Exercise bike stock Peloton Interactive (NASDAQ: PTON) has become a household name since COVID-19 arrived. Its share price soared to dizzying heights in 2020 but has endured a downward trajectory through 2021, falling 63% year-to-date. Meanwhile, Lululemon Athletica (NASDAQ: LULU), famous for its high-quality yoga pants, has seen its share price rise 725% over the past five years. But the competitive athleisure space just got ugly as Peloton sues Lululemon.
Peloton and Lululemon fall out
Until recently, Peloton and Lululemon were in a five-year co-branding relationship as Peloton sold various athleisure brands on its site. Since then, Peloton has launched its own range of athletic apparel. But on 11 November, Lululemon threatened to sue PTON unless it stopped this.
Lulu claimed six of Peloton's bra and leggings designs infringe Lulu's design patents.
In retaliation, Peloton filed a lawsuit in a federal court in Manhattan on 24 November. The suit states there is no merit to the infringement claims of these products. The women's bra and legging products in question include Cadent Peak Bra, Cadent Laser Dot Bra, Strappy Bra, High Neck Bra, and Cadent Laser Dot Leggings.
Peloton has also said:
"On top of the numerous clear and obvious differences in design, Peloton and Lululemon's brands and logos are also distinctive and well-recognized, making confusion between products a virtual impossibility,"
The case is Peloton Interactive Inc v Lululemon Athletica Canada Inc, U.S. District Court, Southern District of New York, No. 21-10071.
Peloton mirrors Apple
Taking a leaf out of the Apple (NASDAQ: AAPL) playbook, Peloton has created a much-coveted consumer brand from an otherwise relegated consumer good.
It's been described as an 'iPad strapped to a bike' and a '$2,500 clothes rack,' but Peloton has given Apple a run for its money in the desirability stakes. It undoubtedly benefited greatly from the COVID stay-at-home orders, but as vaccines helped the re-opening begin, PTON stock declined.
After witnessing LULU stock's ongoing success, Peloton could be on to a winner by branching into apparel. It needs more products in its portfolio if it's going to keep shareholders happy for the long haul. But this is a hugely competitive market dependent on fast-changing fashions, tastes, quality and price.
In a statement released on Friday, Lululemon said:
"At Lululemon we are known for our product innovation and iconic design. We will defend our proprietary rights, to protect the integrity of our brand, and to safeguard our intellectual property."
Peloton publicly launched via IPO on 26 September 2019 at the NASDAQ in New York. Since then, the PTON share price has climbed 83%.
Meanwhile, Lululemon IPO'd in July 2007, and LULU stock has since soared 3,161%.
Peloton has a $15bn market cap, while Lululemon is worth $59bn.
In suing Lulu, Peloton wants a court declaration to confirm that it has not infringed Lululemon patents and trade dress and that Lululemon's patent claims are invalid.
Peloton shares were enjoying a minor rebound on Friday as the threat of further lockdowns loomed. The arrival of the Omicron COVID variant spooked the markets, sending most stocks plummeting. But this may be short-lived as the variant is potentially less dangerous than first believed.
Moreover, PTON shares fell earlier this month, on the news that Apple had secured a new design patent for its fitness app. The athleisure and fitness space is highly saturated, and maintaining a grip on its market share may not be as easy as PTON investors and fans would like.