Everyone’s favorite investor provocateur Elliot Management has taken an unlikely interest in a bitter patent war between short-form streaming service Quibi and interactive video developer Eko. Elliot’s involvement changes the stakes dramatically and the outcome will influence the US OTT video landscape for years to come.
Elliot Management has injected a “substantial” sum into Eko’s case against Quibi, which alleges that Quibi’s Turnstyle feature is a near-identical copy of its own patented technology. Our take on the case when it first emerged in March was that Quibi founder Jeffrey Katzenberg had quite plainly pinched the idea from Eko, following a meeting with Eko CEO Yoni Bloch in March 2017. Yet we had our reservations that Eko had the clout to take Quibi head-on, particularly given the apparent lack of NDA signing that went on – which could end up being Eko’s downfall.
Now, with the backing of Elliot Management, the tides have turned in this must-win case for Quibi. Elliot will reportedly end up with an equity stake in Eko following the court case, according to the Wall Street Journal.
Holistically thinking, the move signals Elliot Management, owned by billionaire Paul Singer, attacking the US video industry with a pincer move. It lambasted AT&T very publicly last year after taking a stake in the operator, slamming pay TV mismanagement and questionable M&A choices, and now the activist investor is challenging the polar opposite end of the market in the form of Quibi’s bite-sized mobile-first content approach. Hedge fund money of course is almost always the root cause of movement in this industry, but Faultline has seldom seen it done so publicly and so disruptively. It might be the kick up the backside that Hollywood needs. If Eko emerges victorious, then it might well trigger the downfall of Hollywood as we know it – encouraging the technology industry’s equivalent to the inspirational #MeToo movement.
There is currently no information on the size of Elliot Management’s financial investment in the patent litigation case, or what percentage the investor will take in Eko. Our concern for Eko going forwards is that Elliot Management will do what it does best, by proceeding to push out executives and pick its own replacements – giving it the leverage to chop and change the company to fit its own financial model.
AT&T wasn’t the only victim of Elliot’s wrath, with Twitter CEO and co-founder Jack Dorsey almost forced out his role after Elliot Management took a $1 billion stake in the company. A truce was eventually reached about two months ago, but Elliot still got to shake-up Twitter’s board of executives.
So, don’t think for a minute that Elliot wants Katzenberg’s scalp, when in reality it wants Eko’s. Helping it take on Quibi was possibly the only way to gain a foothold in the company.
While Eko makes a compelling case for patent infringement and misappropriation of trade secrets, Quibi’s countersuit vehemently disputes Eko’s allegations, stipulating that Quibi’s in-house engineering team developed the technology independently.
As we said, the original documents presented by Eko describe a series of events whereby Katzenberg clearly liked what he saw during an investment presentation from Eko and immediately got to work making it his own. However, whether or not Quibi is technically infringing on Eko’s patents is another matter. Eko claims the extent of the infringement runs deep – relating not just to the simple resizing of a screen but “from the patented smart video response system down to the way files are created, formatted and stored.”
Entitled ‘Systems and Methods for Adaptive and Responsive Video’ (aka patent ‘765), the patent was issued to Eko in October 2019. Among other things, the ‘765 patent requires transitioning between video presentations in response to determining whether a window of a media player has been resized and whether the resized window is within a particular height and width ranges. Quibi claims its app does not do this.
Quibi’s 15-page defense is venomous in parts but also makes a decent case for why its Turnstyle feature does not infringe the specific Eko patent from an engineering perspective.
Quibi states that its app does not determine whether a media player window has been resized, nor does it evaluate mapping to determine whether the different dimensions are included within particular height and width ranges. It also argues against the transition between two different video presentations in response to evaluating the mapping, as required by the claims of the ‘765 patent.
The company reiterated its stance this week, saying in a email to The Verge, “As we made clear in our filing, Quibi’s patented Turnstyle feature is the result of the work from our talented engineering team. When a new product launches, these types of claims are unfortunately too common. Eko’s actions and complaints remain meritless.” Bear in mind that The Verge has a content deal in the pipeline with Quibi.