Why inject cash into a burgeoning young business directly when you can invest in the high-stakes lawsuit it initiated instead? That is precisely what Elliott Management Corp. is doing in connection with the budding legal battle that is underway between an Israeli tech company and the $1 billion-plus new content subscription service that is Quibi. The New York-based hedge fund is backing JBF Interlude (“JBF”) in the patent infringement and trade secret misappropriation lawsuit it filed against film executive Jeffrey Katzenberg’s barely one-month-old Quibi service.
Tel Aviv-headquartered JBF argues in the lawsuit that it filed in a California federal court in early April that in creating its brand-new service, which provides short-but-premium content right to your phone, Quibi infringed JBF’s utility patent for a complex combination of “systems and methods for providing adaptive and responsive media” that enables users to “move at will between full screen portrait and full screen landscape modes [on their phones] and experience the same scenes in different perspectives in those two modes.”
More than merely infringing its patent-protected process, JBF claims that Quibi – short for “quick bites” – “secretly” filed for and ultimately received a patent for its own, allegedly infringing, “method of presenting media content,” i.e., Quibi’s “Turnstyle” technology.
In addition to co-opting the process behind JBF’s interactive video technology platform, called Eko, JBF claims that Quibi stole “confidential and proprietary” – and thus, trade secret-protected – information about its workings by way of two former Snapchat employees, who had access to the Eko technology before jumping ship from Snapchat to join Quibi “in or around October 2018,” and allegedly taking all of the proprietary information that they learned about Eko’s technology with them.
Setting itself up for a legal battle against Katzenberg, whose net worth was $1.6 billion as of 2019, according to the Los Angeles Business Journal; Quibi, which was launched with more than $1 billion in backing from the likes of Walt Disney Company, NBCUniversal, Sony Pictures, ViacomCBS and Alibaba; and their inevitable army of high-powered lawyers, JBF set forth claims of patent infringement and trade secret misappropriation, and is seeking damages and “permanent injunctive relief to recover and protect its trade secrets and other legitimate business interests.”
As for how the presumably much smaller tech company plans to finance such a fight, it has Elliott Management Corp. in its camp as of early this month. According to a report from the Wall Street Journal, Elliott Management, which manages more than $40 billion in assets, will foot the bill for JBF’s lawsuit in exchange for an equity stake in the Israeli company, although, the size and terms of the stake are currently unknown.
“In litigation financing, a party typically agrees to fund a lawsuit in exchange for a cut of the proceeds or settlement, [and] sometimes the funder also secures equity in the plaintiff [company],” according to the WSJ. While Elliott Management “has dabbled in litigation financing in the past, its involvement with a lawsuit against Quibi is still fairly unusual,” a person familiar with the matter told the Journal, which notes that Elliott Management founder Paul Singer’s “connection to [JBF and] Eko comes partly from Mr. Singer’s ties to the technology scene in Israel, where Eko was founded, and to some of the interactive-video company’s investors.”
On a separate legal front, Quibi – which was “already sinking off the App Store charts” within two weeks of its launch, according to Boing Boing – is finding foes in a trademark context, as well. According to a recent reports, Quibi is allegedly playing fast and loose with its cease and desist letters, threatening “Quibiverse” podcast hosts Rob Dezendorf and Danielle Gibson with trademark litigation.
According to Dezendorf and Gibson, counsel for Quibi took issue with their recently launched “Quibiverse” podcast, which the HuffPost describes as a Quibi review podcast from “the mobile video platform’s biggest fans,” threatening legal action of they did not stop using the streaming service’s name in its title and artwork that resembled its own artwork.
In short: “They were like, ‘Well, you can’t use the name Quibi, you can’t tell anyone that you’re about Quibi, you can talk about Quibi, but no one can know through your title and you can’t have any artwork that resembles our stuff,’” Dezendorf told HuffPost.
The move, unsurprisingly, garnered headlines (and furor), and ultimately, resulted in an appearance by Katzenberg and fellow Quibi execs Shawna Thomas and Brian Tannenbaum on the “Quibiverse” – now called “Streamiverse” podcast – during which time Katzenberg apologized for the aggressive legal maneuver.
“It was a mistake,” Katzenberg stated on the episode. “It was lawyers doing what they believe they are supposed to do and protecting intellectual properties and copyrights and all of that stuff … It never made it to me until after the fact. The moment I heard it I went, ‘Oh my god, people doing what they thought was the right thing for what they thought were the right reasons.’ And it was a mistake, and I own it … It was not the way to manage or handle this.”
Hardly the first time that a brand has come under fire for an overly-aggressive cease and desist, remember when Louis Vuitton’s ex-director of civil enforcement threatened to sue the University of Pennsylvania Law School for using a variation if its Toile Monogram on a poster promoting an intellectual property event back in 2012? Or how about the time that Gucci sent letters demanding that Hong Kong-based funeral shops immediately and permanently stop selling paper products bearing the house’s interlocking “G” trademark that are customarily burned as offerings for the dead.
UPDATED (July 27, 2020): In a decision on July 27, Judge Christina A. Snyder of the U.S. District Court for the Central District of California handed down a mixed response to Quibi’s motion to dismiss, tossing out Eko’s breach-of-contract and unfair competition claims against Quibi, but requiring that its trade secret misappropriation and patent infringement claims go to trial. At the same time, Judge Snyder refused to toss out the case that Quibi filed against Eko, while holding that the two cases should be handled together for the duration of the pre-trial process.
Earlier in July, the court refused to grant Eko the preliminary injunction it was seeking, a move that would have required Quibi to immediately and for the duration of the legal proceedings disable the allegedly infringing Turnstye technology. According to the court, Eko failed to “make a sufficient showing for irreparable harm.”
*The cases are JBF Interlude 2009 Ltd – Israel v. Quibi Holdings, LLC, 2:20-cv-02299 (C.D.Cal.), and Quibi Holdings, LLC v. Interlude US, Inc. d/b/a Eko, 2:20-cv-02250 (C.D.Cal.).