VR Optics LLC v. Peloton Interactive, Inc.

Background

Peloton hired Villency Design Group, LLC (VDG) to help design and produce its interactive stationary bike. VDG’s owners and sole members, Eric Villency and Joseph Coffey, later formed VR Optics, LLC (VRO), which acquired U.S. Patent No. 6,902,513, titled “Interactive Fitness Equipment.” VRO sued Peloton for patent infringement. Peloton asserted counterclaims against VRO and third-party claims against VDG, Villency, and Coffey.

The 2012 and 2014 agreements required VDG to provide intellectual property that did not infringe third-party rights. The 2014 agreement also required VDG to defend and indemnify Peloton against claims relating to violations or alleged violations of intellectual-property rights concerning the bike.

Patent invalidity

Peloton moved for summary judgment—that is, judgment without a trial because no genuine dispute of material fact requires a trial—on noninfringement and invalidity. The court granted the motion based on invalidity and did not reach the remaining noninfringement arguments.

The court held that the Watterson Patent was a single prior-art reference that disclosed all limitations of VRO’s asserted patent claims. The court had previously interpreted the relevant claim language to require a display showing a performance difference between the local and remote fitness equipment. Watterson described a simulated race display showing competitors’ relative positions, which the court held satisfied that requirement.

The court excluded VRO expert Steven Lenz’s opinion on this issue because it conflicted with the court’s earlier interpretation of the patent claims. Without that opinion, VRO offered no evidence creating a genuine factual dispute about anticipation. The court also found that Peloton’s evidence concerning the dependent claims was not properly controverted, so summary judgment applied to those claims as well. The court therefore concluded that the asserted patent claims were invalid because they were anticipated by prior art.

Peloton’s claims against VDG

The court granted VDG summary judgment on Peloton’s claims that VDG breached the contractual warranties that the bike-related intellectual property would not infringe third-party rights. Those claims depended on infringement of a valid patent, and the court had determined that the patent was invalid.

The court also granted VDG summary judgment on Peloton’s claim that VDG breached the implied covenant of good faith and fair dealing. The court concluded that the alleged conduct had not deprived Peloton of the benefits of the agreements.

The court granted VDG summary judgment on Peloton’s fraudulent-concealment claim. Peloton showed that VDG knew about the patent, but the court found no evidence that VDG knew, when the 2014 agreement was made, of an imminent infringement lawsuit. The court also found no clear and convincing evidence that Peloton relied on an omission by VDG during the agreement’s term.

The court instead granted Peloton summary judgment on its claim that VDG breached the 2014 agreement by failing to defend Peloton against VRO’s patent action. The court interpreted the agreement’s defense provision according to its broad, unambiguous language. It held that the provision covered VRO’s action because VRO’s patent claims relied in part on the bike frame and other bike-related intellectual property. VDG had received notice of Peloton’s request for defense on September 9, 2016, but had not fulfilled the alleged obligation.

Tortious interference

Villency and Coffey sought summary judgment on Peloton’s claim that they tortiously interfered with Peloton’s contract with VDG. Because the court found that VRO had not breached the contractual warranties, Peloton’s claim had to be based on the alleged breach of the duty to defend. The court found no evidence that Villency and Coffey acted outside their authority or for their own interests, rather than VDG’s interests, when VDG declined to defend Peloton. The court therefore granted Villency and Coffey summary judgment on that claim.

Other motions and disposition

The court granted in part and denied in part Peloton’s motion to exclude Steven Lenz’s testimony. The court denied the remaining evidentiary motions as moot because the patent-invalidity ruling resolved the patent claims without requiring the other expert evidence. The court denied the motions to seal without prejudice. It directed the parties to file unredacted versions of documents previously filed under seal or seek permission to file narrower redactions supported by specific explanations.

In its final order, the court stated that Peloton’s motion for summary judgment of noninfringement and invalidity was granted; Lenz’s exclusion motion was granted in part and denied in part as moot; the third-party plaintiff’s and third-party defendants’ summary-judgment motions were each granted in part and denied in part; the remaining evidentiary motions were denied as moot; and the motions to seal were denied without prejudice.