Why Paul Singer & Walmart Are Watching Quibi Closely...

Gaston Kroub

Anyone with an interest in patent litigation knows that litigation funding is an issue of the moment. Take for example the recent coverage of Elliott Management’s investment in the already hot-and-heavy patent and trade secret battle between Walmart-backed Eko - known for its “choose-your-own adventure style” or “branching” videos - and Jeffrey Katzenberg’s prestigious “short bites” streaming startup Quibi. In a bit of an unusual move for an IP case (perhaps even doubly strange for the timing of the move in the midst of Covid-19,) Eko moved for a preliminary injunction against Quibi, after filing a complaint alleging patent infringement and trade secret misappropriation. The hearing on that motion is set for May 7, 2020 before the Honorable John A. Kronstadt of the Central District of California.

We can start by considering two possible strategy considerations for Eko’s taking the aggressive step of moving for the preliminary injunction, in light of the news that funding will not be an issue for the company in pursuit of it's claims. First, since they know that they are funded for the long haul, filing a preliminary injunction on its comparably weaker (to its patent assertions) trade secret claim is a low-risk high-reward move. Best case, they win, which will put immediate pressure on Quibi to settle. Worst case, they lose and the status quo is maintained. But even with a loss, Eko then gets to move forward having seen a preview of Quibi’s arguments and more importantly, which of those arguments had traction before the Court. Again, in a long fight, the more information you can garner at each stage only helps prepare for the next battle. Second, preliminary injunction filings have an important marketing function. They telegraph to both the opponent and the media that your claims are serious and worthy of urgent adjudication. Throw in the fact that these claims are arising so close to Quibi’s launch; the very filing of the preliminary injunction could go a long way towards shaping public perception of Quibi as an infringer that rushed to get its product to market on the back of a competitor’s technology.

Quibi, of course, is working hard to make sure that such perceptions don’t take root. In a systematic and thorough opposition to Eko’s preliminary injunction filing, Quibi builds on its proactive defense approach in responding to Eko’s claims. (Remember that Quibi filed its own declaratory judgment lawsuit against Eko — likely as a way of countering the copycat narrative and telegraphing that it has nothing to apologize for.) As is common in these types of cases, Quibi takes pains to set forth a record of independent (and costly) development of its accused “Turnstyle” feature, while noting that Eko’s claims of trade secret theft rely on “an attenuated chain of causation.” (Opp. at 13.) Moreover, Quibi discloses that it showed Eko’s a demo of Turnstyle over a year ago, further calling into question the timing of the preliminary injunction filing or its strength on the merits. And as Quibi notes, an injunction against it at this time would “hobble Quibi at a key moment in its trajectory” when “consumer are adopting Quibi’s new platform.” (Id. at 23.)

This case, and its upcoming PI hearing, has already generated significant interest due to the players involve. While we will watch the PI disposition closely, we can also expect to see much more in the way of legal maneuvering going forward. Assuming Quibi continues its active defense approach, that maneuvering will likely include filing at least one IPR against Eko’s asserted patent, coupled with attempts to seek discovery into the funding arrangements between Elliott and Eko, including the breaking news that Elliott “will receive a minority equity stake in Eko” according to Variety. The next great mobile video IP dispute has just kicked off, with starring roles assigned to some of Wall Street and Hollywood’s leading lights. Enjoy the show.