This is your instructor....and this is the weird lawsuit against her company.

Peloton, the maker of the $2,000 interactive bike that promises to bring the fun and intensity of a spin class to your home, has spent the past year quietly embroiled in a bizarre patent infringement lawsuit brought by the celebrity designer who built the company’s bike. The lawsuit, which comes at a critical time for the $1.2 billion startup, threatens the core of Peloton’s business — its interactive technology — just as a well-funded new competitor comes to market (FlyWheel Sports) and a Juicero-style hack helps budget-minded spinners recreate the Peloton experience at home without actually buying the bike. The designer suing Peloton is Eric Villency, CEO of Villency Design Group and the grandson of Maurice Villency, the late Manhattan furniture tycoon. A former model and occasional TV personality who was once married to the Fox TV host Kimberley Guilfoyle, Villency is well known as the brains behind the yellow spin bikes found at SoulCycle studios around the country. He has also designed a clutch to go with Rihanna’s perfume, and luxury suites at Citi Field. In 2012, Peloton approached him about designing its namesake product.



But after delivering Peloton’s bike, Villency took on a second and far less public role: In June 2016, he and another Villency Design Group principal co-founded a company called VR Optics, acquired a patent for interactive fitness equipment from Microsoft, and— soon after —sued Peloton for infringing on their new patent. VR Optics has no website and no phone number. But a spokeswoman for the company — responding to a message left at Villency Design Group — confirmed that the two companies had common ownership. Villency founded the company “to pursue opportunities in the virtual reality space,” she said, and acquired the patent “to support a virtual reality platform for fitness.” Villency’s partner in both ventures is Joseph Coffey, who also hails from a well-known New York family. He is the son of the late NYPD detective Joseph Coffey, who gained notoriety for taking the confession of the serial killer known as Son of Sam and arresting mobster John J. Gotti on multiple occasions. VR Optics is not claiming that the bike built by Villency Design Group infringes on the patent. What’s in violation, according to the lawsuit, is the technology, developed by Peloton’s in-house team of engineers, that streams live spin classes, displays scenic locations on the tablet, tracks the user’s data and allows bikes to communicate remotely. Peloton, which denies the accusations, has filed a counterclaim against Villency and Coffey. The company asserts that the two men learned about the patent while building Peloton's bike, possibly from a Peloton employee. Then, rather than warn Peloton that its technology could run afoul of the Microsoft patent, Villency and Coffey waited until their contract with Peloton had expired and founded VR Optics with the sole intention of acquiring the patent and enforcing it against Peloton, the company says.



VR Optics acquired the patent from Microsoft on August 6th, 2016 — just days after Villency Design Group’s most recent contract with Peloton expired. Peloton also claims that Villency and Coffey have attempted to sell the patent to Peloton’s direct competitors. Jess Collen, a New York intellectual property attorney who is not associated with the case, said he knew of no other case in which a company had been sued for patent infringement by a vendor that helped develop the product in question. And while legislation has been introduced at both the federal and state level to strengthen limits on patent litigation, there is nothing currently preventing someone from buying a patent for the sole purpose of suing a company for infringement. “If you own the patent you have the right to enforce it, even if you’ve never used it for a second,” he said. The patent in question, originally granted in 2005, describes “computerized fitness equipment that is designed to simulate, emulate or implement actual race conditions with other users,” and contains two separate drawings of pairs of exercise bikes affixed with screens and connected through a digital network. There are several mentions of virtual reality capabilities, as well. Peloton itself received a patent in 2015 for remotely providing live and archived cycling classes through a computer associated with a stationary bike. "For our home riders, this means that your investment is sound and there will (most likely) not be a better bike on the market any time soon," the company said at the time.

The two sides in the patent dispute are set to meet in court this Wednesday, October 4th, for a pre-trial conference. The conference, which represents the first time the parties will meet in court, comes just days before FlyWheel Sports, a cycling studio with 42 locations around the country, prepares to invade Peloton’s turf, opening a two-front war for a company not accustomed to competition. In March, Peloton's CEO and co-founder John Foley told CNBC’s Jim Cramer that Peloton had benefited from being the first to bring an interactive home spin bike to market. “Right now, there is no competition,” he said. “Peloton’s the only game in town.” But in May, FlyWheel announced its plan to introduce an at-home bike with a streaming content platform.



It’s unclear how much FlyWheel will charge for its bikes (the company declined comment for this story). But there is already ample evidence consumers are eager to embrace a cheaper version of the Peloton. Exhibit A is the Peloton “hack” that’s becoming common knowledge on the internet. Much as users of Juicero—the much-hyped, now-defunct $400 juicer—figured out they didn’t need the machine to squeeze the company’s $7 fruit bags, spin fans have realized you don’t have to pay $1,995 for the bike (or $250 for instillation, or $230 for the shoes, weights, headphones, heart rate monitor and bike mat) to enjoy the Peloton experience. One popular post from May, on the bargain-hunting site My Purse Strings, details how the writer saved $1700 by downloading the Peloton app and outfitting a cheap spin bike, which can be had for as little as $200, with an iPad holder. “Overall, for this price, I really can’t have buyer’s remorse,” said the writer. There are also multiple apps now offering libraries full of spin classes for just a few dollars a month, giving home spinners even more non-Peloton options. Carolyn Tisch Blodgett, SVP of Brand Marketing for Peloton, says Peloton is well aware of the popular workaround. In fact, Peloton’s FAQ actually includes the question, “The Peloton iOS app is so great, why would I buy the Peloton bike?”

.@codyrigsby talks w/@Shape about how live streamed workouts are changing how people get fit at home:… https://t.co/FcXfV526zN



“You could buy a home exercise bike and put an iPad on top and call it a day,” said Blodgett, “but it would be a muted experience.” Without the bike and heart monitor, users can’t see their metrics on the screen and “race” against other Peloton riders on the leaderboard, she noted. A $200 spin bike is also unlikely to provide as smooth or satisfying a ride as Peloton’s. As for FlyWheel’s entrance to the market, Blodgett says Peloton is prepared, and even happy, to have competition. “When you’re a really successful company with a product that’s growing as quickly as we are, we would be silly to think competitors are not going to enter our space,” she said. “If what they’re doing is growing the market, then that’s fantastic.” Blodgett said that Peloton, which is privately owned, is “effectively profitable,” meaning, “We could turn a profit, but instead we are turning the money back into the company.” By the end of the year, Peloton is looking to open six more showrooms around the country, bringing the total to 30.

Buoyed by a $325M Series E to Peloton Interactive, fitness tech is on track for a 123% funding increase over 2016. https://t.co/BbCs1qvKWL