‘Bully’ Peloton Faces New Threat to Its Patents From Echelon
(Bloomberg) -- Peloton Interactive Inc., whose stock is soaring thanks to fitness enthusiasts kept house-bound by the coronavirus pandemic, is facing a new threat from a competitor -- this time at the U.S. Patent and Trademark Office.
Echelon Fitness Multimedia LLC, which Peloton has accused of offering a cheap knockoff of its fitness bikes, has launched an all-out battle to undermine Peloton’s claims that its service is unique. It’s filed petitions in the past week claiming two Peloton patents at the heart of a lawsuit against Echelon are just rehashed ideas from other people.
Peloton markets its high-end exercise bikes to home fitness enthusiasts and has used patents to go after rivals it says are cutting into its business. In addition to the suit against Echelon, Peloton on May 15 filed a lawsuit against NordicTrack maker Icon Health & Fitness Inc., and in February settled a fight with Flywheel Sports Inc., in which it forced Flywheel to shut down its online cycling classes.
That Echelon is being so aggressive illustrates how difficult Peloton’s legal strategy may be. Even before the new petitions, Bloomberg Intelligence analyst Tamlin Bason called Peloton’s cases an “uphill battle” and said the Peloton patent portfolio is both small and vulnerable to challenges.
That doesn’t mean it will be easy for Echelon.
On Monday, a federal judge in Wilmington, Delaware, rejected Echelon’s arguments that three Peloton patents were just abstract ideas rather than inventions, and refused to dismiss the case. U.S. District Judge Richard Andrews said the patents covered “nonconventional” ways to deal with “rider boredom” and allow real-time competition among riders.
Peloton’s lawyer, Steven Feldman of Hueston Hennigan in Los Angeles, called Monday’s ruling a “critical decision.”
“Peloton’s leaderboard patents describe revolutionary inventions that were by no means well understood or conventional at the time,” Feldman said.
He said the patent office challenges are over two of Peloton’s older patents, and the lawsuit goes far beyond those two patent claims. Peloton also accuses Echelon of unfair business practices, trademark-infringement, and false advertising.
“The challenges do not even attempt to cover Peloton’s newer leaderboard patents,” Feldman said. “Regardless, we feel strongly that Echelon’s challenges are without merit and we will respond to them in due course.”
Echelon’s invalidity arguments are similar to those raised by Flywheel over related patents. The patent office had said three of the Peloton patents challenged by Flywheel were likely to be found invalid, but the settlement with Flywheel put an end to those reviews before a final decision was reached.
New York-based Peloton has said its patents, many of which list company founder and Chief Executive Officer John Foley as lead inventor, cover “significant, tangible technological improvements over both in-studio cycling and traditional stationary bikes.”
Peloton investors are looking more to the company’s growth than its patents. Peloton, which has recorded quarterly losses since becoming a public company last year, had a rocky start with investors but its shares have more than doubled since March, when much of the U.S. began shutting down to try to curtail the pandemic.
Peloton was up 3.3% to $62.80 at 12:28 p.m. in New York trading.
In a May interview, Echelon Chief Executive Officer Lou Lentine said Peloton’s patents would be “crushed,” either at the patent office or in district courts.
“We believe they’re trying to bully the smaller companies,” Lentine said. “This is not going to go in the direction they think it’s going to go.”
The new petitions focus on whether Peloton’s patents are simply variations on old ideas. The Patent Trial and Appeal Board, considered friendlier to patent challengers than courts, will consider Echelon’s arguments and any response by Peloton. It will announce in about three months whether it will institute a review of the patents. If it does, a final decision would issue a year after that.
The cases are Peloton Interactive Inc. v. Echelon Fitness LLC, 19-cv-1903, and Peloton Interactive Inc. v. Icon Health & Fitness Inc., 20-cv-00662, both U.S. District Court for the District of Delaware (Wilmington).
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