they are placing a premium on creating a narrative where they are the innovator being wronged by an IP thief desperate to launch quickly on the backs of someone else’s innovations. Second, they are maximizing the marketing impact of their lawsuit by bringing their claims almost as soon as Quibi launched, while exerting every effort to have major issues adjudicated quickly by the court. As I noted in my earlier blog post, filing the preliminary injunction motion on the trade secret claim “is a low-risk high-reward move” which, if successful, could lead to early settlement, with little consequence should it fail. (But for their expense, it has long seemed to me that preliminary injunction motions are an underutilized tool in high-stakes IP litigation, especially where the claims don’t exclusively arise out of patent causes.)
For its part, Quibi has clearly embraced what I called a “proactive defense approach” to Eko’s claims. Starting with its declaratory judgment complaint filing, Quibi has pushed back strongly on each of Eko’s claims without reservation, including by offering a compelling counternarrative relating to its allegedly independent development of the key technology feature at issue in the case — Quibi’s highly promoted “Turnstyle” feature, which allows users to get a different perspective on what they are watching depending on the phone’s orientation in either portrait or landscape mode. To that end, Quibi’s filings reference the significant investment in resources it has made in developing Turnstyle, as well as the fact that Eko has apparently sat on its claims against Quibi for at least a year. Furthermore, Quibi calls attention to the transparent timing of Eko’s IP assault, coming as it does on the heels of Quibi’s high-profile launch in the midst of the Covid-19 pandemic. We can expect that Quibi will continue to put Eko’s IP to the test, and remain undeterred by Eko’s on-the-fly refinement of its claims, including the addition of more patents that Quibi has allegedly infringed.
In short, neither side has shown any fear in terms of putting issues before the court to decide. A recent order in the case is illustrative. It references how Eko will have more time to file a second amended complaint to beef up its claim of “aiding and abetting breach of implied contract,” while also denying Quibi’s motion to dismiss Eko’s first amended complaint as moot. Topping matters off, the court proactively indicated that any motion to dismiss by Quibi of Eko’s Second Amended Complaint would be heard at the same time as Eko’s “anticipated motion to dismiss Quibi’s First Amended Complaint in the related action.” Got all that? And this is just a few months into the litigation!
Ultimately, this is clearly yet another example of an IP dispute made “high-stakes” by the nature of the players involved, the timing of the dispute, and the presence of litigation funding. All ingredients that should eventually result in the parties reaching a settlement of some sort, as is the case with the overwhelming majority of IP disputes. Until then, we will have plenty of legal wrangling to watch. Quibi may hope to make its name on its “short bite” productions, but for now it faces a long legal battle ahead.
Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.
Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.
