February 20, 2021

Quibi Alleges Elliott Is Funding Eko Lawsuit for Personal Reasons

Quibi winked offline in December, most of its employees have been let go and Roku…

Quibi winked offline in December, most of its employees have been let go and Roku now owns Quibi’s content library. But Jeffrey Katzenberg and Meg Whitman’s ill-fated video streamer is still battling a lawsuit trying to extract more than $100 million in damages from the defunct startup — and now, Quibi’s lawyers are suggesting the head of the hedge fund behind the litigation has a personal financial interest in the case.

Interactive-video firm Eko sued Quibi last year, alleging patent infringement and trade-secret theft. The Eko lawsuit against Quibi is being funded by activist hedge fund Elliott Management, which took a minority equity stake in the company last year.

In the latest drama in the legal spat, Quibi alleges that Paul Singer, Elliott’s founder and co-CEO, may be mainly interested in backing the Eko suit because his girlfriend’s son works there.

According to a Quibi filing in the case, Singer’s “romantic partner,” Terry Kassel, is the head of strategic human resources at Elliott. Kassel’s son, Stephen Backer, is director of creative development at Eko, where he’s worked since 2015, according to Backer’s LinkedIn profile. Singer, 76, and Kassel, 70, have been companions for about a decade.

“Although media coverage has suggested that Elliott brings gravitas and a rigorous analysis to its litigation investments, Elliott’s motivation for involvement in the lawsuit appears personal,” Quibi’s filing says.

Quibi’s lawyers are seeking to depose Singer and Kassel to determine “whether Elliott or its principal, Mr. Singer, are the real parties in interest here, before additional fees are invested in the defense and pursuit of Quibi’s declaratory relief action.” The document, filed Thursday (Feb. 18), is available at this link.

In response to Quibi’s allegations, Richard Zabel, Elliott Management’s general counsel and chief legal officer, said in a statement provided to Variety: “The irrelevance of Quibi’s focus on personal matters in order to put forward a false narrative about Elliott’s role related to this case demonstrates Quibi’s reluctance to engage forthrightly on the actual underlying legal issues. Elliott decided to finance this litigation because we strongly believe that Eko will prevail in its claim that Quibi stole its valuable intellectual property.”

In a motion this week to quash Quibi’s discovery requests in the case, Eko argued that the information Quibi is requesting is protected under attorney-client privilege and that Quibi’s requests are overly broad.

The latest legal machinations come after Quibi last month negotiated the sale of streaming rights to more than 75 shows to Roku, which says it will make them available for free on the Roku Channel this year. The deal was worth less than $100 million, sources have said.

Eko is suing Quibi over Turnstyle, the technology Quibi used to determine the orientation of a viewer’s phone (either horizontal or vertical) and present content in the appropriate mode. The Turnstyle assets weren’t part of the Roku deal and Quibi has set up a holding company to handle the Eko litigation and a potential sale of the Turnstyle tech.

In a Dec. 30 ruling, the federal judge hearing the case denied Eko’s motion for a preliminary injunction seeking to freeze Quibi’s financial assets, finding that “Eko has not shown it will more likely than not succeed on its [patent] infringement claims.”

However, the judge sided with Eko in finding that the company’s three patents at issue in the case are likely valid. In addition, the judge found “sufficient” circumstantial evidence to suggest that three former Snap employees — who had received an NDA briefing from Eko CEO Yoni Block on Eko’s interactive-video tech before joining Quibi — had engaged in theft of trade secrets. According to court’s ruling, Quibi must inform the court and Eko of any sale or transfer of technology or intellectual property assets within 48 hours of determining to take such an action.

The case is JBF Interlude 2009 Ltd – Israel vs. Quibi Holdings LLC, in the U.S. District Court for the Central District of California, Western Division. New York-based Interlude does business as Eko, adopting the name in 2016.

In addition to Elliott Management, Eko’s shareholders also include Walmart, which invested $250 million in the company as part of a content-development pact.

After launching in April 2020 — just after the COVID-19 crisis swept into the U.S. — Quibi less than seven months later said it would shut down after failing to get traction with subscribers. Quibi spent up to $6 million per hour of content on short-form originals from A-list Hollywood talent and even won a pair of Emmy Awards, but ultimately didn’t win over a significant number of paying customers.

Quibi had raised $1.75 billion from investors including Disney, NBCUniversal, WarnerMedia, ViacomCBS, Sony Pictures Entertainment, John Malone’s Liberty Global, Alibaba Group, Goldman Sachs, JP Morgan and Katzenberg’s WndrCo holding company.