In 2012, Peloton rode into the home fitness scene with its now ubiquitous at-home exercise bike, which features a tablet that allows riders to stream both live and pre-recorded classes while competing against other riders on a virtual leaderboard. Peloton built the bike, including the associated technology and software, from scratch, and applied for and obtained a number of patents between 2015 and 2019 to protect its sizable investment of both time and money.
In 2017, Flywheel, a boutique exercise studio, pedaled into the home fitness scene as well with the FLY Anywhere bike. Like Peloton users, FLY Anywhere riders stream both live and pre-recorded classes while pedaling their way up the leaderboard.
Litigation
Less than a year after Flywheel introduced the FLY Anywhere, Peloton sued Flywheel for patent infringement in the United States District Court for the Eastern District of Texas. In its suit, Peloton claimed that Flywheel investor Michael Milken, posing as a potential Peloton investor, had approached Peloton CEO John Foley at a private investor conference at the end of 2016 and obtained information about the company’s technology and business strategy—all while neglecting to disclose to Peloton that he had already made a multi-million dollar investment in Flywheel. Peloton asserted that Milken took the information he obtained from Peloton and provided it to Flywheel for use in the development, sales, and marketing of the FLY Anywhere.
During discovery in the litigation, Peloton uncovered a widespread scheme by Flywheel to obtain "as MUCH secret intel on Peloton as we can" prior to the launch of the FLY Anywhere bike. The corporate espionage, dubbed Project Magnum by a Flywheel employee, was described by Peloton as "concerted and widespread" in court filings. Notably, these details are only public because Peloton failed to properly apply redactions to its filings (oops!).
After Project Magnum came to light, Flywheel fired back against Peloton and Foley, claiming that it was Peloton that had actually stolen the idea for the Peloton bike from Flywheel in 2011. Flywheel attempted to rely on a Flywheel@Home slideshow it claimed Foley had misappropriated in 2011, prior to his unsuccessful pitch to partner with Flywheel. Despite this claim, Flywheel did not have the native PowerPoint and, without its corresponding metadata, was unable to prove that it was created prior to Foley's pitch.
Settlement
On February 3, 2020, counsel for Peloton filed a notice of settlement in the litigation. Attached to the notice was a declaration from Flywheel CFO Jeffrey Naumowitz, admitting that the "Peloton Patents are valid and enforceable." Remarkably, Naumowitz further admitted that "Flywheel copied elements of the Peloton bike in developing its Fly Anywhere bike" and that the streaming leaderboard technology was not created or invented by Flywheel. Notably, despite Flywheel's finger-pointing at Peloton during the litigation, Naumowitz also admitted that Flywheel's purported trade secrets had not been misappropriated by Peloton or Foley prior to the litigation.
On February 19, 2020, Flywheel sent an email to its at-home members informing them that effective March 27, 2020, its streaming service Flywheel At Home would be discontinued. Flywheel also advised that it had "partnered with Peloton to provide an exclusive offer for you to enjoy their world-class At Home product." Peloton is now offering owners of the FLY Anywhere bike, which will be rendered useless on March 27, the opportunity to trade in their bike for a refurbished Peloton bike. Not only has Peloton topped the legal leaderboard against Flywheel, but it has now seemingly captured Flywheel's at-home rider base.
Takeaways
This litigation and ensuing settlement underscores the importance of taking reasonable steps to ensure the secrecy of proprietary information, including through the use of confidentiality and non-disclosure agreements. It also highlights the key role of metadata in asserting claims related to trade secret misappropriation and intellectual property rights.
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