Wahlberg-Backed F45 Chain Fights Rival on Eve of Blank-Check IPO
(Bloomberg) -- Last November, as F45 Training, an El Segundo, California-based fitness chain backed in part by actor Mark Wahlberg, was eyeing a 2020 initial public offering, a smaller rival opened its first U.S. studio just 15 miles up the freeway in Santa Monica.
That rivalry has since blown up into an all-out legal war, threatening F45’s digital platform as it plans to go public at the end of the month via a merger with blank-check company Crescent Acquisition Corp.
F45 on Friday sued Australia’s Body Fit Training in federal court in Wilmington, Delaware, accusing it of infringing a patent on technology for remotely configuring and operating a fitness studio. Last month, Body Fit preemptively sued in federal court in Los Angeles, asking for an order invalidating two F45 patents, including the one at issue in the Delaware case. F45 also previously sued Body Fit in Australia.
Both companies are part of the boutique fitness studio sector, to which investors had been flocking before the pandemic. In its suit, F45 said the technology “has been critical” to its rapid growth, which includes 2,000 franchises in 63 countries. At the time Wahlberg purchased a minority stake in the company last year, it was valued at roughly $450 million. According to a July 16 proxy statement filed by Crescent, F45 had 2019 revenue of $92.7 million, up from $57.8 million in 2018.
The pandemic shuttered many F45 studios and put the company’s IPO plans on hold until it struck the Crescent deal in June. F45, whose name is a mash-up of “functional training” and the 45-minute duration of its classes, said it has continued to expand through the crisis, opening 50 new studios since the beginning of the summer and selling 124 franchises in June and July.
The prospects for the sector may be brighter than those of more traditional fitness companies. Gold’s Gym International Inc. filed for bankruptcy in May, followed by 24 Hour Fitness Worldwide Inc. in June. Last week, the owner of the New York Sports Clubs chain said it might need to file for bankruptcy “in the near future.”
At the time of its Santa Monica opening, Body Fit said it was likewise embarked on “an aggressive plan” to open dozens of studios across the U.S. over the next year. Founder and joint Chief Executive Officer Cameron Falloon, who was once personal trainer to Princess Diana, according to his company’s website, said Body Fit was “well-positioned to disrupt this space and continue to grow through its innovative programming and technology.”
But F45 claims Falloon’s joint CEO, Richard Burnet, expressed interest in becoming one of its U.S. franchisees in 2017. Based on that interest, he was given “an in-depth explanation of F45’s business model, cash flow model, and marketing plan, including access to a confidential F45 financial spreadsheet,” the company’s lawsuit says. According to F45, the company’s patents were discussed as well.
Months after Burnet toured at least one F45 franchise studio in the U.S., Falloon launched Body Fit’s parent company in Australia in October 2017.
F45 is asking the Delaware court for unspecified damages, but the greater prize would be if it grants its request to block Body Fit from selling in the U.S. any service that infringes the patent. That would force Body Fit, which claims the patent is invalid, to re-design its platform to avoid infringement.
Body Fit said in the California complaint that it went to court after F45 CEO Adam Gilchrist threatened to file a $50 million lawsuit “to protect our network.” Body Fit says the two companies “offer similar services” but that its technology “differs in significant ways from the inventions claimed” by F45.
All the challenged patents claim to do, it said, “is add a computer and a screen to do what fitness studios have done for years through human interaction.”
The case is F45 Training Pty Ltd. v. Body Fit Training USA Inc., 20-cv-1194, U.S. District Court, District of Delaware (Wilmington).
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