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This photo shows the Peloton logo on the company's stationary bicycle. (AP file photo)
This photo shows the Peloton logo on the company's stationary bicycle. (AP file photo)

Peloton case illustrates intellectual property rights

Peloton Interactive Inc., the popular fitness enterprise, came under scrutiny last holiday season for its commercial depicting a man gifting one of the company’s stationary bikes to his wife. Before most could “work off” those festive foods consumed during the holidays, Peloton found itself embroiled in another controversy involving a copyright dispute.

Ironically, the decision by the United States District Court for the Southern District of New York in the matter of Downtown Music Publishing LLC, et al. v. Peloton Interactive, Inc., No. 1:19-cv-02426, provided a wanted excuse for some to dismount their shiny new exercise bike and forgo a New Year’s resolution.

Copyright is one of several types of intellectual property protected under U.S. law. The U.S. Constitution states that the goal of copyright is to promote the progress of science and useful arts by securing exclusive rights for a limited period time for the authors and inventors of writings and discoveries. In essence, copyright serves to incentivize the creation of art, literature, architecture, music and other works of original authorship by rewarding its creators with certain exclusive rights to profit from their efforts.

The bundle of exclusive rights afforded to the creators of copyrightable works can include the right to control its reproduction, adaptation, distribution, public performance, public display and digital transmission. These rights, however, are not without qualification (e.g., a limited period of time of protection) and there are established defenses for those accused of infringing upon these exclusive rights. The most typical of these defenses include fair use (e.g., use for purposes of criticism, comment, news reporting, teaching and research) and acquiescence (e.g., use under a valid license).

A less common defense in copyright infringement claims is an allegation against the copyright holder that it is engaging in anti-competitive conduct that is illegal under federal antitrust laws. This was one of the defenses pleaded by Peleton in its recent lawsuit. The decision in the case demonstrates that the courts recognize that antitrust claims can be a viable defense to copyright infringement, but also provides insight into how such allegations will be scrutinized by the judiciary.

In the Peloton lawsuit, a group of music publishers under the auspices of the National Music Publishers Association (“NMPA”) claimed that Peloton violated music owners’ rights by using certain copyrighted songs in Peloton workout classes, and sought $300 million in damages. In turn, Peloton claimed that it had reached licensing agreements with all of the major music publishers and many independent music publishers, and as for the other publishers with whom Peloton had not reached an agreement, it sought to negotiate with those publishers independently, but that the NMPA refused to provide a list of the publishers. Peloton also argued that the music publishers and the NMPA had violated federal antitrust laws by demanding supra-competitive license terms during license negotiations. Peloton claimed that the NMPA’s alleged refusal to provide the list of music publishers coupled with the filing of a copyright infringement lawsuit was tantamount to an effort to “fix prices and to engage in a concerted refusal to deal with Peloton.”

Peloton almost succeeded in maintaining these claims. United States District Court Judge Denise Cote agreed with Peloton that federal law in New York as handed down by the 2nd U.S. Circuit Court of Appeals precludes copyright holders from agreeing to limit an alleged infringer from acquiring future rights before, during, or after a lawsuit. The court, however, ultimately dismissed Peloton’s antitrust counterclaims because Peloton failed to identify the “relevant market” targeted by the allegedly competitive behavior.

Specifically, Judge Cote noted that Peloton had admittedly been successful in negotiating certain music licenses with both some of the plaintiffs, as well as other “major” music publishers. Therefore, the court reasoned, songs that were controlled by the NMPA and the plaintiff publishers could “substitute” for songs not controlled by the plaintiffs. The court thus determined that “[i]t is true that every copyrighted work has at least some modicum of originality. But, recognition of that fundamental tenet of copyright law does not explain why songs not controlled by the music publishers cannot substitute in exercise programming for songs they do control.”

Ultimately, the ruling clarifies the interplay of copyright law and federal antitrust law, and, specifically, the need to properly allege the relevant market and take into account the “elasticity of demand.” From a business perspective, the lawsuit has not served Peloton well, as it has apparently resulted in the need for several music scores and classes to be removed from Peloton’s schedule of fitness offerings.

The Peloton decision serves to protect the intellectual property rights of copyright owners and perhaps even the right to refuse to issue licenses to would-be licensees who reject an owner’s license terms. Ultimately, copyright owners should be aware of the exclusive rights afforded by federal copyright laws and proactively enforce such protections against infringement. Prudent companies with business models that rely upon the utilization of another’s intellectual property, should always factor in the cost of obtaining required permissions from owners, but should also be cognizant of copyright infringement defenses that go far beyond fair use. Accordingly, the possibility of anticompetitive conduct should always be considered as a potential defensive counterclaim in a copyright infringement lawsuit.

This article appeared originally in the Rochester (New York) Business Journal, a sister publication of Minnesota Lawyer.

Jeremy Wolk is a partner in Nixon Peabody LLP’s Business & Finance department. He developed this article with Nixon Peabody attorneys Staci Riordan, Catherine Savio, and Daniel Schnapp.

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