IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF DELAWARE

PELOTON INTERACTIVE, INC. )

)
Plaintiff, ) C.A. No. 1:21-cv-160-RGA
)
v. ) JURY TRIAL DEMANDED
)
ECHELON FITNESS MULTIMEDIA LLC, ) REDACTED
) PUBLIC VERSION
Defendant. )
)

PELOTON INTERACTIVE, INC. )

)
Plaintiff, ) C.A. No. 1:19-cv-1903-RGA
)
v. ) JURY TRIAL DEMANDED
)
ECHELON FITNESS MULTIMEDIA LLC; ) REDACTED
ECHELON FITNESS, LLC; ECHELON )
PUBLIC VERSION
STUDIO, LLC; VIATEK CONSUMER )
PRODUCTS GROUP, INC., )
)
Defendants. )

DEFENDANT’S AMENDED COUNTERCLAIMS FOR ANTITRUST, TORTIOUS

INTERFERENCE, UNFAIR COMPETITION, FALSE ADVERTISING, AND
DECLARATORY JUDGMENT OF PATENT INVALIDITY AND
NON-INFRINGEMENT AGAINST PELOTON INTERACTIVE, INC.

Defendant Echelon Fitness Multimedia LLC (“Echelon”) hereby asserts the following

amended counterclaims against Peloton Interactive, Inc. (“Peloton”):

PARTIES

1. Counterclaimant Echelon Fitness Multimedia LLC is a limited liability company

organized and existing under the laws of the State of Delaware, with its principal place of business

at 605 Chestnut Street, Chattanooga, Tennessee, 37450.

 2. On information and belief, Counterclaim-Defendant Peloton is a corporation

organized and existing under the laws of the State of Delaware, with its principal place of business

at 125 West 25th Street, 11th Floor, New York, New York, 10001.

JURISDICTION AND VENUE

3. This is an action for antitrust violations under the Sherman Act, tortious

interference with business relations and contract, common law unfair competition, false

advertising and unfair competition under the Lanham Act, violation of Delaware’s Deceptive

Trade Practices Act, trade liable, and for declaratory judgment pursuant to 15 U.S.C. § 1125, 6

Del. C. § 2531, et seq., and 28 U.S.C. §§ 2201-2202.

4. This Court has subject matter jurisdiction over the Sherman Act claims pursuant to

28 U.S.C. § 1331 and 15 U.S.C. §§ 15, 26. The Court has subject matter jurisdiction over the

Lanham Act claims pursuant to 15 U.S.C. § 1121 and under 28 U.S.C. §§ 1331 and 1338. The

Court has subject matter jurisdiction over the declaratory judgment claims pursuant to 28 U.S.C.

§§ 1331, 1338, 2201-02 and 35 U.S.C. § 101 et seq. Subject matter over related state law or

common law claims is proper pursuant to 28 U.S.C. §§ 1338 and 1367. The state law claims are

integrally interrelated with Echelon’s federal claims and arise from a common nucleus of operative

facts such that the administration of the state law claims with the federal claims furthers the interest

of judicial economy.

5. The Court has personal jurisdiction over Peloton because it is incorporated in this

district, and because Peloton has purposefully availed itself of the benefits and protections of the

laws of the State of Delaware, asserted claims against Echelon in this District, and voluntarily

subjected itself to the Court’s jurisdiction by filing the Complaint against Echelon in this District.

6. Venue for the counterclaims is proper in this District pursuant to 28 U.S.C. § 1391.

2
 FACTUAL ALLEGATIONS

Peloton’s monopolization of or attempt to monopolize the connected fitness market

7. Peloton is a powerful public company that has (by its own estimates) over a 75%

share of the connected fitness market. It also has access to massive capital that its competitors do

not. Indeed, Peloton had $1.8 billion in cash on its balance sheet as of September 14, 2020, and

in November 2021 it raised another billion dollars through a stock offering. See

https://www.wsj.com/articles/peloton-in-reversal-plans-to-raise-1-billion-from-stock-offering-

11637083283; https://www.yahoo.com/now/peloton-has-nearly-2-billion-in-cash-and-it-plans-to-

spend-it-162914108.html. This capital allows Peloton to spend massively on marketing, cut its

prices, and run at a loss in order to gain and maintain market share and stifle competition. It also

allows Peloton to buy out its competitors and pay for their silence and cooperation, and helps fund

serial baseless litigation against its competitors in order to raise their costs, and intimidate and

bully them out of the market.

8. Indeed, Peloton’s founder and CEO, John Foley, instructed his team to use

Peloton’s deep pockets and dominant market position to “lean on” its smaller competitors to “win”

what he sees as a “winner take all space,” claiming that Peloton has “a lot more money” and could

“endure pain longer than they can.” (PELOTON_ICON-ECHELON_00112573):

We have a lot more money than [our competitors] . . . We can endure pain longer
than they can. We HAVE to win (in a potentially winner take all space). And we
have the big stack. We need to lean on the gamblers with the smaller stacks…

9. Mr. Foley echoed these sentiments publicly on numerous occasions:

• At a September, 2021 Goldman Sachs Conference, Mr. Foley stated “we really feel
that we are playing the long game. We believe that this could be a winner take all. It
should be a winner take all and it’s going to be very hard to compete with Peloton
with this type of strategy where we’re thinking long term. . . . We do think, again,
this could be a global winner take all.” See https://seekingalpha.com/article/4456636-
peloton-interactive-inc-pton-ceo-john-foley-on-goldman-sachs-30th-annual-

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 communacopia. That long term strategy, as outlined above, was to pressure its
“smaller stack” competitors out of business.

• Mr. Foley stated in an interview in December 2020 that Peloton was increasing its
efforts to gain market share “so that we make sure that if this is a winner-take-all
opportunity, Peloton is going to take it.”
https://www.fool.com/investing/2020/12/04/could-peloton-be-a-millionaire-maker-
stock/

10. Peloton followed through on Mr. Foley’s threats. For instance, Peloton used its

“big stack” to push Affirm, Inc. (“Affirm”), the primary provider of consumer marketing in the

relevant connected fitness space, to break its contracts with its competitors (including Echelon),

and to prevent any competitors from using Affirm, and, in turn, from realizing the same conversion

and sales benefits Peloton enjoyed by partnering with Affirm. Peloton did so with specific intent

to hurt Echelon, its lower priced competitor, and stifle competition.

11. Peloton also engaged in a classic “raising rival’s costs” scheme and used its large

cash stockpile to bury its competitors in serial baseless litigations designed to crush and embroil

them in litigation they cannot afford in hopes of bankrupting them or forcing them out of market

through expensive litigation fees. For instance, Peloton filed serial patent cases against Flywheel

Sports, Inc. (“Flywheel”) in the Eastern District of Texas (C.A. Nos. 2:18-cv-390 and 2:19-cv-

317), baselessly asserting that Peloton came up with the abstract idea of re-creating the existing

in-studio cycling experience at home. Instead, upon information and belief, Peloton’s founder

stole that idea from Flywheel. Those litigations culminated in Flywheel filing for bankruptcy, and

Peloton coercing Flywheel into a settlement, which included Peloton acquiring its smaller

competitor’s connected bike business and then paying $24.5 million for its silence and cooperation

so it could maintain its market share and its monopoly. More recently, Peloton filed serial cases

against Echelon (C.A. Nos. 19-1903, 21-160, and 21-1607) and iFIT, Inc. f/k/a/ ICON Health and

Fitness, Inc. (“ICON”) (C.A. Nos. 20-662 and 21-507) in this Court asserting objectively and

4
subjectively baseless claims of patent infringement based on invalid patents to keep its competitors

out of the market. Peloton – who spent over $60 million in legal fees and settlements in fiscal year

2020 – see https://www.digitalmusicnews.com/2020/05/07/peloton-spent-60mm-legal-fees/ –

filed these baseless cases in a serial manner to maximize its competitors’ litigation spend. Indeed,

Peloton has either bought up, sued, or otherwise “leaned on” the vast majority of competitors in

the market with the specific intent to either monopolize the relevant market or maintain its

monopoly.

12. For example, when Peloton discovered that SoulCycle, one of its competitors, was

looking to enter the connected fitness market with an at-home connected bike, Mr. Foley directed

Peloton’s entire business team to follow its Flywheel playbook and drive them into bankruptcy:

“[I]f we do our jobs well, they will never get enough traction for their home product to get any

scale (so that division will always lose money). A la Flywheel who entered bankruptcy last

month. Same playbook and inevitably the same result.” A member of Peloton’s Board of

Directors agreed that Peloton needs to “heavy spend” to “make them Disappear.” He further

stated: “Let’s not make it easy for them!!! Let’s Crush them.”

PELOTON_ICON_ECHELON_00077527.

13.

14. Peloton’s predatory desire to win the “winner take all” market at all costs has been

part of the fabric of the company since its inception. Peloton has never been profitable and does

not expect to be until 2023. As detailed in Peloton’s 2021 Form 10-K filed with the United States

Securities and Exchange Commission (“SEC”), Peloton “incurred operating losses each year since

5
our inception in 2012, including net losses of $(189.0) million, $(71.6) million, and $(195.6)

million for fiscal 2021, 2020, and 2019, respectively.” Peloton’s losses are self-inflicted, and

largely driven by its massive marketing spend, its price cuts, and its desire to spend large sums of

money to keep out competitors and gain market share.

15. As Peloton admits in the Second Amended Complaint in C.A. 19-1903 (the

“Complaint”), the Peloton Bike was not an overnight success, and sales were initially slow. It was

only after “intensive and creative marketing efforts” that Peloton’s “sales began to pick up.”

Indeed, as Peloton’s losses piled up, so too did its marketing spend. According to Peloton’s 2021

Form 10-K, Peloton’s sales and marketing expenditures have rapidly increased from $324 million,

to $477 million, to a staggering $729.7 million in fiscal years 2019, 2020, and 2021, respectively.

16. As set forth more fully below, Peloton used its “big stack” to systematically and

intentionally stifle competition through, among other things, strongarming Affirm to break its

contracts with Peloton’s competitors, strongarming Affirm from doing any future business with

any of Peloton’s competitors, asserting facially-overbroad patents in serial litigations that seek to

monopolize the abstract idea of offering competitive exercise classes online and drive up litigation

costs for its competitors, buying out and then gutting smaller competitors, stealing competitors’

ideas and passing them off as its own, and paying competitors for their silence and cooperation so

that Peloton can either acquire or maintain its monopoly over the market. Peloton’s actions have

harmed interstate commerce and competition in the relevant market more generally, and Echelon

more specifically.

17. While the full extent and illegality of Peloton’s conduct will be revealed through

discovery, it is clear Peloton’s threats have stifled competition in the market for years, and this

lawsuit is just Peloton’s latest attempt to drive all competition from the market. If Peloton’s

6
anticompetitive actions are not curtailed, Peloton will use its market power to prevent any

meaningful competition in the market for years to come, harming consumers and others who would

suffer if Peloton remained unchecked to set prices, terms, and conditions without fear of a

competitor.

The Market and Peloton’s Market Power

18. The relevant market is the at-home connected fitness market and the geographical

scope of that market is the United States. The connected fitness market includes sellers of at-home

fitness equipment that integrate workout apps and fitness trackers through a subscription service.

Connected fitness offers a way to “replicate the gym experience by providing online classes and

training programs led by professional trainers.” See https://www.digitaltrends.com/health-

fitness/unfortunate-part-about-connected-fitness-equipment/. This is exactly what Peloton tried to

do: “re-creat[e] the energetic and competitive in-studio cycling experience at home,” even though,

on information and belief, Peloton stole that abstract idea from Flywheel. Both Peloton and

Echelon are players in the connected fitness market.

19. Peloton’s massive marketing machine and anticompetitive conduct have made

Peloton by far the most dominant figure in the market. In early 2021, Peloton estimated that its

share of the connected fitness market was more than 75% and growing. As Peloton’s own analysis

below shows, no one else was even close (PELOTON_ECHELON00011266):

7
 20. As this table shows, ICON has the second largest share of the connected fitness

market, but its market share pales in comparison to Peloton’s which was 4 to 6 times higher during

the relevant time shown above. Every other player shown above, including Echelon, FightCamp,

Tonal, Nautilus, and Mirror, have market shares that are orders of magnitude smaller than even

ICON’s, and not in the same ballpark as Peloton’s.

21. Peloton’s expert James Malackowski submitted a declaration in one of its many

litigations against ICON, declaring that Peloton dominated the connected fitness market with

ICON a “distant second”:

• “Peloton has become the dominant competitor in the at-home connected

fitness market even before the launch of the Bike+, with ICON and its products
that incorporate iFit and ICON’s remote control feature a distant second in the
market.” ICON, C.A. 20-1386-RGA (D.I. 65) at ¶59.

• “Peloton’s ability to capture a dominant share of the at-home connected

fitness market without an Auto Follow feature, while ICON trailed in a distant
second place even with its ‘crown jewel’ remote-control feature, clearly
indicates that Auto Follow is not a significant driver of demand for at-home
connected fitness exercise bikes.” Id. at ¶75.

8
 22. This dominant market share gives Peloton market power over the connected fitness

market. For instance, Peloton has the power to control prices and exclude competition within the

connected fitness market.

23. Using a strategy that analysts warn “could lead to winner-take-all dynamics,”

Peloton cut its prices and its competitors have struggled to keep up. These price reductions have

“suck[ed] the air out of the industry” and forced its competitors to keep up or see “their sales

decline.” See https://www.fool.com/investing/2020/09/25/how-peloton-is-about-to-suck-the-air-

out-of-the-co/. According to Mr. Foley, Peloton plans to reduce its prices even further, which

would further harm competition in the market. See https://time.com/5839552/peloton-ceo-john-

foley/. These lower prices are designed to drive all competitors away (including lower-priced

competitors such as Echelon) so that eventually Peloton “wins” the “winner takes all” market, and

with no competition, Peloton will then be free to set prices as high as it wants or engage in other

behavior that will harm consumers.

24. As described in more detail below, Peloton’s power to exclude competition from

the connected fitness market is demonstrated by, among other things, Peloton’s strongarming of

Affirm to drop its competitors and keep out future competitors, and Peloton acquiring and then

gutting competitors and paying for their silence and cooperation. Indeed, Peloton has sued or

sought to buy out most of its competitors in order to exclude them from the connected fitness

market. In sum, any competitor trying to enter the connected fitness market will face significant

barriers to entry from Peloton, including litigation, obtaining adequate financing when Peloton

controls the primary financing partner to the market, and a targeted marketing and pricing

campaign funded by Peloton’s deep pockets, all meant to prevent potential entrants from gaining

a foothold in the market.

9
 Affirm and Peloton’s power over Affirm

25. Affirm is a third-party financial lender that provides financing for customer

purchases of large goods. Under Affirm’s model, it is the merchant that pays the interest while

allowing the customer to get functionally an interest free loan. For instance, a customer who wants

to buy a Peloton bike but does not have the cash to pay for it all upfront can get a loan through

Affirm and Peloton pays interest to Affirm such that Peloton can make the sale. Not surprisingly

given the large price tag for connected fitness products, most sales of these products are financed.

See Peloton’s S-1 at 26 (“Historically, a majority of our customers have financed their Connected

Fitness Products through third party credit providers with whom we have existing relationships.”)

26. There is no comparable alternative to Affirm. Although there are a handful of other

companies that offer consumer financing to the market, these competitors are not near as

recognized or trusted by consumers as Affirm, they have more complicated approval and

application processes compared to Affirm, they do not drive traffic to their client’s websites like

Affirm, and most importantly, they all have significantly lower consumer application, approval,

and conversion rates compared to Affirm. All of this means less sales to everyone in the market

not using Affirm, which is why Affirm provided consumer financing to the majority of the

connected fitness market, including Echelon and Peloton. For instance, every single competitor

shown in Peloton’s market analysis in paragraph 19 above has used Affirm. Indeed, everyone on

Peloton’s chart other than Echelon – including Peloton, Tonal, Nautilus (i.e., Bowflex and

Schwinn), FightCamp, ICON (NordicTrack), and Mirror – is listed as a partner of Affirm on

Affirm’s website. Additionally, research conducted by Peloton at the beginning of 2020 found

that 7 out of 10 competitors in the connected fitness market used Affirm for their consumer

financing.

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 27. Importantly, Peloton considers Affirm to be “best in class.” When Peloton

introduced its partnership with Affirm in October 2017, William Lynch, President of Peloton and

member of Peloton’s Board, touted how Affirm helped broaden Peloton’s customer base: “For

many families, budgeting for mortgages, family obligations, and other financial commitments can

make paying $1,995 up-front for fitness equipment a challenge. We launched this new purchase

option because we wanted to make Peloton’s unparalleled fitness experience more accessible to a

broader population.” See https://www.prnewswire.com/news-releases/award-winning-peloton-

bike-now-available-for-under-100-a-month-for-the-first-time-300542772.html.

28. Affirm helped lift Peloton sales by “effectively eliminat[ing] a material barrier to

entry.” See https://www.lendacademy.com/affirm-peloton-i-can-almost-hear-the-market-

expanding/. Johnny Jiang, VP of Marketing at Peloton, explained in a 2018 case study that “we’re

selling bikes to customers that might have never otherwise purchased” because before they offered

0% financing, many consumers “just couldn’t pay for it all up front.” See

https://www.affirm.com/business/blog/peloton/. The study further explained that once Peloton

partnered with Affirm, “Affirm sales exploded, now accounting for close to 30% of Peloton’s

monthly online business sales, up from 15% at launch.” Id. Similar research conducted by Peloton

found that “Affirm finances 25% more people” than its competition.

PELOTON_ECHELON00016102.

29. There are numerous reasons why Peloton (and the market) strongly prefers Affirm.

According to Peloton:

• Affirm “has the best-in-class offering” and offers its customers “the best

experience and terms.” PELOTON_ECHELON00009257.

11
 • Peloton experienced a significant increase in conversion rate – i.e., the

number of consumers who go to Peloton’s website and complete a sale –

when using Affirm. See https://www.affirm.com/business/blog/peloton/

(“Affirm offer leads to lift in sales Conversion for Peloton”).

• Affirm has allowed Peloton to broaden its customer base to “younger” and

“less affluent” individuals. PELOTON_ECHELON00037420.

• “Affirm has a better application and purchase experience, hands down.”

PELOTON_ECHELON00051566. A better application process helps

drive “good brand experience and conversion rate.”

PELOTON_ECHELON00021676. For these reasons, Peloton advertises

Affirm’s “simple” application process on its website. See

www.onepeloton.com/financing.

• Affirm is “a lot more flexible with marketing than” its competitors.

PELOTON_ECHELON00009035.

• Affirm has a Net Promotor Score (“NPS”) of 82, “which is unheard of in

the consumer finance world, based on the belief in honest and transparent

financing.” PELOTON_ECHELON00009255. The NPS score is typically

used by companies to measure how loyal customers are.

30. Other competitors in the connected fitness market experienced similar results when

using Affirm. One such competitor, Tonal, commented on how Affirm helped it to “get our

product in front of new potential customers and subsequently increased overall order conversion

across the board.” See https://www.affirm.com/business/blog/tonal-longer-repayment-terms-

telesales. Echelon also experienced increased conversions, sales, and web traffic using Affirm.

12
 31. Although the Affirm relationship has benefitted Peloton, Peloton holds enormous

power over Affirm. As Affirm recognized in its November 18, 2020 S-1 filing, “[f]or the fiscal

years ended June 30, 2019 and June 30, 2020, approximately 20% and 28%, respectively, of our

total revenues were generated from one merchant partner, Peloton.” See

https://www.sec.gov/Archives/edgar/data/1820953/000110465920126927/tm2026663-4_s1.htm.

In the financing market, relying on one entity for 28% of a company’s business is significant, and

will result in the company doing whatever it takes in order to maintain that financing relationship.

Indeed, when Affirm went public in October 2020, it disclosed its “concentration of revenue” with

Peloton as a risk: “[t]he loss of Peloton as a merchant partner, or the loss of any other significant

merchant relationships, would materially and adversely affect our business, results of operations,

financial condition, and future prospects.” Id. Peloton paid Affirm more than $50 million in the

third quarter of 2020 alone. See https://www.axios.com/affirm-lender-payday-peloton-a58c641b-

a4e6-400c-b952-0bad59d65d9b.html. Peloton was well aware that Affirm, and its planned initial

public offering (“IPO”), would adversely be affected if it lost Peloton as its customer. Peloton

wielded this knowledge as a weapon to force Affirm to do its bidding and quash its competition.

Peloton wields its market power over Affirm to quash competition

32. Peloton wielded its power over Affirm with the specific intent to either monopolize

the relevant market or maintain its monopoly in the relevant market.

33. Peloton’s plan was hatched at least as early as November 2018, when Mr. Lynch

suggested to Mr. Foley and Peloton’s entire business group that Peloton explore “[p]ushing Affirm

to have a narrow non-compete” against its competitors to prevent them from benefitting from the

“conversion initiatives” Peloton experienced with Affirm.

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 34. Peloton further pushed Affirm in early 2020 during negotiations between Peloton

and Affirm relating to a long-term contract. During these negotiations, Peloton knew about

Affirm’s IPO, and that Affirm planned to publicly disclose the concentration risk it faced by having

so many eggs in the Peloton basket. In other words, Peloton knew the power it held over Affirm.

35. During these negotiations, Peloton researched its competitors’ financing and

discovered the “majority of companies use Affirm” – i.e., 7 out of the 10 companies researched,

including Echelon, FightCamp, Flywheel, Mirror, TechnoGym, Tonal, and Wahoo. Weeks later,

Peloton bought out one of its earliest competitors on this list, Flywheel, as explained in further

detail below.

36. With this research in hand, Peloton set its plan in motion. It pressured Affirm to

not to do business with any of Peloton’s competitors, which included severing all standing relations

and contracts Affirm had with such competitors.

37. Specifically, during negotiations, Peloton sought to add a provision into the

contract that would prevent Affirm from doing any further business with any “Merchant

Competing Service Provider,” which Peloton defined as “any entity (or division of an entity) that

sells or offers to sell any connected-fitness bicycle (i.e., indoor spinning or cycling bike) or

treadmill hardware product, including but not limited to the brands listed in Exhibit D.” The non-

exclusive list of competitors pushed by Peloton included a number of entities that had (or currently

have) a relationship with Affirm, including Echelon, TechnoGym, MYX Fitness, ICON, Bowflex,

Schwinn, and LifeFitness. Moreover, because the list was “non-exclusive,” the provision would

have prevented Affirm from doing business with any competitor that sold any connected bike or

treadmill hardware product, potentially including many competitors that currently do business with

Affirm – such as Stages Cycling, Wahoo, Giant Bikes, Canyon Bicycles, Rad Power Bikes,

14
Beachbody, Assault Fitness, Lifespan, and Zwift. Notably this provision would have prevented

Peloton’s competitors that sell a “connected-fitness bicycle . . . or treadmill hardware product”

from using Affirm for even non-bike/tread products.

38. The discussions between Affirm and Peloton over these provisions dragged on for

months and involved multiple meetings between top company executives and legal counsel. In

Peloton’s own words, the parties were at an “impasse” over Peloton’s desire to exclude the entire

market from using Affirm. But as Affirm’s IPO approached, Peloton’s pressure on Affirm

increased, as the announcement of a long-term agreement with Peloton – Affirm’s largest client –

was central to Affirm’s IPO plans. Affirm ultimately bowed to Peloton’s pressure and Echelon

became the sacrificial lamb. Specifically, Peloton and Affirm agreed that Affirm would

immediately drop Echelon in exchange for Peloton dropping its request to preclude the broader

connected fitness market. On information and belief, Peloton did so intentionally to harm Echelon,

one of its direct competitors. On information and belief, at that time, Peloton was aware of the

contractual relationship between Affirm and Echelon.

39. On August 11, 2020, Affirm, out of the blue, sent a letter to Echelon’s CEO stating

that Affirm would be terminating its relationship with Echelon within 90 days. The letter did not

explain why Affirm sought such termination.

40. The termination was a breach of the Merchant Agreement between Affirm and

Echelon dated July 25, 2018 (“Agreement”), and subsequent amendments thereto, including, but

not limited to, Section 17 (which provides that the Agreement would “automatically renew for

additional and successive terms of one year”). Affirm improperly terminated the Agreement in

the middle of the first one-year successive term without providing proper notice prior to the start

of said term.

15
 41. Echelon was surprised by the sudden notice and reached out immediately to find

out why Affirm sought termination and to see if Affirm would reinstate the relationship. Affirm

responded the next day, claiming without explanation that the “decision is final” and was “based

on new market conditions and risks.” In the following weeks, Echelon pressed Affirm for an

explanation, and when Echelon was finally able to discuss the issue with Affirm’s executives

weeks later, Affirm simply responded “we can’t tell you.” On information and belief, Peloton

instructed Affirm not to tell Echelon why it was severing this relationship.

42. On information and belief, Affirm’s vague reference to “new market conditions and

risks” was a reference to Peloton’s pressure campaign. Affirm recognized this pressure in its S-1,

stating that a modification to a “merchant agreement with a significant merchant partner” like

Peloton “could affect the results of our operations, financial condition, and future prospects,” and

ultimately, its planned IPO. Affirm and Peloton were negotiating a new agreement at the time of

the termination, and entered into a “renewed merchant agreement” on September 4, 2020, days

after Affirm sent the termination notice.

43. Peloton’s intentional actions were unfairly competitive and were specifically

designed to damage Echelon. For instance, Peloton’s actions resulted in significant disruptions to

Echelon’s finance offerings during the holiday sales season of 2020. More importantly, Echelon

suffered long-term damage caused by Peloton’s actions. Ever since Echelon was forced to switch

from Affirm to one of Affirm’s competitors, Echelon experienced a significant drop in customer

approval rates (e.g., from 91.99% in 2019 with Affirm to less than 52% in the weeks following

Affirm’s termination), as well as a significant drop in the Average Order Volume (“AOV”) of its

financed sales. In addition, Echelon has experienced a significant drop in the number of consumer

applications, likely because the application process of Affirm’s competitors is more cumbersome

16
than Affirm’s, requiring several steps (including a pre-qualification step). Affirm’s termination

also caused Echelon to experience a significant drop in website traffic as Affirm helped drive

traffic to Echelon’s webpage. Echelon’s damages are ongoing.

44. The connected fitness market was also harmed by Peloton’s conduct. Peloton’s

actions resulted in significantly less competition in the market and gave Peloton a larger market

share and therefore more market power. As Peloton’s internal documents show, its market share

has grown significantly since its anticompetitive conduct started. Additionally, it is clear that

Peloton, if left unchecked, will use its power to prevent any further entrants from entering the

connected fitness market with Affirm.

45. Moreover, had Peloton been successful in keeping all its competitors from using

Affirm, the harm to the market would have been catastrophic. All of Peloton’s competitors would

have experienced what Echelon did: a significant drop in applications, a significant drop in

conversion rate, a significant drop in AOV, less web traffic, and a more cumbersome consumer

application process. Meanwhile, Peloton would have experienced an even greater uptick in sales,

conversions, and market share, at the expense of its competitors with “smaller stacks.”

46. The last time Echelon served as the sacrificial lamb. There may not be a sacrifice

to offer next time Peloton decides to strongarm Affirm or the market. In other words, there is a

dangerous probability that next time Peloton’s dream of a “winner takes all” market will become

a reality, driving all other competitors from the relevant market, leaving Peloton as the monopolist,

free to set prices and issue terms and conditions without regard to consumer wellbeing.

Peloton’s purchase of competitors and baseless serial litigations

47. In addition to the anticompetitive conduct discussed above, Peloton also used its

“big stack” to destroy and then buy off the remains of its biggest early competitor, Flywheel, and

17
filed serial baseless litigation against other competitors that threatened its market share in the

connected fitness market in order to “Crush them.”

48. As described in greater detail below, on information and belief, Peloton’s founder

stole the abstract idea of re-creating the existing in-studio cycling experience at home from

Flywheel. Indeed, Mr. Foley explained in an MSNBC interview that his alleged “lightbulb

moment” occurred during a Flywheel in-studio class. See

https://www.vice.com/en/article/qjdz7v/project-magnum-flywheel-peloton-patent-lawsuit.

Specifically, Mr. Foley stated: “I was in a class. . . I was doing Flywheel because of the leaderboard

. . . I was in a class one time and I said ‘wow,’ you could digitize this experience.” Id. Before Mr.

Foley allegedly had his “lightbulb moment,” on information and belief, Flywheel already had the

idea to “digitize” the Flywheel experience, leaderboard and all.

49. Flywheel, one of the pioneers of in-studio spinning classes, has been around since

2010 – far longer than Peloton. Although Flywheel was originally focused on in-studio classes, it

began developing its Fly Anywhere Bike before Peloton and started selling its at-home connected

model of its bike in November 2017.

50. Despite stealing the concept from Flywheel, Peloton filed a series of patent lawsuits

against Flywheel seeking to eliminate one of its early competitors by claiming the patented

concepts as if they were its own.

51. As explained in more detail below, up until the very end of the lawsuit, Flywheel

vehemently maintained that Peloton stole its concept, claiming that “Mr. Foley gained access to

Flywheel's confidential information and misappropriated it as his own.” See Peloton Interactive,

Inc. v. Flywheel Sports, Inc., No. 18-cv-00390-RWS-RSP (E.D. Tex.), D.I. 173-4.

18
 52. Flywheel also filed inter partes reviews (“IPRs”) challenging the validity of

Peloton’s patents, and the first three of these IPRs were instituted by the Patent and Trademark

Office (“PTO”), meaning that the PTO found there was a “reasonable likelihood that [Flywheel]

would prevail with respect to at least 1 of the claims challenged.” 35 U.S.C. § 314.

53. Recognizing the high likelihood that its patents were going to be quickly

invalidated and its contrived invention story revealed, Peloton changed course and sought to

purchase Flywheel’s silence and cooperation so that it would be free to continue its monopolization

campaign against other competitors. Specifically, Peloton entered into a settlement agreement

with Flywheel, whereby Peloton forked out an astonishing $24.5 million to settle a patent

infringement suit that it brought as a plaintiff.

54. Part of that $24.5 million price tag included Peloton’s purchase of Flywheel’s “at

home” business. But Flywheel’s “at home” business struggled mightily and Peloton knew it was

not worth anything close to the price it paid for it. According to internal documents, Peloton knew

that between November 2017 (when Flywheel launched its at-home business) through June 2019,

Flywheel “only sold 2,500 at-home bikes.” See PELOTON_ICON-ECHELON_00114353.

Moreover, the exorbitant price did not even buy Peloton the entire company, as Flywheel

maintained the in-studio business it started back in 2010. Peloton incurred other substantial costs

in taking in the handful of at-home customers Flywheel had, as it offered these customers the

option to trade in their At Home Flywheel bikes for a refurbished Peloton bike at no additional

cost, other than the $39 monthly fee for Peloton’s membership service. Even more astonishing is

that according to the Agreement, Peloton did not even perform due diligence to find out exactly

what it purchased until after the IPRs were dismissed and the $24.5 million was paid, as Peloton

was desperate to close the deal before its patents were invalidated.

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 55. What Peloton really purchased was Flywheel’s silence and cooperation in

abandoning the at-home connected fitness market. For instance, Peloton bought its way out of the

IPRs – which allowed Peloton to keep its weak patents alive so it could file additional baseless

lawsuits, like the current ones against Echelon and its other competitors. This not only had the

benefit of keeping Peloton’s monopoly going, it also forced other competitors to pay substantial

litigation fees just to stay alive. Indeed, per the terms of the settlement, Peloton’s payment of the

$24.5 million was contingent upon dismissal of the IPRs.

56. Peloton also received “other valuable consideration” from Flywheel in exchange

for its $24.5 million in the form of public statements about the patents’ alleged validity. Peloton

included a curious declaration from Flywheel’s CFO with its Notice of Settlement that it filed with

the Court in the Eastern District of Texas on February 2, 2020. The declaration, which was

allegedly made “[i]n connection with this settlement,” was not necessary to include in a Notice of

Settlement, and was clearly designed to be picked up by the press to get Peloton’s misguided story

out to the public and its investors. On information and belief, the information in the declaration is

false and was obtained by Peloton’s coercion. In it, Flywheel allegedly “admits” that it infringes

Peloton’s patents, that it copied Peloton’s bike, and that Peloton did not steal the patented concept

from Flywheel, despite spending years vehemently arguing in multiple litigations and IPRs that

Peloton’s patents were invalid, Flywheel’s products did not infringe, and that Mr. Foley stole the

patented concepts from Flywheel. In other words, Peloton paid for Flywheel’s sudden change of

heart so that it could wield its alleged “admission” against other competitors in the connected

fitness market or anyone trying to enter it.

57. And Peloton has wielded its paid-for “admission” in other litigations against its

competitors, including this one. In moving to compel discovery in this case from third-party North

20
Castle, an investor in Echelon, Peloton attached a copy of its paid-for “admission” and quoted

from it in arguing that the documents Peloton sought were important because Flywheel allegedly

“admitted” that Flywheel copied Peloton (D.I. 168):

58. Peloton also wielded its paid-for “admission” in defending the validity of one of its

patents in an IPR that Echelon filed, which has been instituted, meaning it is highly likely that

Peloton’s patent will be invalidated. Specifically, Peloton relied on statements originally made in

its paid-for declaration in arguing that its patent was not invalid because Flywheel “admitted to

copying” Peloton:

21
 59. Ultimately the pressure Peloton placed on Flywheel through its serial litigation

campaign was too much, and Flywheel declared bankruptcy after signing the settlement

agreement. As discussed above, Peloton is following the “[s]ame playbook” to drive other

22
competitors into bankruptcy, including Echelon and SoulCycle, and has plans to buy and gut other

competitors.

60. In sum, Peloton used its “big stack” to buy off an early competitor’s competing

business, buy the competitor’s silence and cooperation, and make its competitor go bankrupt, all

done with the specific intent to gain market share and monopolize the relevant market. In turn,

this allowed Peloton to continue its campaign of serial baseless suits. If left unchecked, Peloton

will continue to wield its market power and its paid-for “admission” as a sword against its

competition, and as a shield preventing others from entering the market. Peloton’s conduct has

had, and will undoubtedly continue to have, a severe negative impact on competition in the market.

Peloton’s Derivation of the Alleged Invention

61. As Peloton admits in the Complaint, the Peloton Bike was not an overnight success,

and sales were initially slow. It was only after “intensive and creative marketing efforts” that

Peloton’s “sales began to pick up.” As described above in detail, Peloton spent massive amounts

on marketing while the company was taking losses in order to gain market share.

62. While Peloton’s Registration Statement describes Peloton’s technology as its

“patented leaderboard,” Peloton did not come up with the idea of displaying a leaderboard in

cycling classes to motivate riders by allowing them to compare their performance against others

in the class. To the contrary, the use of leaderboards in cycling classes was commonplace before

the filing of the ’521 Patent, including at in-studio classes offered by Flywheel that Peloton

concedes “were becoming tremendously popular” and provided “a great consumer experience.”

63. As Peloton described in the Complaint, its alleged invention was “re-creating the

energetic and competitive in-studio cycling experience at home” via “a digital communication

network” such as the Internet. But even the abstract idea of re-creating the existing in-studio

23
cycling experience at home is not one that Peloton came up with on its own. Instead, upon

information and belief, Peloton stole that idea from Flywheel as well.

64. As set forth in a September 23, 2019 letter from Flywheel’s counsel to Peloton’s

counsel, a copy of which was filed on January 2, 2020 as D.I. 137-4 in civil litigation in the United

States Court for the Eastern District of Texas captioned Peloton Interactive, Inc. v. Flywheel

Sports, Inc., No. 18-cv-00390-RWS-RSP (“the Flywheel Letter”), “the alleged inventive concepts

and elements that are the core of Peloton’s business and that are claimed in the patents issued to

Peloton founder John Foley et al., do not appear to have been created by Mr. Foley, and instead

appear to have been misappropriated from confidential proprietary concepts developed by

Flywheel.”

65. As the Flywheel Letter further explains, “[b]y at least July 2011—six months before

Peloton was founded, and a year before Mr. Foley filed his earliest provisional patent application—

Flywheel had already conceived of and articulated, in a detailed 30-page document marked

‘Confidential,’ the features and elements of, and issues that needed to be addressed for, an at-home

competitive exercise bike and business.”

66. The Flywheel letter included an attached chart demonstrating that “the core features

and elements of the Peloton at-home bike and at-home bike business that Mr. Foley and Peloton

claim Mr. Foley conceived of and invented—including an at-home exercise bike capable of

receiving streamed live and on-demand videos of cycling classes, and sensing, comparing, and

displaying on a ‘leaderboard’ performance parameters of the users—were all articulated by

Flywheel in its July 2011 business plan several months before Mr. Foley claims he began

developing those features and elements.”

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25
 67. Flywheel’s July 2011 Flywheel@Home Business Plan also identified the very same

problem Peloton purports to have solved. Specifically, the Flywheel@Home Business Plan notes

that: “The specifications for the Flywheel@Home system have been outlined with the target

customer in mind. Who is the target customer? Similar to existing Flywheel students, but may be

constrained by time or location for access to Flywheel studios.”

68. As the Flywheel Letter concluded: “[I]t appears that Mr. Foley gained access to

Flywheel's confidential information and misappropriated it as his own, and that Mr. Foley and

Peloton have both benefitted financially from this misappropriation. Given the state of the

documentary evidence, or in the case of Mr. Foley and Peloton, the lack of documentary evidence

that should exist, and Mr. Foley's own prior statements shedding light on his credibility and

approach to doing business (examples provided below), any suggestion that the similarities

26
between the Flywheel-conceived @Home bike and business and Peloton's subsequent at-home

bike and patents-in-suit are merely coincidence would not be credible.”

69. During prosecution of the ’521 Patent with the PTO, Peloton originally represented

that the ’521 Patent had five co-inventors: John Paul Foley, Thomas Philip Cortese, Yu Feng,

Christopher Brett Sira, and Hans Schlichting Woolley. Peloton continued to maintain there were

five co-inventors until after it received the September 23, 2019 Flywheel Letter.

70. After receiving the Flywheel Letter, Peloton scrambled to change its inventorship

story. Within weeks of the Flywheel Letter, Peloton filed a Certificate of Correction with the PTO

seeking to change the inventorship of the ’521 Patent by removing Messrs. Cortese, Feng, and Sira

as inventors. Conspicuously absent from the Peloton Certificate of Correction was any explanation

as to why Peloton sought to remove 60% of the originally named co-inventors.

71. The allegations in the Complaint only serve to further confuse Peloton’s evolving

inventorship story. Despite discussing Mr. Foley’s contribution to the alleged invention in detail,

the Complaint lacks any mention of Hans Schlichting Woolley—the other remaining co-inventor.

72. In contrast, the Complaint explains that Mr. Feng “help[ed] design and build a

prototype [of the] Peloton Bike” and that Mr. Foley approached original named inventor Mr.

Cortese in 2011 to discuss a “a large, untapped market available if they could just figure out how

to allow cycling fans to access the best instructors and have the same in-studio cycling class

experience at any time, no matter where they live and no matter how busy their schedules are.”

But, like with Peloton’s Certificate of Correction, the Complaint offers no explanation as to why

Messrs. Cortese and Feng were removed as named inventors from the ’521 Patents.

73. The ’521 Patent seeks to cover the abstract idea of making competitive exercise

classes available online.

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 74. While Peloton seeks to characterize the Peloton Bike as “a sleek, technologically

advanced system that combines a first-in-class exercise bike with state-of-the-art technology,” the

claims of the ’521 Patent are not directed to the Peloton Bike. Indeed, only one claim of the ’521

Patent even requires a bike.

75. Accordingly, the focus of the ’521 Patent claims is not a specific and tangible

system, or an improvement in computer technology, but rather Mr. Foley’s abstract idea of “re-

creating” Flywheel’s competitive exercise classes at home via the Internet.

76. The claims of the ’521 Patent lack any inventive concept that would render them

patent eligible under 35. U.S.C. § 101. Indeed, contrary to Peloton’s allegations in the Complaint,

the claims of the ’521 Patent carry out the abstract idea using technology that was routine and

conventional at the time of the alleged invention of the ’521 Patent.

77. For example, U.S. Patent No. 7,874,957 (“Hurwitz”), which published on January

17, 2008 and issued on January 25, 2011, discloses networked exercise classes in which “a leader

in one location [can] lead[] groups of participants at several additional remote locations” and riders

can “use an Internet connection to compete against exercisers all over the world.”

78. Like with the ’521 Patent that followed, the system of Hurwitz uses sensors to track

riders’ performance, and displays multiple users’ performance data on a leaderboard as shown in

the Figures below:

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 79. Additional examples of leaderboards that, upon information and belief, predate

Peloton’s alleged invention abound:

29
30
 80. It was also routine and conventional at the time of the alleged invention of the ’521

Patent to offer cycling classes, both live and archived, online, as disclosed in prior art references

31
including U.S. Patent No. 7,628,730 (“Watterson”), U.S. Patent Publication No. 2011,0224999

(“Garcia”) and U.S. Patent Publication No. 2006/0184427 (“Singh”).

81. Like with the ’521 Patent that followed, Watterson discloses a system for use with

various exercise devices, including cycling, in which “a user may select either stored or live-on-

live exercise programs” and sensors are used to track performance data. Watterson further

discloses that a “first user . . . may receive information regarding the workout performed by a

second user . . . via [a] network . . . then compete against the second user and vice versa. This

competition may be live on live or time adjusted, e.g., a workout recorded previously by the second

user which the first user competes against.”

82. Still further, it was routine and conventional at the time of the alleged invention of

the ’521 Patent to synchronize performance data for competitors who did not participate in an

exercise class or other competition simultaneously. Indeed, various prior art references taught this

functionality, including U.S. Patent No. 7,736,272 (“Martens”), Watterson, U.S. Patent No.

6,902,513 (“McClure”) and U.S. Patent Application No. 2010/0035726 (“Fisher”).

83. The prior art not only demonstrates the ’521 Patent lacks an inventive concept, but

also that the claims of the ’521 Patent are invalid as being anticipated and/or obvious under 35

U.S.C. §§ 102 and 103, respectively.

84. Peloton’s strategy in filing this lawsuit is simple: it wants to stifle competition by

forcing its competitors to spend money litigating over patents that it knows would be held invalid

on the merits. Peloton’s intentions were laid bare during its fight with Flywheel. After the PTO

instituted Flywheel’s IPRs challenging the validity of Peloton’s patents and on the eve of trial and

a final decision, Peloton settled with Flywheel so its patents would not be invalidated and it could

32
continue its aggressive campaign against its competition. Peloton paid Flywheel $24.5 million for

Flywheel’s silence and cooperation.

The Echelon Smart Connect Bikes

85. Echelon was founded with the goal of taking the at-home fitness experience to new

distances by offering high-tech exercise equipment, personalized workouts and an online

community all at a reasonable cost. Echelon’s innovate fitness products include the Echelon

Connect Bikes at issue in this lawsuit.

86. Echelon’s products compare favorably to Peloton’s. For instance, the Exercise

Bike Editorial Team at ExerciseBike.net “crowned” Echelon “the winner in terms of overall value

and versatility” adding that the “[Echelon] bikes are suitable for any type of cyclist, on any budget,

with whatever fitness gear or tech they already own.” See https://www.exercisebike.net/peloton-

vs-echelon-bikes/. Similarly, CNet compared Peloton’s and Echelon’s products and answered the

question of whether “a $1,000 exercise bike measure up to one costing more than twice as much?”

with a “yup,” adding that “Echelon’s hardware and ecosystem will please anyone seeking this kind

of cycling experience.” See https://www.cnet.com/health/best-peloton-alternatives-5-great-

indoor-exercise-bikes-that-cost-less/#ftag=CAD-00-10aag7d.

87. Several ways in which Echelon has reduced the cost of the Echelon Connect Bikes

to make them accessible to more users is by offering bikes that do not include a built-in display—

the absence of which precludes Echelon from directly infringing the ’521 Patent — and are

assembled at home.

Peloton’s Campaign of Unfair Competition and False Advertising

88. In response to Echelon’s offerings of high-tech bikes at a reduced cost, Peloton, a

direct competitor of Echelon, intentionally engaged in a false advertising campaign designed to

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undercut Echelon’s customer base. For example, to unfairly increase its market share, Peloton

purposefully and intentionally disseminated false and misleading information about its products

throughout the country, including by misleading customers about the price of its products and the

availability of financing for its products. As a result of this false advertising campaign, Peloton

has unfairly stolen customers from Echelon. Indeed, after implementing this false advertising

campaign, Peloton’s CEO boasted of Peloton’s “explosive growth.”

89. Before Echelon entered the market, Peloton was more upfront with consumers

about its pricing. Prior to October 2017, if a consumer wanted to purchase a Peloton bike, that

person would have to pay for the entire bike up front, in addition to paying for the content

subscription to Peloton’s online classes separately in monthly payments. But many consumers

could not afford the up-front cost of Peloton’s bike, priced at over two thousand dollars, much less

the extra monthly payments for Peloton’s content.

90. So in an attempt to make its products “more accessible to a broader population,”

Peloton announced on October 25, 2017 that “[f]or the first time” it was “offering consumers a

way to purchase the Peloton bike, including access to unlimited live and on-demand classes for an

entire household, for the starting price of $97 a month for 39 months.” At that time, Peloton made

clear that the monthly price included both financing of the Peloton bike for $58 per month for 39

months at “zero percent APR” as well as the “Peloton [content] subscription, charged at $39 per

month.” See https://www.prnewswire.com/news-releases/award-winning-peloton-bike-now-

available-for-under-100-a-month-for-the-first-time-300542772.html.

91. Peloton promoted and marketed this “$97 a month” plan extensively. For instance,

in October 2017, Peloton posted on its Facebook page that “New Peloton financing is here! For

34
the first time, get the full experience for $97/month and no money down.” A copy of this Facebook

post is shown below:

92. Additional Facebook posts followed. For instance, in November 2017, Peloton

posted that a consumer could “[g]et the full Peloton experience, including the bike and unlimited

classes, for $97/month.” A copy of that Facebook post is shown below:

35
 93. Peloton also advertised this “$97 PER MONTH” plan on its website (as shown

below):

94. Peloton also used email marketing to advertise its “$97 a month” plan. One of

those email advertisements, sent to consumers in 2017, is shown below. This advertisement makes

clear that the $97 monthly charge included the “Peloton bike, a subscription to unlimited live

classes taught by elite NYC instructors, thousands of on-demand classes, and in-home delivery”:

36
 95. The basics of Peloton’s financing program have not materially changed since

Peloton rolled out the program in October 2017. All Peloton bike packages still require a monthly

37
Peloton All-Access Membership. This means a consumer qualifying for the special 0% financing

offer still pays $97 a month for 39 months, which includes $58 a month for bike financing and $39

a month for the content subscription.

96. Although Peloton’s financing program has not changed, Peloton altered the way it

advertised this program when lower priced competitors such as Echelon entered the market, in a

blatant attempt to mislead consumers by making its bike look less expensive than it actually was

so it could attract a “broader population” of consumers and steal sales away from these

competitors. Specifically, these new advertisements falsely claim that Peloton’s bike only costs

$58 a month and hide the fact that customers are required to purchase its content subscription at

an additional price of $39, for an actual monthly cost of $97 a month.

97. An example of this false and misleading advertising is shown below. In this piece

of email marketing, Peloton displays images of its classes that are only available with a content

subscription, and claims in large lettering that its customers can access “[new] classes” and can

“ride now, pay over time” for the price of “$58/mo. for 39 months.” The hard-to-read small print

at the bottom of the advertising explains that a customer can “[g]et the Peloton bike for as low as

$58/mo. over 39 months at 0% APR. Based on a full price of $2,246. Plus the cost of the

subscription ($39/mo.). A class subscription gets you unlimited access to Peloton classes.” But

this small print fails to mention that “All Bike packages require a monthly Peloton All-Access

Membership,” as Peloton explains in additional small print on its website. In other words, this

advertising misleadingly claims that a customer can “ride now” for only “$58/mo. for 39 months”

when the actual price is still $97 per month for 39 months.

38
39
 98. Peloton launched a similar false and misleading advertisement on television, its

website, and social media (including Facebook). This video ad, entitled “Anyone Who Wants It,”

contains similar false and misleading statements about the price of Peloton’s bike and the

availability of its financing. Specifically, this video shows a handful of people using the online

content Peloton offers, while a voiceover says “A hard 20 after a hard day isn’t for everyone.

Waking up before the sun isn’t for everyone. This isn’t for everyone. But at $58 per month,

Peloton is for anyone who wants it.” By these statements, Peloton misleads consumers into

thinking that its bike only costs $58 per month. But Peloton’s bike costs far more. Further, not

“anyone” can get the bike for “$58 per month,” and no one can get the bike and the online content

dominating the ad for that price.

99. Contrary to Peloton’s advertising, this financing is only available to “those who

qualify,” and not “anyone who wants it.” Moreover, Peloton admits in small print that a “[d]own

payment may be required” even for qualifying consumers.

100. More importantly, the $58 monthly payment does not cover any of the online

content that dominates these ads. To get that content, the consumer must pay an additional $39 a

month for a subscription. Thus, the real monthly payment for qualifying consumers is significantly

higher at $97 per month ($58 + $39), or $3,783 over 39 months. The payments inflate even higher

if the consumer does not qualify for the special financing offer.

101. Although this video includes a disclaimer stating, “Content Subscription Separate,”

this disclaimer is in small print at the bottom of the screen in white font, making it extremely

difficult to read, especially given the lighting conditions used in these ads, as shown below:

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 102. Even if it was legible, which it is not, this disclaimer fails to explain that “[a]ll Bike

packages require a monthly Peloton All-Access Membership,” as explained in small print on

Peloton’s website.

103. Moreover, this disclaimer is available for less than 10 seconds of the 30 second ad

(and less than 5 seconds in Peloton’s 15 second version of the ad), making it even more unlikely

to be viewed and understood by the consumer. Such a fleeting disclaimer does nothing to dispel

the misleading nature of Peloton’s advertisements.

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 104. Similarly, Peloton’s hard-to-read disclosures on its website do nothing to alleviate

the misleading nature of Peloton’s video and email advertising, especially when a consumer can

purchase Peloton’s bike over the phone or at a brick and mortar store, without ever seeing those

website disclosures.

105. In a recent interview with TIME Magazine, Peloton’s CEO, John Foley, admitted

that this false advertising strategy would be a “big focus for us in the coming years.” Specifically,

Mr. Foley doubled down on Peloton’s false claim that its bike costs $58 a month and explained

how he wants to keep those “monthly payments down” so Peloton can “really open it up”:

We want to make our products even more affordable than they are today. Right now
our bike is just over $2,000. But it’s $58 a month. $58 a month [divided] by two
people who are going to use it. Maybe even three people in your home. If we can
get those monthly payments down, we can really open it up. And we want
everyone in every socioeconomic class to be able to afford Peloton. That’s a big
focus for us in the coming years.

See https://time.com/5839552/peloton-ceo-john-foley/.

106. In that same interview, Mr. Foley indicated Peloton could sell a “cheaper bike” in

the future using the same false and misleading advertising. When asked about the optimal price

point for this “cheaper bike,” Mr. Foley made clear that Peloton wanted consumers thinking in

terms of “monthly payments,” and that he wanted those monthly payments to “get to 20 bucks a

month per person,” what Mr. Foley falsely claimed was “low-end gym chain affordability”:

I wouldn’t think about it as an initial cash-outlay. I would think about it as a

monthly payment. I think if you can get to 20 bucks a month per person, you’re
starting to get below Planet Fitness-style, low-end gym chain affordability, and we
think that that’s a pretty big opportunity for Peloton.

See id. Such advertising would also be false and misleading because the price will never “get to

20 bucks a month” so long as Peloton requires the consumer to purchase its content subscription

at $39/month on top of the “20 bucks a month.”

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 107. This advertising has misled and confused consumers. For instance, an individual

on Reddit.com asked if anyone knew “what’s up with this peloton [sic] commercial that says it’s

$58 a month? Are they raising the subscription cost on us?” Another individual responded to this

post suggesting that “maybe $58 is just for the bike” as the “subscription alone is 42.” This

individual further noted that “if that’s the case,” this advertising was “misleading to people:”

https://www.reddit.com/r/pelotoncycle/comments/djfth8/58 a month/

108. As another example, a different individual recently commented on YouTube that

“a lot of people that I have talked to did not realize when they first bought a Peloton” that “in order

to use the tablet, you have to pay a $40 a month subscription.” See

https://www.youtube.com/watch?v=Uwct2RcKrEA. This is because Peloton’s advertising misleadingly

43
claims the bike only costs $58/month and hides the fact that the content subscription is required

at an additional price.

109. Peloton’s false advertising has been willful and engaged in with specific intent.

Peloton knew that its advertising was false, misleading, and deceptive because it knew that the true

monthly price for its products was $97 a month (as it previously advertised), not the $58 a month

it was telling consumers. Indeed, at the same time Peloton was falsely telling consumers its

products cost “$58 a month,” it told investors in a May 2020 presentation that the true “average

monthly cost” was $97 a month, as shown below. See https://investor.onepeloton.com/static-

files/701c7555-55e3-4f82-8b70-b58463ed44aa.

Peloton further knew that the $58 a month price tag was not available to “anyone who wants it.”

110. Echelon, through undersigned counsel, alerted Peloton to its false and misleading

advertising on multiple occasions, including in letters dated March 12, March 25, April 3, April 9,

and May 5, 2020. But not only did Peloton explicitly refuse to cease its false advertising campaign

or make any adjustments to its advertising, weeks later, on May 26, 2020, Peloton’s CEO doubled

down on Peloton’s false “$58 a month” claim in a TIME Magazine interview, asserting that

Peloton’s false advertising strategy would be a “big focus for us in the coming years.”

111. True to Mr. Foley’s word, this false advertising strategy subsequently became a

“big focus” for Peloton. On September 8, 2020, Peloton announced that it was reducing the price

of its original bike from $2,245 to $1,895, which equates to $49 a month for 39 months for those

consumers who qualify for the 0% APR offer. What has not changed is Peloton’s requirement

44
that all consumers purchasing one of its bikes also subscribe to its $39 a month All-Access

Membership plan, for an actual cost of $88 a month. Yet, Peloton continues to mislead the public

about the cost of its bike while hiding the fact that purchasers of its bike are also required to

subscribe to its $39 All-Access Membership.

112. For instance, on September 8, 2020, the same day Peloton announced its reduced-

price bike, Mr. Foley misleadingly claimed in an interview with the Wall Street Journal that

Peloton’s bike only costs $49 a month, or $24 a month when split by a couple. Mr. Foley also

falsely claimed that “Twenty-four dollars a month starts to be Planet Fitness-style economics,”

and had to be fact checked by the author of the article, who explained that “Planet Fitness

memberships begin at $10 a month [not $24 a month], and Mr. Foley’s equation didn’t include the

$39 monthly streaming fee.” Indeed, Mr. Foley also failed to explain that the “$39 monthly

streaming fee” was required for all bike purchases.

113. Peloton also recently began misleadingly advertising its bike in email, social media,

and direct mail as “starting at $49 per month.” These advertisements are accompanied by photos

of consumers using Peloton’s content subscription that is not included in the advertised $49/month

price. Indeed, many of these advertisements specifically focus on this content. For instance, in

the email advertisement shown below, multiple photos of Peloton’s content subscription are

displayed directly above and below the advertised “$49/MO” price – including large lettering

explaining that the consumer can “Discover New Classes,” “Filter classes by theme,” “save”

classes for “easy access,” “Experience Immersive Cardio,” and can participate in “live and on-

demand classes in your home, on your time” – none of which is available at the advertised

“$49/MO” price.

45
46
 Example of Peloton’s email advertising

114. Similarly, in the Facebook advertisement shown below, Peloton misleadingly

advertises its bike as “starting at $49 per month,” while prominently displaying the online content

that is not included at that price. Indeed, Peloton relegates the content price to small print at the

bottom using a white font, making it extremely difficult to read, especially given the lighting

conditions used in the ad.

47
 115. All of these advertisements fail to indicate (in small lettering or anywhere) that this

All-Access Membership is required for all bike purchases, or that the membership is required to

access any of the advertised content, misleadingly suggesting that Peloton’s bike is cheaper than

it actually is.

Peloton’s New Campaign of Unfair Competition and False Advertising

116. Peloton continued its false advertising campaign in its Black Friday 2021 marketing

48
shown on Peloton’s website, in email marketing, on social media, and elsewhere. As shown below,

Peloton falsely claims in these advertisements that its customers can purchase a Bike+ at a $600

discount, and that this “[o]ffer ends soon.” This discount allegedly includes “$350 off plus free

delivery ($250 value).”

117. Peloton used similar advertising for its Bike and Tread, in which it claimed it was

providing a “value offer” that included “free delivery,” for a limited time only, as shown below:

49
 118. But as Peloton asserts in this litigation, its prices have included “free delivery” for

years. Specifically, Peloton admits in its Complaint that its Bike price “includes the $250 delivery

and set-up free.” (D.I. 77 at ¶¶7, 28).

119. In other words, Peloton misleadingly suggests that its Black Friday deals are better

than they actually are by falsely claiming it is offering “free delivery” for a limited time only, when

Peloton admits that the price for its products included “free delivery” for years.

120. After this “offer” allegedly expired on November 29, 2021, Peloton continued to

advertise the regular price of its Bike and Bike+ as including “Delivery and Assembly” as it had

for years, as shown below.

50
 121. On December 4, 2021, Peloton continued its false advertising campaign by

promoting a “limited time” offer for its Bike+ of a “$450 value” that included “$200 off, plus free

setup and delivery ($250 value).” An example of this promotion is shown below:

51
 125. Peloton has engaged in monopolization and in the alternative attempted

monopolization in violation of Section 2 of the Sherman Act. Peloton has engaged in a pattern of

anticompetitive activity with the specific intent to drive competitors from the relevant market, to

the detriment of consumers. Its anticompetitive actions have also caused injury to Echelon. As

detailed above, Peloton has engaged in sham litigation, patent misuse, illegal restraints on trade

(including restraining Affirm from partnering with Peloton’s competitors), abuse of governmental

processes (including paying for fabricated evidence and relying on it in court proceedings and IPRs

with intent to deceive), tortious interference with competitors’ business relations and contracts,

and unfair competition.

126. The relevant product market is the market for at home connected fitness products.

127. The relevant geographic market is the United States.

128. Upon information and belief, including by Peloton’s own admissions, Peloton

possesses market power in the relevant market, in that its market share permits it to control prices

and exclude competition.

129. Peloton also has the power to strongarm Affirm into excluding competition. As

explained above, Peloton pressured Affirm to break all relations and contracts with its competitors

in the connected fitness market, and to prevent all other competitors from using Affirm in the

future. Peloton did so with specific intent to harm Echelon and others, and drive competitors out

of the market.

130. As explained above, on information and belief, Mr. Foley stole the concept

allegedly covered by Peloton’s patents from Flywheel, and then litigated Flywheel out of existence

based on that stolen concept. Peloton then purchased Flywheel’s silence and cooperation for $24.5

million because it knew there was a high likelihood that its patents were about to be invalidated in

53
the looming IPRs. Specifically, Peloton purchased a dismissal of the IPRs and a declaration from

Flywheel that Peloton used to stifle other competitors and hurt Echelon. And Peloton did use, and

is using, its paid-for declaration against competitors, like Echelon, with the specific intent to harm

Echelon, and other competitors, and drive them out of business. In doing so, Peloton specifically

intended to extend its patents well beyond their scope to maintain monopoly power. Peloton’s

conduct constitutes patent misuse.

131. Peloton is also trying to run Echelon out of business by using its large cash reserves

to file serial litigations based on concepts it stole from Flywheel and declarations it bought from

Flywheel at an exorbitant price. The serial patent lawsuits Peloton filed against Flywheel in the

Eastern District of Texas, the paid-for Flywheel declaration that Peloton is trying to use in this

litigation and in Echelon’s IPRs that cost Peloton up to $24.5 million, the serial litigations filed

against Echelon in this Court, the serial litigations filed against ICON in this Court, and Peloton’s

oversized legal spend while running at a loss in order to win the “winner takes all” space, are part

of a pattern of sham litigation. Peloton knows its patents will likely be invalidated by the four

Echelon IPRs that have been instituted by the PTO, as Peloton paid an exorbitant price to get

Flywheel to drop similar IPRs on some of the same patents. The allegations in Peloton’s

Complaint are subjectively and objectively baseless.

132. Peloton has also intentionally, and unfairly, restrained trade in its drive to wipe out

all competition in the connected fitness market – a market Peloton sees as “winner takes all” and

feels that it has to win at all costs. Peloton intentionally runs its company at a loss in order to use

its large piles of cash to gain market share and quash all competition through its massive marketing

campaign, its enormous legal spend, and its payouts to buy out competition and pay for their

cooperation and silence. Equally as efficient, and indeed more efficient, competitors such as

54
Echelon cannot compete with Peloton given Peloton’s massive deficit spending. Peloton’s plan

was successful with Flywheel. In John Foley’s words, Peloton then opened up the “Same

playbook” that drove Flywheel into bankruptcy and used it to make sure its competitors “never get

enough traction.” It used this “Same playbook” and its “big stack” in attempting to “Crush”

SoulCycle, ICON, Echelon, and others.

133. Peloton has engaged in these anticompetitive activities with the specific intent to

drive Echelon and others from the market and to monopolize, or in the alternative illegally maintain

its market power, as evidenced by: (1) Mr. Foley’s statements about how this is a “winner take all

market” and that “[w]e HAVE to win” it by “leaning on” Peloton’s smaller competitors with its

“big stack”; (2) Mr. Foley’s statements that Peloton will follow the “[s]ame playbook” used to

bankrupt Flywheel with others to ensure its competitors “never get enough traction”; (3) statements

by Peloton’s Board that Peloton needs to “Crush” its competition and make competitors

“Disappear”; (4) Peloton strongarming Affirm into dropping Echelon and all of Peloton’s

competitors; (5) Peloton’s payment of $24.5 million to settle a case that it brought so that it could

purchase Flywheel’s silence and cooperation in order to continue its monopoly; and (6) Peloton’s

plans to buy out “credible players” in the market. Because of Peloton’s market share, at over 75%,

the success of its anticompetitive tactics to date, and its substantial cash reserves, it has a dangerous

probability of success in gaining a monopoly in the relevant market, allowing it to set prices, terms

and conditions to the detriment of consumers. Alternatively, Peloton’s anticompetitive actions, its

over 75% market share, and its substantial cash reserves will allow it to illegally maintain its

market power and control over the relevant market.

134. By virtue of Peloton’s conduct described above, Peloton has unlawfully gained,

maintained, and/or attempted to gain and maintain a monopoly in the connected fitness market, to

55
Echelon’s detriment and injury, and to the detriment of competition and to consumers of connected

fitness products. Peloton’s actions will allow it to control price and admission of its competitors

into the market, which will result in increased pricing in the long run, as Peloton would be

unchecked by its competitors.

135. In the alternative, upon information and belief, and based on the facts set forth

herein, Peloton has a dangerous probability of success in monopolizing the relevant market.

136. As described herein, Echelon has suffered and continues to suffer an antitrust injury

of the type the antitrust laws were intended to prevent, that flows from Peloton’s conduct as

described above.

137. Echelon is a much smaller company than Peloton in the relevant market, and upon

information and belief, Peloton has asserted meritless claims in an effort to coerce Echelon to face

significant financial strain defending baseless claims, thus using the litigation process – as opposed

to the outcome of that process – as an anticompetitive weapon.

138. As a proximate result of Peloton’s anticompetitive conduct, Echelon has incurred

and will incur significant injury, including but not limited to, lost sales (caused by lower

conversion rates, lower approval rates, lower web traffic, lower application rates, and other things)

relating to its loss of Affirm as a provider of Echelon’s consumer financing, attorneys’ fees

defending Peloton’s baseless lawsuits, loss of goodwill and reputation, and sales lost to customers

who decided to purchase a Peloton Bike instead of an Echelon Bike because of Peloton’s baseless

lawsuits.

139. In addition, Peloton’s actions have caused injury to the market as a whole.

Peloton’s actions have made sure no competitors can get a strong foothold in the connected fitness

market, as Peloton’s drive to win the “winner takes all” space at any cost ensures that most will

56
face baseless litigation, go bankrupt, get bought out, or face a targeted and expensive campaign to

“Crush them” or make them “Disappear.” If Peloton is allowed to succeed, its actions will

ultimately result in less consumer choice and higher prices, as there will be no real competition

left to challenge Peloton.

140. Echelon has been injured and will continue to be injured as a result of Peloton’s

anticompetitive activities. Accordingly, Echelon seeks damages, trebled, that were proximately

cause by Peloton’s conduct for both past damages as well as residual damages that will occur

reasonably into the future in light of Peloton’s anticompetitive acts. Echelon also seeks its

reasonable attorneys’ fees and costs associated with the prosecution of this action.

COUNTERCLAIM II
(False Advertising/Unfair Competition in Violation of Section 43(a) of the Lanham Act)

141. Echelon incorporates all other allegations in these Counterclaims.

142. Peloton has made, and continues to make, literally false and misleading statements

of fact about its products in violation of 15 U.S.C. § 1125(a). Those statements misrepresent the

pricing of its bikes and content, as well as the availability of financing, and are expressly false,

impliedly false, or both. For instance, Peloton misrepresented the price of its bikes by claiming

that “at $58 a month, Peloton is for anyone who wants it.” In fact, the $58 monthly price was only

for financing the bike. Peloton’s advertising failed to tell the consumer that the actual monthly

price is (at least) $97 a month when the “required” $39/month content subscription fee is included.

Indeed, Peloton failed to explain anywhere in its advertising (even in the small print disclaimer)

that the content subscription fee is “required.” Peloton also falsely claimed that the $58 a month

price is available to “anyone who wants it,” when in truth, it was only available to “those who

57
qualify” for the 0% financing. Even for qualifying consumers, Peloton failed to adequately alert

the consumer that a “[d]own payment may be required” to take advantage of the financing offer.

143. Peloton continues to make literally false and misleading statements of fact about its

products. While Peloton recently announced that it was reducing the price of its original bike from

$2,245 to $1,895, which equates to $49 a month for 39 months for those consumers who qualify

for the 0% APR offer, it has not changed its requirement that all consumers purchasing one of its

bikes also subscribe to its $39 a month All-Access Membership plan, for an actual cost of $88 a

month. Yet, Peloton continues to mislead the public about the cost of its bike while hiding the fact

that purchasers of its bike are also required to subscribe to its $39 All-Access Membership.

144. Peloton also has made, and continues to make, false and misleading statements to

the press, including false claims that Peloton’s products and content are available for “Twenty-

four dollars a month” and false claims that this price is the equivalent of “Planet Fitness-style

economics,” when in fact “Planet Fitness memberships begin at $10 a month” and Peloton’s stated

monthly price excludes the cost of the required content subscription.

145. Peloton also made false and misleading statements of fact about its delivery fees by

advertising “value offers” for its Bike, Bike+ and Tread products allegedly for a “limited time”

that include “free delivery,” when in reality Peloton has included free delivery in the price of its

products for years.

146. Peloton’s actions were willful and in bad faith, as Peloton knew or should have

known that its advertising was false, misleading, and deceptive. Indeed, Peloton changed its earlier

advertising, which correctly indicated the true cost of the financing program was $97 a month, to

falsely claim the price was only $58 a month so that it sales could “really [] open up.” In the

process, Peloton also removed all language from its advertising that indicated the $39 a month

58
content subscription was “required.” Peloton did this purposefully so it could make more sales by

deceiving consumers into believing its products were cheaper than they were. Peloton also refused

to make any adjustments to this advertising after Echelon raised the issue in multiple letters

beginning on March 12, 2020. Peloton further pled in its Complaint that its regular prices for its

products include delivery fees, but told its customers otherwise in its advertising.

147. Peloton’s false and misleading statements have deceived and have the tendency to

deceive a substantial segment of its intended audience about matters material to purchasing

decisions. Peloton’s violations have caused harm to the public and, unless restrained, will further

damage the public.

148. Peloton’s products are offered in interstate commerce. Similarly, Peloton’s false

and misleading statements were and are made in commercial advertising and promotion in

interstate commerce.

149. Peloton’s violations have proximately harmed Echelon. As a result of Peloton’s

violations, Echelon has suffered and will continue to suffer damage to its business and goodwill.

Echelon has lost and will continue to lose sales and profits and incur increased advertising and

marketing costs.

150. Echelon’s immediate, irreparable injuries have no adequate remedy at law, and

Echelon is entitled to injunctive relief and up to three times its actual damages and/or an award of

Defendant Peloton’s profits, as well as costs and Echelon’s reasonable attorneys’ fees under 15

U.S.C. §§ 1116–17.

59
 COUNTERCLAIM III
(Violation of Delaware Common Law – Trade Libel)

151. Echelon incorporates all other allegations in these Counterclaims.

152. Peloton has made, and continues to make, literally false and misleading statements

of fact about its products. Those statements misrepresent the pricing of its bikes and content, as

well as the availability of financing, and are expressly false, impliedly false, or both. For instance,

Peloton misrepresents the price of its bikes by claiming that “at $58 a month, Peloton is for anyone

who wants it.” In fact, the $58 monthly price is only for financing the bike. Peloton’s advertising

fails to tell the consumer that the actual monthly price is (at least) $97 a month when the “required”

$39/month content subscription fee is included. Indeed, Peloton fails to explain anywhere in its

advertising (even in the small print disclaimer) that the content subscription fee is “required.”

Peloton also falsely claims that the $58 a month price is available to “anyone who wants it,” when

in truth, it is only available to “those who qualify” for the 0% financing. Even for qualifying

consumers, Peloton fails to adequately alert the consumer that a “[d]own payment may be

required” to take advantage of the financing offer.

153. Peloton continues to make literally false and misleading statements of fact about its

products. While Peloton recently announced that it was reducing the price of its original bike from

$2,245 to $1,895, which equates to $49 a month for 39 months for those consumers who qualify

for the 0% APR offer, it has not changed its requirement that all consumers purchasing one of its

bikes also subscribe to its $39 a month All-Access Membership plan, for an actual cost of $88 a

month. Yet, Peloton continues to mislead the public about the cost of its bike while hiding the fact

that purchasers of its bike are also required to subscribe to its $39 All-Access Membership.

154. Peloton also has made, and continues to make, false and misleading statements to

the press, including false claims that Peloton’s products and content are available for “Twenty-

60
four dollars a month” and false claims that this price is the equivalent of “Planet Fitness-style

economics,” when in fact “Planet Fitness memberships begin at $10 a month” and Peloton’s stated

monthly price excludes the cost of the required content subscription.

155. Peloton also made false and misleading statements of fact about its delivery fees by

advertising “value offers” for its Bike, Bike+ and Tread products allegedly for a “limited time”

that include “free delivery,” when in reality Peloton has included free delivery in the price of its

products for years.

156. Peloton’s actions were willful and in bad faith, as Peloton knew or should have

known that its advertising was false, misleading, and deceptive. Indeed, Peloton changed its earlier

advertising, which correctly indicated the true cost of the financing program was $97 a month, to

falsely claim the price was only $58 a month so that it sales could “really [] open up.” In the

process, Peloton also removed all language from its advertising that indicated the $39 a month

content subscription was “required.” Peloton did this purposefully so it could make more sales by

deceiving consumers into believing its products were cheaper than they were. Peloton also refused

to make any adjustments to this advertising after Echelon raised the issue in multiple letters

beginning on March 12, 2020. Peloton further pled in its Complaint that its regular prices for its

products include delivery fees, but told its customers otherwise in its advertising.

157. Peloton’s false and misleading statements have deceived and have the tendency to

deceive a substantial segment of its intended audience about matters material to purchasing

decisions. Peloton’s violations have caused harm to the public and, unless restrained, will further

damage the public.

158. Peloton’s violations have proximately harmed Echelon. As a result of Peloton’s

violations, Echelon has suffered and will continue to suffer damage to its business and goodwill.

61
Echelon has lost and will continue to lose sales and profits and incur increased advertising and

marketing costs.

159. Peloton has acted with oppression, fraud, or malice, entitling Echelon to an award

of punitive damages.

160. Echelon’s immediate, irreparable injuries have no adequate remedy at law, and

Echelon is entitled to injunctive relief and up to three times its actual damages and/or an award of

Peloton’s profits, as well as costs and Echelon’s reasonable attorneys’ fees.

COUNTERCLAIM IV
(Violation of Delaware Deceptive Trade Practices Act 6 Del. Code § 2531, et seq.)

161. Echelon incorporates all other allegations in these Counterclaims.

162. Peloton has made, and continues to make, literally false and misleading statements

of fact about its products. Those statements misrepresent the pricing of its bikes and content, as

well as the availability of financing, and are expressly false, impliedly false, or both. For instance,

Peloton misrepresents the price of its bikes by claiming that “at $58 a month, Peloton is for anyone

who wants it.” In fact, the $58 monthly price is only for financing the bike. Peloton’s advertising

fails to tell the consumer that the actual monthly price is (at least) $97 a month when the “required”

$39 a month content subscription fee is included. Indeed, Peloton fails to explain anywhere in its

advertising (even in the small print disclaimer) that the content subscription fee is “required.”

Peloton also falsely claims that the $58 a month price is available to “anyone who wants it,” when

in truth, it is only available to “those who qualify” for the 0% financing. Even for qualifying

consumers, Peloton fails to adequately alert the consumer that a “[d]own payment may be

required” to take advantage of the financing offer.

163. Peloton continues to make literally false and misleading statements of fact about its

products. While Peloton recently announced that it was reducing the price of its original bike from

62
$2,245 to $1,895, which equates to $49 a month for 39 months for those consumers who qualify

for the 0% APR offer, it has not changed its requirement that all consumers purchasing one of its

bikes also subscribe to its $39 a month All-Access Membership plan, for an actual cost of $88 a

month. Yet, Peloton continues to mislead the public about the cost of its bike while hiding the fact

that purchasers of its bike are also required to subscribe to its $39 All-Access Membership.

164. Peloton also has made, and continues to make, false and misleading statements to

the press, including false claims that Peloton’s products and content are available for “Twenty-

four dollars a month” and false claims that this price is the equivalent of “Planet Fitness-style

economics,” when in fact “Planet Fitness memberships begin at $10 a month” and Peloton’s stated

monthly price excludes the cost of the required content subscription.

165. Peloton also made false and misleading statements of fact about its delivery fees by

advertising “value offers” for its Bike, Bike+ and Tread products allegedly for a “limited time”

that include “free delivery,” when in reality Peloton has included free delivery in the price of its

products for years.

166. Peloton’s false and misleading statements constitute unfair deceptive trade

practices in violation of the Delaware Deceptive Trade Practices Act 6 Del. Code § 2531, et seq.,

and specifically including, for example, § 2532(a)(4), (5), (11), and (12).

167. Peloton’s actions were willful and in bad faith, as Peloton knew or should have

known that its advertising was false, misleading, and deceptive. Indeed, Peloton changed its earlier

advertising, which correctly indicated the true cost of the financing program was $97 a month, to

falsely claim the price was only $58 a month so that it sales could “really [] open up.” In the

process, Peloton also removed all language from its advertising that indicated the $39 a month

content subscription was “required.” Peloton did this purposefully so it could make more sales by

63
deceiving consumers into believing its products were cheaper than they were. Peloton also refused

to make any adjustments to this advertising after Echelon raised the issue in multiple letters

beginning on March 12, 2020. Peloton further pled in its Complaint that its regular prices for its

products include delivery fees, but told its customers otherwise in its advertising.

168. Peloton’s false and misleading statements have deceived and have the tendency to

deceive a substantial segment of its intended audience about matters material to purchasing

decisions. Peloton’s violations have caused harm to the public and, unless restrained, will further

damage the public.

169. Peloton’s products are offered in interstate commerce, including in Delaware.

Similarly, Peloton’s false and misleading statements were and are made in commercial advertising

and promotion in interstate commerce, including in Delaware.

170. Peloton’s violations have proximately harmed Echelon. As a result of Peloton’s

violations, Echelon has suffered and will continue to suffer damage to its business and goodwill.

Echelon has lost and will continue to lose sales and profits and incur increased advertising and

marketing costs.

171. Echelon’s immediate, irreparable injuries have no adequate remedy at law, and

Echelon is entitled to injunctive relief. On information and belief, Peloton has willfully engaged

in its deceptive trade practices and Echelon is entitled to costs and reasonable attorneys’ fees

pursuant to 6 Del. Code § 2533(b). In addition, pursuant to 6 Del. Code § 2533(c), Echelon is

entitled to treble the amount of its actual damages for Peloton’s violations of Delaware common

law and other statutes.

COUNTERCLAIM V
(Tortious Interference with Business Relations)

172. Echelon incorporates all other allegations in these Counterclaims.

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 173. Peloton intentionally interfered with Echelon’s business relationship with Affirm,

who provided invaluable services to Echelon by providing Echelon’s customers with financing for

Echelon’s products. This financing helped break barriers to entry for certain consumers who could

not afford the entire price of Echelon’s bikes (starting at $838.98), rowers (starting at $1,039.98),

Reflect mirrors (starting at $1,039.98) and treadmills (starting at $1,338.98) at once.

174. On information and belief, Peloton interfered with Echelon’s relationship with

Affirm by using its power as Affirm’s top customer to demand that Affirm (who was a provider

of services to both Echelon and Peloton) sever its relationship with Echelon.

175. On information and belief, Peloton further demanded that Affirm keep Peloton’s

actions secret from Echelon, and Affirm carried out these instructions. For instance, when pressed

for an explanation as to why it was unexpectedly severing its years-long relationship, Affirm

simply responded “we can’t tell you.”

176. Peloton’s intentional actions were unfairly competitive and damaged Echelon. For

instance, Peloton’s actions resulted in Echelon not being able to offer financing to its customers

during parts of the holiday sales season of 2020. Peloton’s intentional actions have caused Echelon

ongoing harm and damage as Echelon has been unable to find an adequate replacement for Affirm,

and Echelon’s ability to provide adequate financing to its customers has been significantly

damaged.

177. Echelon’s immediate, irreparable injuries have no adequate remedy at law, and

Echelon is entitled to injunctive relief preventing Peloton from any further or continued

interference with Echelon’s business relations.

178. Peloton has acted with oppression and malice, entitling Echelon to an award of

punitive damages.

65
 COUNTERCLAIM VI
(Tortious Interference with Contractual Relations)

179. Echelon incorporates all other allegations in these Counterclaims.

180. Peloton intentionally interfered with Echelon’s contractual relationship with

Affirm, who provided invaluable services to Echelon by providing its customers with financing

for Echelon’s products. This financing helped break barriers to entry for certain consumers who

could not afford the entire price of Echelon’s bikes (starting at $838.98), rowers (starting at

$1,039.98), Reflect mirrors (starting at $1,039.98) and treadmills (starting at $1,338.98) at once.

181. On information and belief, Peloton interfered with Echelon’s contractual

relationship with Affirm by using its power as Affirm’s top customer to demand that Affirm (who

was a provider of services to both Echelon and Peloton) sever its relationship with Echelon. On

information and belief, at the time of the interference, Peloton had knowledge of the contractual

relationship between Affirm and Echelon. Peloton’s actions caused a breach of the Agreement

between Affirm and Echelon. The Agreement was drafted by Affirm, and as such, all ambiguities

therein are to be resolved in favor of Echelon.

182. On information and belief, Peloton further demanded that Affirm keep Peloton’s

actions secret from Echelon, and Affirm carried out these instructions. For instance, when pressed

for an explanation as to why it was unexpectedly severing its years-long relationship, Affirm

simply responded “we can’t tell you.”

183. Peloton’s intentional actions were unfairly competitive and damaged Echelon. For

instance, Peloton’s actions resulted in Echelon not being able to offer financing to its customers

during parts of the holiday sales season of 2020. Peloton’s intentional actions have caused Echelon

ongoing harm and damage as Echelon has been unable to find an adequate replacement for Affirm,

66
and Echelon’s ability to provide adequate financing to its customers has been significantly

damaged.

184. Echelon’s immediate, irreparable injuries have no adequate remedy at law, and

Echelon is entitled to injunctive relief preventing Peloton from any further or continued

interference with Echelon’s business relations.

185. Peloton has acted with oppression and malice, entitling Echelon to an award of

punitive damages.

COUNTERCLAIM VII
(Unfair Competition)

186. Echelon incorporates all other allegations in these Counterclaims.

187. Peloton intentionally interfered with Echelon’s business relationship with Affirm,

who provided invaluable services to Echelon by providing Echelon’s customers with financing for

Echelon’s products. This financing helped break barriers to entry for certain consumers who could

not afford the entire price of Echelon’s bikes (starting at $838.98), rowers (starting at $1,039.98),

Reflect mirrors (starting at $1,039.98) and treadmills (starting at $1,338.98) at once.

188. On information and belief, Peloton interfered with Echelon’s relationship with

Affirm by using its power as Affirm’s top customer to demand that Affirm (who was a provider

of services to both Echelon and Peloton) sever its relationship with Echelon. Echelon had a

reasonable expectancy that its relationship with Affirm would continue, and Peloton’s interference

with that relationship was wrongful.

189. On information and belief, Peloton further demanded that Affirm keep Peloton’s

actions secret from Echelon, and Affirm carried out these instructions. For instance, when pressed

for an explanation as to why it was unexpectedly severing its years-long relationship, Affirm

simply responded “we can’t tell you.”

67
 190. Peloton’s intentional actions were unfairly competitive and damaged Echelon. For

instance, Peloton’s actions resulted in Echelon not being able to offer financing to its customers

during parts of the holiday sales season of 2020. Peloton’s intentional actions have caused Echelon

ongoing harm and damage as Echelon has been unable to find an adequate replacement for Affirm,

and Echelon’s ability to provide adequate financing to its customers has been significantly

damaged.

191. Echelon’s immediate, irreparable injuries have no adequate remedy at law, and

Echelon is entitled to injunctive relief preventing Peloton from any further or continued unfair

competition.

192. Peloton has acted with oppression and malice, entitling Echelon to an award of

punitive damages.

COUNTERCLAIM VIII
(Declaration of Non-Infringement of the ’521 Patent)

193. Echelon incorporates all other allegations in these Counterclaims.

194. Peloton’s claim in this litigation that Echelon has infringed the ’521 Patent by

selling the EX1, EX3, EX4s, EX5, EX5s, EX5s-10, EX5s-22, EX7s, EX-PRIME, EX-Pro, and

GT+ bikes, the Echelon Row, Echelon Row-s, and Echelon Row-7s rowers, and Echelon Stride

and Stride 5S treadmills, has created an actual case or controversy between the parties as to the

infringement of the ’521 Patent.

195. Echelon has not infringed and does not infringe any valid, enforceable claim of the

’521 Patent, either literally or under the doctrine of equivalents.

196. Echelon is entitled to a declaratory judgment that it has not infringed and does not

infringe any valid, enforceable claim of the ’521 Patent, either literally or under the doctrine of

equivalents.

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 COUNTERCLAIM IX
(Declaration of Invalidity of the ’521 Patent)

197. Echelon incorporates all other allegations in these Counterclaims.

198. Peloton’s claim in this litigation that Echelon has infringed the ’521 Patent has

created an actual case or controversy between the parties as to the validity of the ’521 Patent.

199. The ’521 Patent, and each claim thereof, is invalid for failing to satisfy one or more

of the requirements of the Patent Act, 35 U.S.C. § 1, et seq., including but not limited to the

conditions of patentability set forth in 35 U.S.C. §§ 101, 102, 103 and/or 112.

200. Echelon is entitled to a declaratory judgment that each claim of the ’521 Patent is

invalid for failure to satisfy one or more requirements of the Patent Act, 35 U.S.C. § 1, et seq.

PRAYER FOR RELIEF

201. WHEREFORE, Echelon respectfully asks that the Court enter judgment against

Peloton as follows:

a. That Peloton has unlawfully monopolized and/or attempted to monopolize

interstate commerce in violation of Section 2 of the Sherman Act;

b. That Echelon has not infringed (either literally or under the doctrine of equivalents)

directly, jointly, and/or indirectly by way of practicing, inducing or contributing to

the infringement of one or more claims of the ’521 Patent;

c. That the claims of the ’521 Patent are invalid;

d. That Peloton has violated federal and state law in engaging in unfair competition,

tortious interference, false advertising, trade libel, and deceptive trade practices;

e. For temporary, preliminary, and permanent injunctive relief enjoining Peloton and

its officers, directors, agents, affiliates, employees, divisions, branches,

subsidiaries, parents, and all others acting in active concert or participation with it,

69
 from engaging in further acts of unfair competition, tortious interference, false

advertising, trade libel, and deceptive trade practices;

f. For temporary and permanent injunction enjoining Peloton and its officers,

directors, agents, affiliates, employees, divisions, branches, subsidiaries, parents,

and all others acting in active concert or participation with it, from engaging in

further anticompetitive conduct under 15 U.S.C. § 26;

g. For an award to Echelon for its damages, costs, expenses, and pre-judgment and

post-judgment interest for Peloton’s unlawful acts of monopolization, attempted

monopolization, unfair competition, tortious interference, false advertising, trade

libel, and deceptive trade practices;

h. For and award to Echelon of three times the amount of damages sustained by

Echelon due to Peloton’s violations of the Sherman Act, together with the expenses

and costs of litigation, including Echelon’s reasonable attorneys’ fees;

i. For an award to Echelon for profits earned by Peloton attributable to its unlawful

acts of unfair competition, false advertising, trade libel, and deceptive trade

practices;

j. For an award of punitive damages for Peloton’s tortious interference and unfair

competition;

k. A declaration that this is an “exceptional case” due to the willful nature of Peloton’s

unfair competition, false advertising, trade libel, and deceptive trade practices, and

awarding damages and attorneys’ fees and costs to Echelon pursuant to 15 U.S.C.

§ 1117, and any other damages including treble damages and attorneys’ fees to the

full extent allowable under the law;

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 l. Reasonable attorneys’ fees and costs against Peloton; and

m. For any and all other relief to which Echelon may show itself to be entitled.

JURY DEMAND

202. Echelon demands a trial by jury for all issues so triable.

GREENBERG TRAURIG, LLP

OF COUNSEL:
/s/ Benjamin J. Schladweiler
Douglas R. Weider Benjamin J. Schladweiler (#4601)
James L. Ryerson The Nemours Building
GREENBERG TRAURIG, LLP 1007 North Orange Street, Suite 1200
500 Campus Drive, Suite 400 Wilmington, DE 19801
Florham Park, NJ 07932 Phone: (302) 661-7000
Phone: (973) 360-7900 schlwadweilerb@gtlaw.com
weiderd@gtlaw.com
ryersonj@gtlaw.com Attorneys for Defendant/Counterclaim
Plaintiff Echelon Fitness Multimedia LLC
Dated: December 8, 2021

71
 CERTIFICATE OF SERVICE

I, Benjamin J. Schladweiler, hereby certify that on December 8, 2021, a true copy of

the foregoing Defendant’s Amended Counterclaims for Antitrust, Tortious Interference, Unfair

Competition, Fales Advertising, and Declaratory Judgment of Patent Invalidity and Non-

Infringement Against Peloton Interactive, Inc. was served via electronic mail upon the

following counsel of record:

Steven N. Feldman, Esquire Michael J. Flynn, Esquire

Latham & Watkins LLP Anthony D. Raucci, Esquire
355 South Grand Avenue, Suite 100 Morris, Nichols, Arsht & Tunnell LLP
Los Angeles, CA 90071-1560 1201 North Market Street
steve.feldman@lw.com P.O. Box 1347
Wilmington, DE 19899-1347
Lawrence J. Gotts mflynn@mnat.com
Gabriel K. Bell, Esquire araucci@mnat.com
Latham & Watkins LLP
555 Eleventh Street, NW, Suite 1000 Counsel for Plaintiff Peloton Interactive, Inc.
Washington, DC 20004-1304
lawrence.gotts@lw.com
gabriel.bell@lw.com

Marc N. Zubick, Esquire

Latham & Watkins LLP
330 North Wabash Avenue, Suite 2800
Chicago, IL 60611
marc.zubick@lw.com

David F. Kowalski, Esquire

Patrick C. Justman, Esquire
Latham & Watkins LLP
12670 High Bluff Drive
San Diego, CA 92130
david.kowalski@lw.com
patrick.justman@lw.com

William J. Trach, Esquire

Latham & Watkins LLP
200 Clarendon Street
Boston, MA 02116
willaim.trach@lw.com

/s/ Benjamin J. Schladweiler

Benjamin J. Schladweiler (#4601)