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16 July 2020

Quibi calls curtains on patent case – surely Eko plans encore?

Vilified short-form mobile video streamer Quibi has something to celebrate after months of setbacks, as a court denied an attempted injunction against Quibi’s pièce de résistance – the much-hyped but actually pretty simple Turnstyle feature.

Based on the wording in the 19-page document received this week, our hunch is that the case is far from over.

This was an absolute must-win case for Quibi in what has been a frankly disastrous start since its early April debut. Equally, beating away the lawsuit from interactive video developer Eko – which made a convincing case against founder Jeffrey Katzenberg – puts Quibi back to square one, with huge ground to make up on rivals in the freemium video market. That said, the victory parade overshadowed further bad news, that Quibi has failed to convert an overwhelming 90% of free trialists into paying subscribers, according to a recent report from Sensor Tower.

In the heavily one-sided document, much of the case in Quibi’s favor is based on Eko’s delay in seeking injunctive relief, rather than on the alleged patent infringement itself, relating to Eko’s Mobile Device Real Time Switching (RTS). Neither Quibi or Eko responded to our requests for comment on whether this injunction denial has really been extinguished once and for all, or if something has been filed separately in a patent court.

The ruling has decided much of Eko’s argument is based on hearsay and therefore fails to prove irreparable harm to Eko’s reputation and goodwill because of the technical implementation of Turnstyle. Eko believes Quibi has raised roughly $1.75 billion due to alleged patent infringement and theft of trade secrets, only able to raise such funding at the expense of Eko’s ability to do so.

The District Court of Central California wasn’t having any of this.

Eko presented evidence alleging confusion among distributors and partners, which apparently inundated Eko with requests about whether Eko’s technology was powering Quibi’s new video streaming service. However, the judge declared this unpersuasive after Eko representatives failed to identify which particular distributors or partners articulated such confusion, or providing evidence of any confusion.

Unfortunately for Eko, the law states that plaintiffs must establish that irreparable harm is likely, not just possible, in order to obtain a preliminary injunction. Alleged harm that is remote or speculative will not be considered irreparable.

Eko did manage to namedrop a sizable deal with Walmart involving the development of more than 100 interactive entertainment series over three years. Again, Eko failed to provide sufficient evidence to establish that anything in the relationship between Eko and Walmart actually changed and how this related to the Turnstyle feature, “besides the possible addition of Quibi to the project.” This latter point seems evidence enough to us that Quibi hijacked an Eko contract with identical technology and services, but the court clearly sees things differently.

There is a statement tucked away in the legal document on how Eko could refile the motion after the amended pleading is filed, or another solution could be to construe the previously filed motion as relying on the operative complaint. This strongly implies, in our eyes, that Eko is already preparing to refile a motion.

With funding from the world’s largest activist investor Elliot Management now backing Eko, a second bite of the cherry is almost certainly on the cards. If so, Eko must channel everything into the technicalities of the case which are virtually nonexistent from this week’s injunction motion denial.

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.

If the patent infringement allegations are dismissed, on top of failing to provide evidence of misappropriation of trade secrets and irreparable harm to the business, then unfortunately it will be curtains for Eko in its short-lived battle against Quibi and the Hollywood powers that be. A silver lining is that Eko might take some solace from Quibi’s sustained recidivation.