Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every
Speaker 1: day we bring you insight and analysis into the most
Speaker 1: important legal news of the day. You can find more
Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud
Speaker 1: and on Bloomberg dot com Slash podcasts. Thank welcome, call
Speaker 1: my first time Peloton writers. Keep it up, Polton. You
Speaker 1: don't have to be into fitness trends to have heard
Speaker 1: about Peloton, the New York based company founded in sales
Speaker 1: an at home spin bike with a hefty price tag
Speaker 1: of two thousand two dollars plus a monthly subscription charge
Speaker 1: of thirty nine dollars for its interactive, live and recorded workouts.
Speaker 1: Peloton relies heavily on its patents, trademark, brand, and use
Speaker 1: of copyrighted material to justify those high prices and to
Speaker 1: distinguish itself from competitors, and so it's involved in a
Speaker 1: growing list of intellectual property battles. It's defending its turf
Speaker 1: in court with a multi pronged approach. The company sued
Speaker 1: Echelon in October for allegedly ripping off its patents and
Speaker 1: trade dress after suing Flywheel for patent infringement last year.
Speaker 1: Joining me is Susan Scaffeiti, professor at Fornham Law School
Speaker 1: and director of the Fashion Law Institute. So, Susan, do
Speaker 1: the claims against Echelon mirror the claims against Flywheel very similar?
Speaker 1: Of course, we're looking at a suite of intellectual property
Speaker 1: and related claims going back to most importantly Peloton's patents
Speaker 1: having to do with incorporating a screen with a bike,
Speaker 1: but also using the software necessary to make sure that
Speaker 1: experiences are archived and the data can move back and forth.
Speaker 1: And in the case of Peloton, we're also dealing with
Speaker 1: a trademark claim having to do with the somewhat sound
Speaker 1: alike names and also the use of the stylized P
Speaker 1: for Peloton and the stylized E for Echelon, both in
Speaker 1: a red and white copper way. I was surprised to
Speaker 1: learn that Peloton did not invent the computerized exercise equipment
Speaker 1: that lets users compete remotely, or the touch screen or
Speaker 1: the on demand programming. So what is patentable about what
Speaker 1: Peloton has done? Junette question goes to the very heart
Speaker 1: of the case is what Peloton has done sufficient to
Speaker 1: not only be patentable, which the Patent Office ultimately said yes,
Speaker 1: but to survive a challenge to the patent on the
Speaker 1: basis of obviousness, and what Peloton is claiming and the
Speaker 1: patent office agreed is that Peloton had to engage in
Speaker 1: some technological advances in order to archive information and to
Speaker 1: allow the back and forth flow of that information between
Speaker 1: the company and the user, so you could track your
Speaker 1: progress over time, as well as tracking against other competitors
Speaker 1: in the studio in terms of live classes or the
Speaker 1: parallel to in the studio in terms of live classes,
Speaker 1: or against everyone who could possibly dial into an on
Speaker 1: demand class. So there was some additional technology that had
Speaker 1: to be developed in order to make Peloton work. Flywheel
Speaker 1: struck back against Peloton's lawsuit and challenge Peloton's patents, So
Speaker 1: can you tell us what happened there? Apparently the US
Speaker 1: Patent and Trademark Office is going to take a second
Speaker 1: look at the patents they are and again this is
Speaker 1: really on the basis of whether or not this is
Speaker 1: simply obvious, and whether or not the quote unquote prior
Speaker 1: art in the patent, that is, the disclosure of what
Speaker 1: had been done previously was complete, insufficient, and how significant
Speaker 1: is it that the Patent and Trademark office is taking
Speaker 1: a second look at these patents? Well, a patent, once issued,
Speaker 1: is still a prima fascia valid, but the fact that
Speaker 1: the Patent trademark office is taking a second look is
Speaker 1: certainly something that is going to give some comfort to
Speaker 1: both Flywheel and Echelon. What kind of decision can they make.
Speaker 1: Can they say these patents just aren't valid and then
Speaker 1: out the window goes Peloton's patents, or is there then
Speaker 1: another review. In theory the patents could be invalidated. But
Speaker 1: of course this is all appealable. But in the meantime,
Speaker 1: of course, Peloton is making a strong argument that it
Speaker 1: has not only its registered trademark that is somewhat similar
Speaker 1: to for example, Echelon, but also has developed trade dress
Speaker 1: around it's a product. And so the appearance of the
Speaker 1: bike itself, the black and the red color way, the
Speaker 1: appearance of the screen, all of these things work together
Speaker 1: to create an image of Peloton that is recognizable to
Speaker 1: the consumer, and that it believes that in particular Echelon
Speaker 1: has copied. So Peloton is not relying exclusively on its
Speaker 1: patents but also on trademark law. So Peloton is then
Speaker 1: taking a multi pronged approach to this. It is Peloton
Speaker 1: is trying to create a suite of intellectual property rights.
Speaker 1: It will protect what it has developed and marketed successfully
Speaker 1: so far. Some say that the strength of Peloton is
Speaker 1: not so much the patents, but it's the marketing. Well.
Speaker 1: Marketing and intellectual property protection are not necessarily mutually exclusive, right.
Speaker 1: Once you have intellectual property without great marketing, it can
Speaker 1: never go anywhere, So usually these things that work in tandem.
Speaker 1: The claim that this is nothing but marketing around an
Speaker 1: empty core is perhaps a little extreme. In this case.
Speaker 1: There is certainly something at least to the trademarks, and
Speaker 1: very possibly to the patents as well. We just need
Speaker 1: a little bit more information on what was truly non
Speaker 1: obvious and truly innovative about those patents. The thing about
Speaker 1: obviousness is that it's easy to say in retrospect that, sure,
Speaker 1: anyone could have thought of putting a screen together with
Speaker 1: a bike in this particular way and making it work.
Speaker 1: And certainly, as you noted, other companies did integrate screens
Speaker 1: and exercise equipment in the past. The question is, is
Speaker 1: the way that Peloton has done it is Peloton's method
Speaker 1: to use the technical term different enough to warrant protection,
Speaker 1: and that's what we're waiting to see. In the meantime,
Speaker 1: Peloton is wise to also focus on its trademarks and
Speaker 1: continue to move forward with its marketing and to try
Speaker 1: to maintain its position in the marketplace. Although, as you know,
Speaker 1: since Peloton's i p O in September, its numbers have
Speaker 1: been falling. So would you say this is an uphill
Speaker 1: battle for Peloton or not so much so? What it
Speaker 1: is is a substantial expense and risk for Peloton. In fact,
Speaker 1: it's a risk that was even disclosed in its securities
Speaker 1: filings prior to the i p O. Peloton noted that
Speaker 1: it had substantial intellectual property but was likely to have
Speaker 1: to spend quite a bit to protect that intellectual property
Speaker 1: against challenges and also to enforce that intellectual property against others.
Speaker 1: So Peloton knew going into its i p O that
Speaker 1: it was going to have challenges the surrounding of the
Speaker 1: its intellectual property and the way that it has tried
Speaker 1: to use that intellectual property to buoy its value. Thanks Susan.
Speaker 1: That's Susan Scaffitia, professor at Fordham Law School and director
Speaker 1: of the Fashion Law Institute. Peloton is also facing a
Speaker 1: lawsuit from the music industry, which says the company is
Speaker 1: using copyrighted music without permission. Thanks for listening to the
Speaker 1: Bloomberg Law Podcast. You can subscribe and listen to the
Speaker 1: show on Apple Podcasts, SoundCloud, and on bloomberg dot com
Speaker 1: slash podcast. I'm June Grosso. This is Bloomberg