Patent Pedaling With Peloton (Part I): Downhill

The implication is that Peloton’s patent filings are accretive to building a perception that the company is innovative, irrespective of how flimsy a ground that perception truly rests on. 

Any list of companies that have benefited financially from the COVID-19 lockdown era has to include home fitness darling Peloton. Since going public in September 2019, the company’s share price has basically quadrupled (as of this writing). Peloton’s climb in share price started in March 2020, in concert with the fact that worldwide lockdowns began going into effect. Shut out of gyms, the fitness-oriented started ordering Peloton’s (quite expensive) high-tech stationary bikes in an attempt to stave off the pandemic poundage gains engendered by easy access to home pantries, stress snacking, and altered exercise routines. For those with the disposable income, a Peloton bike and monthly subscription to Peloton classes became as essential a pandemic purchase as gallons of hand sanitizer, sufficient surgical masks to outfit a brigade of Marines, or enough toilet paper to service a full Disney cruise ship for a week.

For all of Peloton’s pandemic success, the company has also managed to make a name for itself in the IP realm as well. From its 2018 complaint against competitor Flywheel, highlighted on these pages in a contemporaneous column of mine, to more recent patent assertions against Echelon, Peloton has not been shy about using its patents to protect its market-leading position. And the company has seen success in its patent assertion efforts, particularly with respect to Flywheel, despite the fact that industry skepticism around the strength of Peloton’s patents still abounds. Take a 2019 Bloomberg article which questioned whether Peloton’s patents are “going to be a silver bullet for them” against competitors. Or a more recent Bloomberg piece noting that Peloton’s existing patent portfolio “isn’t that deep” containing as it does less than 40 total U.S. patent assets, including only 15 issued U.S. patents. Even the fact that Peloton’s CEO is the named inventor on at least some of the patents is hinted at as being a sign that the company’s innovations are not that technologically sound. Instead, the implication is that Peloton’s patent filings are accretive to building a perception that the company is innovative, irrespective of how flimsy a ground that perception truly rests on.

Despite the digs, however, there is no doubt that Peloton’s patent assertion forays have gotten results. For one, as with any competitor case, Peloton’s pursuit of Echelon using its patents helps craft the marketing message of Peloton as the innovator and Echelon as the lower-cost copycat hoping to draft off Peloton’s blazing commercial successes. One could also argue that for a premium brand like Peloton — and count me in the camp of those who believe that Peloton’s strongest IP asset is its brand name and resultant customer perceptions — evincing a willingness to protect IP rights generally is important. Using patents to do so, even if those patents are susceptible to challenge by the accused infringers, can be a useful way of cementing consumer sentiment that the IP owner is the market leader, at least in part due to its innovative technology.

For the best example of Peloton’s patent assertion success to date, we can look at the Flywheel settlement announced in February 2020. As patent wins go, Peloton’s victory over Flywheel may be hard to top. First, Peloton got Flywheel to admit to infringement, a rarity in competitor patent litigation. Second, and even rarer, Peloton got Flywheel to agree to a de facto permanent injunction, leading to Flywheel pulling its competing stationary bike and home-based classes shortly after the settlement was announced. Flywheel customers were even given the option to trade-in their defunct infringing bikes for refurbished Peloton models, thereby turning those that took advantage of the offer into Peloton customers. No wonder Peloton’s chief legal officer called the case a “massive win in our fight to protect Peloton’s intellectual property” while noting the settlement “reinforces the strength of our patent portfolio and reaffirms our lead as an innovation company operating at the intersection of fitness, technology and content.” A happier patent plaintiff would not be easy to find in my experience, especially since Flywheel itself ended up closing in full a short time later. It is not every day that we see a competitor patent case end in such a one-sided victory.

Interestingly, the one-sided nature of Peloton’s settlement with Flywheel has led to speculation that the result was actually bought and paid for by Peloton itself. In fact, Peloton was recently accused by its newest patent target Echelon of effectively paying for validation of its patent portfolio by “likely paying millions for Flywheel’s silence and cooperation.” In support of that claim, Echelon points to public disclosure in Peloton’s financial statements that it laid out nearly $60 million in legal settlements around the time of the Flywheel settlement. Hard to know for sure, but even if Peloton did pay off Flywheel to get the settlement it wanted, more power to it. We all know that having the financial wherewithal to push one’s patent assertion campaign as far as it can go is a key part of patent litigation success, so if Peloton wanted to use its healthy revenues to buy a competitor’s cooperation — so be it.

Ultimately, of course, the true strength of Peloton’s patent portfolio will be determined by Peloton’s ability to fend off the types of attacks a determined accused infringer like Echelon has and will continue to advance as Peloton’s patent enforcement efforts continue. To that end, Peloton’s defeat of Echelon’s Alice motions has the company off to a good start, even as it still faces the inevitable IPR threat from Echelon familiar to all patent owners. While Peloton has had some success riding downhill as a patent owner to date, the ride is not yet over by any means. Next week, we will take a look at how Peloton has fared riding uphill — as an accused infringer itself — against patent owners interested in grabbing a piece of Peloton’s financial success.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Sponsored


Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

 

Sponsored