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Photo: Igor Golovniov/SOPA Images/LightRocket via Getty Images

Elliott Management, one of the most feared activist investors, is financing a patent lawsuit on behalf of a small interactive video company against the splashy new mobile streaming company Quibi, a person familiar with the lawsuit tells Axios.

Why it matters: Elliott Management's involvement escalates the months-long battle over who owns the video technology that powers Quibi's entire business. Quibi just launched in April, and has struggled to stick to its ambitious growth plan amid the coronavirus pandemic.

Details: The lawsuit alleges that Quibi's flagship technology, which allows users to seamlessly switch mobile displays between horizontal and vertical, is stolen from Eko.

  • Eko cites two primary pieces of evidence: (1) It held repeated talks with Snap, from which Quibi poached numerous employees. (2) Eko's CEO and Katzenberg discussed Eko's technology prior to Quibi's big unveil.
  • Quibi unambiguously denies Eko's claims, and also has countersued Eko.
  • The Wall Street Journal was the first to report on the lawsuit.

Terms of the arrangement are unknown, but a source says that Elliott will receive a "significant" equity stake in Eko, which raised over $35 million in VC funding between 2011 and 2016 from firms like Sequoia Capital Israel, Sony Pictures Entertainment, Samsung, and Warner Music Group.

  • Quibi, which launched its short-form original video service last month, has raised around $1.75 billion and is led by Meg Whitman (ex-HP and eBay CEO) and Jeffrey Katzenberg (ex-CEO of DreamWorks, ex-chairman of Walt Disney Pictures).
  • It's struggled to meet aggressive expectations, in part due to the dearth of commuters.

The backdrop: Eko first accused Quibi of patent infringement in March. At that time, Quibi filed its own complaint accusing Eko of spreading false accusations in an attempt to tarnish Quibi's reputation.

  • This isn't the first time Elliott has been involved in high-stakes litigation (just ask the governments of Argentina or South Korea) or litigation finance (it controls litigation finance firm Innsworth), but it is unusual to see it take sides in a skirmish between privately held tech companies.

What's next: Eko has requested an immediate injunction against Quibi, with a ruling possible this week. But that's only on the trade-secret piece, not the patents, with a broader case management conference scheduled for July. Overall, the entire case could take upwards of three years.

  • A loss may devastate Quibi, given that it's pitched the display tech to Hollywood content creators as an exciting new way to film. It's unclear if Eko would be willing to license out the tech to Quibi and, even if so, at what price.
  • It's unclear what Elliott gets out of this if Eko doesn't win the lawsuit. According to a source familiar with the matter, the Eko team feels confident that its case will go to trial, and that Eko has enough evidence that Quibi executives were aware of Eko's ideas prior to launching their own product.

Go deeper: The "most feared activist investor in the world"

Go deeper

40 mins ago - Politics & Policy

McConnell drops filibuster demand, paving way for power-sharing deal

Senate Majority Leader Chuck Schumer (R) and Minority Leader Mitch McConnell attend a joint session of Congress. Photo: Olivier Douliery/AFP via Getty Images

Senate Minority Leader Mitch McConnell has abandoned his demand that Democrats state, in writing, that they would not abandon the legislative filibuster.

Between the lines: McConnell was never going to agree to a 50-50 power sharing deal without putting up a fight over keeping the 60-vote threshold. But the minority leader ultimately caved after it became clear that delaying the organizing resolution was no longer feasible.

2 hours ago - Technology

Scoop: Google won't donate to members of Congress who voted against election results

Sen. Ted Cruz led the group of Republicans who opposed certifying the results. Photo: Stefani Reynolds/Pool/AFP via Getty Images

Google will not make contributions from its political action committee this cycle to any member of Congress who voted against certifying the results of the presidential election, following the deadly Capitol riot.

Why it matters: Several major businesses paused or pulled political donations following the events of Jan. 6, when pro-Trump rioters, riled up by former President Trump, stormed the Capitol on the day it was to certify the election results.

3 hours ago - Politics & Policy

Minority Mitch still setting Senate agenda

Illustration: Aïda Amer/Axios

Chuck Schumer may be majority leader, yet in many ways, Mitch McConnell is still running the Senate show — and his counterpart is about done with it.

Why it matters: McConnell rolled over Democrats unapologetically, and kept tight control over his fellow Republicans, while in the majority. But he's showing equal skill as minority leader, using political jiujitsu to convert a perceived weakness into strength.