WEBVTT - Peleton Goes After Competitors Riding Its Coattails

0:00:03.520 --> 0:00:07.040
<v Speaker 1>Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

0:00:07.120 --> 0:00:09.680
<v Speaker 1>day we bring you insight and analysis into the most

0:00:09.720 --> 0:00:12.200
<v Speaker 1>important legal news of the day. You can find more

0:00:12.240 --> 0:00:16.160
<v Speaker 1>episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud

0:00:16.280 --> 0:00:21.400
<v Speaker 1>and on Bloomberg dot com Slash podcasts. Thank welcome, call

0:00:21.520 --> 0:00:28.120
<v Speaker 1>my first time Peloton writers. Keep it up, Polton. You

0:00:28.160 --> 0:00:30.280
<v Speaker 1>don't have to be into fitness trends to have heard

0:00:30.320 --> 0:00:34.760
<v Speaker 1>about Peloton, the New York based company founded in sales

0:00:34.800 --> 0:00:37.520
<v Speaker 1>an at home spin bike with a hefty price tag

0:00:37.600 --> 0:00:41.960
<v Speaker 1>of two thousand two dollars plus a monthly subscription charge

0:00:42.000 --> 0:00:46.000
<v Speaker 1>of thirty nine dollars for its interactive, live and recorded workouts.

0:00:46.320 --> 0:00:49.879
<v Speaker 1>Peloton relies heavily on its patents, trademark, brand, and use

0:00:49.880 --> 0:00:54.000
<v Speaker 1>of copyrighted material to justify those high prices and to

0:00:54.120 --> 0:00:58.000
<v Speaker 1>distinguish itself from competitors, and so it's involved in a

0:00:58.080 --> 0:01:02.160
<v Speaker 1>growing list of intellectual property battles. It's defending its turf

0:01:02.160 --> 0:01:05.559
<v Speaker 1>in court with a multi pronged approach. The company sued

0:01:05.560 --> 0:01:08.959
<v Speaker 1>Echelon in October for allegedly ripping off its patents and

0:01:09.000 --> 0:01:13.000
<v Speaker 1>trade dress after suing Flywheel for patent infringement last year.

0:01:13.319 --> 0:01:16.279
<v Speaker 1>Joining me is Susan Scaffeiti, professor at Fornham Law School

0:01:16.360 --> 0:01:19.960
<v Speaker 1>and director of the Fashion Law Institute. So, Susan, do

0:01:20.040 --> 0:01:25.320
<v Speaker 1>the claims against Echelon mirror the claims against Flywheel very similar?

0:01:25.680 --> 0:01:29.240
<v Speaker 1>Of course, we're looking at a suite of intellectual property

0:01:29.280 --> 0:01:34.800
<v Speaker 1>and related claims going back to most importantly Peloton's patents

0:01:34.800 --> 0:01:38.360
<v Speaker 1>having to do with incorporating a screen with a bike,

0:01:38.560 --> 0:01:42.640
<v Speaker 1>but also using the software necessary to make sure that

0:01:42.920 --> 0:01:46.200
<v Speaker 1>experiences are archived and the data can move back and forth.

0:01:46.560 --> 0:01:48.960
<v Speaker 1>And in the case of Peloton, we're also dealing with

0:01:49.160 --> 0:01:52.160
<v Speaker 1>a trademark claim having to do with the somewhat sound

0:01:52.160 --> 0:01:55.880
<v Speaker 1>alike names and also the use of the stylized P

0:01:56.120 --> 0:01:58.960
<v Speaker 1>for Peloton and the stylized E for Echelon, both in

0:01:59.000 --> 0:02:01.200
<v Speaker 1>a red and white copper way. I was surprised to

0:02:01.280 --> 0:02:05.680
<v Speaker 1>learn that Peloton did not invent the computerized exercise equipment

0:02:05.720 --> 0:02:09.520
<v Speaker 1>that lets users compete remotely, or the touch screen or

0:02:09.560 --> 0:02:13.040
<v Speaker 1>the on demand programming. So what is patentable about what

0:02:13.120 --> 0:02:17.000
<v Speaker 1>Peloton has done? Junette question goes to the very heart

0:02:17.080 --> 0:02:21.480
<v Speaker 1>of the case is what Peloton has done sufficient to

0:02:22.080 --> 0:02:25.360
<v Speaker 1>not only be patentable, which the Patent Office ultimately said yes,

0:02:25.600 --> 0:02:28.520
<v Speaker 1>but to survive a challenge to the patent on the

0:02:28.560 --> 0:02:32.280
<v Speaker 1>basis of obviousness, and what Peloton is claiming and the

0:02:32.280 --> 0:02:36.160
<v Speaker 1>patent office agreed is that Peloton had to engage in

0:02:36.240 --> 0:02:41.360
<v Speaker 1>some technological advances in order to archive information and to

0:02:41.760 --> 0:02:45.040
<v Speaker 1>allow the back and forth flow of that information between

0:02:45.040 --> 0:02:47.120
<v Speaker 1>the company and the user, so you could track your

0:02:47.120 --> 0:02:50.720
<v Speaker 1>progress over time, as well as tracking against other competitors

0:02:50.960 --> 0:02:53.800
<v Speaker 1>in the studio in terms of live classes or the

0:02:53.840 --> 0:02:56.280
<v Speaker 1>parallel to in the studio in terms of live classes,

0:02:56.760 --> 0:03:00.240
<v Speaker 1>or against everyone who could possibly dial into an on

0:03:00.360 --> 0:03:04.959
<v Speaker 1>demand class. So there was some additional technology that had

0:03:05.000 --> 0:03:09.040
<v Speaker 1>to be developed in order to make Peloton work. Flywheel

0:03:09.400 --> 0:03:15.079
<v Speaker 1>struck back against Peloton's lawsuit and challenge Peloton's patents, So

0:03:15.160 --> 0:03:18.320
<v Speaker 1>can you tell us what happened there? Apparently the US

0:03:18.440 --> 0:03:20.560
<v Speaker 1>Patent and Trademark Office is going to take a second

0:03:20.560 --> 0:03:24.600
<v Speaker 1>look at the patents they are and again this is

0:03:24.639 --> 0:03:27.320
<v Speaker 1>really on the basis of whether or not this is

0:03:27.360 --> 0:03:30.720
<v Speaker 1>simply obvious, and whether or not the quote unquote prior

0:03:31.000 --> 0:03:34.440
<v Speaker 1>art in the patent, that is, the disclosure of what

0:03:34.560 --> 0:03:39.760
<v Speaker 1>had been done previously was complete, insufficient, and how significant

0:03:39.880 --> 0:03:42.520
<v Speaker 1>is it that the Patent and Trademark office is taking

0:03:42.560 --> 0:03:46.800
<v Speaker 1>a second look at these patents? Well, a patent, once issued,

0:03:46.880 --> 0:03:49.640
<v Speaker 1>is still a prima fascia valid, but the fact that

0:03:49.680 --> 0:03:53.040
<v Speaker 1>the Patent trademark office is taking a second look is

0:03:53.400 --> 0:03:56.560
<v Speaker 1>certainly something that is going to give some comfort to

0:03:57.000 --> 0:04:01.080
<v Speaker 1>both Flywheel and Echelon. What kind of decision can they make.

0:04:01.680 --> 0:04:04.800
<v Speaker 1>Can they say these patents just aren't valid and then

0:04:05.000 --> 0:04:08.400
<v Speaker 1>out the window goes Peloton's patents, or is there then

0:04:08.440 --> 0:04:12.680
<v Speaker 1>another review. In theory the patents could be invalidated. But

0:04:13.040 --> 0:04:16.000
<v Speaker 1>of course this is all appealable. But in the meantime,

0:04:16.040 --> 0:04:19.680
<v Speaker 1>of course, Peloton is making a strong argument that it

0:04:19.760 --> 0:04:23.520
<v Speaker 1>has not only its registered trademark that is somewhat similar

0:04:23.560 --> 0:04:27.359
<v Speaker 1>to for example, Echelon, but also has developed trade dress

0:04:27.400 --> 0:04:31.039
<v Speaker 1>around it's a product. And so the appearance of the

0:04:31.080 --> 0:04:34.000
<v Speaker 1>bike itself, the black and the red color way, the

0:04:34.040 --> 0:04:37.359
<v Speaker 1>appearance of the screen, all of these things work together

0:04:37.480 --> 0:04:41.760
<v Speaker 1>to create an image of Peloton that is recognizable to

0:04:41.800 --> 0:04:44.680
<v Speaker 1>the consumer, and that it believes that in particular Echelon

0:04:44.839 --> 0:04:48.760
<v Speaker 1>has copied. So Peloton is not relying exclusively on its

0:04:48.760 --> 0:04:52.240
<v Speaker 1>patents but also on trademark law. So Peloton is then

0:04:52.320 --> 0:04:56.240
<v Speaker 1>taking a multi pronged approach to this. It is Peloton

0:04:56.400 --> 0:04:59.760
<v Speaker 1>is trying to create a suite of intellectual property rights.

0:05:00.000 --> 0:05:03.680
<v Speaker 1>It will protect what it has developed and marketed successfully

0:05:03.720 --> 0:05:07.800
<v Speaker 1>so far. Some say that the strength of Peloton is

0:05:07.839 --> 0:05:11.120
<v Speaker 1>not so much the patents, but it's the marketing. Well.

0:05:11.480 --> 0:05:16.360
<v Speaker 1>Marketing and intellectual property protection are not necessarily mutually exclusive, right.

0:05:16.560 --> 0:05:20.200
<v Speaker 1>Once you have intellectual property without great marketing, it can

0:05:20.279 --> 0:05:23.960
<v Speaker 1>never go anywhere, So usually these things that work in tandem.

0:05:24.279 --> 0:05:28.559
<v Speaker 1>The claim that this is nothing but marketing around an

0:05:28.600 --> 0:05:33.159
<v Speaker 1>empty core is perhaps a little extreme. In this case.

0:05:33.480 --> 0:05:36.440
<v Speaker 1>There is certainly something at least to the trademarks, and

0:05:36.800 --> 0:05:39.320
<v Speaker 1>very possibly to the patents as well. We just need

0:05:39.360 --> 0:05:42.640
<v Speaker 1>a little bit more information on what was truly non

0:05:42.680 --> 0:05:47.159
<v Speaker 1>obvious and truly innovative about those patents. The thing about

0:05:47.160 --> 0:05:51.679
<v Speaker 1>obviousness is that it's easy to say in retrospect that, sure,

0:05:51.760 --> 0:05:54.080
<v Speaker 1>anyone could have thought of putting a screen together with

0:05:54.120 --> 0:05:57.440
<v Speaker 1>a bike in this particular way and making it work.

0:05:57.720 --> 0:06:01.680
<v Speaker 1>And certainly, as you noted, other companies did integrate screens

0:06:01.800 --> 0:06:05.080
<v Speaker 1>and exercise equipment in the past. The question is, is

0:06:05.120 --> 0:06:08.040
<v Speaker 1>the way that Peloton has done it is Peloton's method

0:06:08.120 --> 0:06:12.240
<v Speaker 1>to use the technical term different enough to warrant protection,

0:06:12.520 --> 0:06:15.360
<v Speaker 1>and that's what we're waiting to see. In the meantime,

0:06:15.640 --> 0:06:21.039
<v Speaker 1>Peloton is wise to also focus on its trademarks and

0:06:21.480 --> 0:06:25.520
<v Speaker 1>continue to move forward with its marketing and to try

0:06:25.560 --> 0:06:30.280
<v Speaker 1>to maintain its position in the marketplace. Although, as you know,

0:06:30.920 --> 0:06:34.080
<v Speaker 1>since Peloton's i p O in September, its numbers have

0:06:34.160 --> 0:06:36.799
<v Speaker 1>been falling. So would you say this is an uphill

0:06:36.839 --> 0:06:40.000
<v Speaker 1>battle for Peloton or not so much so? What it

0:06:40.080 --> 0:06:44.080
<v Speaker 1>is is a substantial expense and risk for Peloton. In fact,

0:06:44.160 --> 0:06:46.839
<v Speaker 1>it's a risk that was even disclosed in its securities

0:06:46.839 --> 0:06:49.960
<v Speaker 1>filings prior to the i p O. Peloton noted that

0:06:50.000 --> 0:06:53.039
<v Speaker 1>it had substantial intellectual property but was likely to have

0:06:53.160 --> 0:06:57.160
<v Speaker 1>to spend quite a bit to protect that intellectual property

0:06:57.240 --> 0:07:02.239
<v Speaker 1>against challenges and also to enforce that intellectual property against others.

0:07:02.600 --> 0:07:05.359
<v Speaker 1>So Peloton knew going into its i p O that

0:07:05.560 --> 0:07:08.200
<v Speaker 1>it was going to have challenges the surrounding of the

0:07:08.279 --> 0:07:10.880
<v Speaker 1>its intellectual property and the way that it has tried

0:07:10.920 --> 0:07:14.800
<v Speaker 1>to use that intellectual property to buoy its value. Thanks Susan.

0:07:15.280 --> 0:07:18.640
<v Speaker 1>That's Susan Scaffitia, professor at Fordham Law School and director

0:07:18.640 --> 0:07:22.400
<v Speaker 1>of the Fashion Law Institute. Peloton is also facing a

0:07:22.480 --> 0:07:25.560
<v Speaker 1>lawsuit from the music industry, which says the company is

0:07:25.640 --> 0:07:30.360
<v Speaker 1>using copyrighted music without permission. Thanks for listening to the

0:07:30.360 --> 0:07:33.760
<v Speaker 1>Bloomberg Law Podcast. You can subscribe and listen to the

0:07:33.760 --> 0:07:37.680
<v Speaker 1>show on Apple Podcasts, SoundCloud, and on bloomberg dot com

0:07:37.760 --> 0:07:41.920
<v Speaker 1>slash podcast. I'm June Grosso. This is Bloomberg