'Project Magnum': Flywheel’s Alleged Plot to Steal Peloton’s Technology

On Wednesday stationary bike maker Flywheel emailed customers letting them know about a "difficult decision [it] had made" to shut down its at-home virtual bike service. In reality, it wasn't a decision at all, but the outcome of a wild lawsuit in which its competitor Peloton accused Flywheel of corporate espionage and intellectual property theft.

As part of the lawsuit's settlement, Flywheel admitted that it "copied elements of the Peloton bike in developing its Fly Anywhere bike" and agreed to shut down its home service. As part of the agreement, some Flywheel customers (but not those who financed their bike) can trade in their bike for a refurbished Peloton one.

Improperly redacted documents included in the lawsuit reveal an alleged plot by Flywheel to steal Peloton's confidential trade information dubbed "Project Magnum." The documents also show Peloton's earliest presentation slides for what has now become a publicly traded company worth $8 billion. They reveal how a friendly relationship between Peloton and Flywheel's CEOs turned into a bitter rivalry that ended in an aggressive lawsuit in which lawyers for both companies accused the other of stealing the idea for an internet-connected spin bike with a leaderboard.

Court documents outlining "Project Magnum" were initially sealed, and then released in a redacted form. But the redactions weren't done properly, allowing VICE to copy-and-paste its contents to learn previously unknown details about Flywheel's apparent mission to obtain Peloton secrets.

"Discovery has now revealed that Flywheel engaged in an organized and illicit scheme, involving a significant number of Flywheel executives and employees, to obtain 'as MUCH secret intel on Peloton as we can' during the time it was designing and preparing to launch its infringing Fly Anywhere Bike," one of the documents filed by Peloton reads, quoting an internal Flywheel message that Peloton obtained during the case.

The relationship between Peloton and Flywheel was once cordial, that of peers or potential collaborators. Peloton CEO John Foley actually credits a “lightbulb moment” he had during a Flywheel class with the very concept of the Peloton. “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,” Foley said during an April 2018 appearance on MSNBC podcast Been There. Built That.

In 2012, when Peloton was still in its nascent stage, Foley reached out to Flywheel in order to pursue a partnership between the two fitness companies. At the time, Foley thought that maybe Flywheel founder Jay Galluzzo would be interested in investing in his then-nascent company. He exchanged friendly emails with Galluzzo in which Foley asked Galluzzo to sign a nondisclosure agreement before proceeding further—and inquired about the birth of Galluzzo’s baby. “Are you at the hospital already? Please don’t force this conversation if you’re deep in new baby world. It can definitely wait!” Foley wrote. “Had the baby tues - all good and everyone is home safe and sound,” Galluzzo replied. This friendly exchange was subsequently entered as an exhibit in the lawsuit. Galluzzo added that Flywheel has “been in development for a long time now on an evolution of our technology, bike, and brand experience that could be similar,” and suggested they talk to “avoid any potential issues if we are indeed on the same path.”

"While you would be a fantastic partner, you could also be a formidable competitor (if you decided not to partner with us and to create your own virtual bike; did I mention we're creating a virtual spin studio bike?)," Foley wrote. "I truly believe though that you will be very energized by a full conversation with us and you will be excited to deeply partner … please know that I think it would be really fun (and lucrative) to partner with you guys for a number of reasons. I hope it works out."

The partnership evidently didn't work out. Peloton became a big company without the help of Flywheel, which eventually launched its own at-home bike.

Peloton first filed its willful infringement complaint against Flywheel in September 2018. Peloton accused Flywheel of violating a pair of patents with the introduction of the FLY Anywhere, which Peloton dubbed “a copycat of the Peloton Experience [sic]” thanks to features “displaying live and archived cycling class content to remote riders, tracking a remote rider’s performance, and comparing that remote rider’s performance against the performance of other remote riders,” according to the initial complaint.

Peloton's suit presents Peloton as an underdog in the marketplace, which meshes well with the narrative already surrounding it. The start-up’s brand story has been an element included in much of the media coverage it has received since Peloton was declared the “first ‘fitness unicorn’” in May 2017, after it was valued at $1.25 billion in the wake of its series E funding round. Combined with the sense of community its devotees say the Peloton experience fosters, it’s easy to see Foley’s at-home exercise bike as the David to Flywheel’s FLY Anywhere Goliath.

Peloton began the patent lawsuit process by claiming Flywheel had specifically sent one of its major investors, twice-pardoned “junk bond king” Michael Milken, to obtain proprietary information from Foley under false pretenses. Milken met Foley at a J.P. Morgan investors summit in February 2017, three months before the FLY Anywhere was announced.

“Milken held himself out to Foley as an interested, potential investor in Peloton and pushed for information on topics including Peloton’s future business plans and strategy, and how or whether Peloton could protect its intellectual property and exclude others from the at-home cycling business,” the complaint alleged. “At no time before, during or after the meeting did Milken disclose that he had any financial interest whatsoever in Flywheel.”

One of Milken’s advisors denied the corporate espionage allegations when the suit was initially filed. “Mike is not a party to this action and any claim that he acted improperly is totally without merit and, frankly, ridiculous,” advisor Geoffrey Moore wrote in an email to PitchBook in 2018. But the Milken incident was not mentioned in substance in other court filings, perhaps because the litigation process process against Flywheel uncovered a different, more coordinated stab at obtaining trade secrets.

At some point before the launch of FLY Anywhere, according to Peloton's lawyers, Flywheel launched "Project Magnum," an attempt to "obtain 'as MUCH secret intel on Peloton as we can,'" according to an improperly redacted document Peloton filed in court.

"Project Magnum was not some extemporaneous side-project […] but rather a concerted, widespread effort," one of Peloton's filings adds.

But Project Magnum was, apparently, more haphazard than spy operation. Flywheel created a Google Doc to “create tabs with the functional areas of info so that the team know[s] to keep adding to it," one of the documents reads. Much of the conspiracy seems to have taken place over email, judging by discovery that Peloton obtained. Someone at Flywheel named the project after the Magnum PI television series, one of the court documents adds, although the filing does not include the individual's name.

The filings do not go into detail on how Flywheel apparently tried to obtain Peloton's secrets, but they do include contours of the project. In a message seemingly written by a former Flywheel CTO who now works at Facebook, he wrote "Villency could be useful in providing insight related to Project Magnum." Eric Villency, and his company Villency Design Group, designed the Peloton and SoulCycle stationary bikes. Villency did not immediately respond to a request for comment.

In filings, Flywheel pushed back against the idea that Project Magnum was an "illicit scheme" supposed to obtain "secret" Peloton information. In a declaration, Sarah Robb O'Hagan, who was Flywheel's CEO from February 2017 to November 2018, said Magnum was nothing more than “a tongue-in-cheek reference to a project, mostly done by an intern, to gather market research related to Peloton from public information sources (such as the internet).”

"Peloton has not presented evidence suggesting that the 'project' was more than an attempt to understand—using public, or otherwise non-confidential information—how Peloton marketed and sold its bike," another filing adds.

Galluzzo said in a phone call that he left as CEO of Flywheel in 2014 and had no knowledge of, or involvement in, Project Magnum.

Civil discourse between Flywheel and Peloton quickly devolved into petty scrapping, venomous emails flying between the legal teams of each exercise bike company. Each insisted their client came up with the at-home cycling class experience first.

On September 23, 2019, Jeffrey Ginsberg, a representative for Flywheel, claimed the ideas behind Foley’s original patents for the Peloton bike were “misappropriated from confidential proprietary concepts” first outlined in a document titled “Flywheel@Home” in July 2011. Ginsberg alleged that Foley lacked written evidence to back up the fact that he had invented the concept behind the Peloton, rather than lifted the idea from Flywheel, and called on Peloton to drop its “baseless,” “bad faith” accusations against Flywheel. The accused became the accuser, and in this version of events, Flywheel became the tech theft victim instead of an outmoded exercise bike company unable to innovate.

"In addition to being a regular participant in Flywheel's classes, Mr. Foley also was a personal acquaintance of Flywheel senior managers, board members, and investors who would have known about Flywheel@Home and had access to Flywheel confidential and proprietary internal documents and communications like the July 2011 Flywheel@Home Plan," Ginsberg wrote. "In short, it 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 benefited financially from this misappropriation."

Steven Feldman, one of Peloton’s lawyers, shot back the next day, calling the new theft accusations “conjecture and rank speculation.” Feldman threatened Flywheel with (even more) aggressive legal action from Peloton if the former attempted to publicize its emergent claims of tech theft any further. Peloton pointed out that if Galluzzo had already had its Flywheel@Home idea percolating in 2011, when Flywheel was still only a chain of spin studios, and Foley approached Galluzzo about a possible partnership with Flywheel for an at-home concept bike in 2012, Galluzzo made no mention of his own concept to Foley.

“If, in fact, as you claim, 'the alleged inventive concepts and elements that are the core of Peloton's business and that are claimed in the patents issued to Peloton' were misappropriated from Flywheel, Flywheel has known that fact for at least seven years [ bold italics Feldman’s own] and never said or did a single thing,” Feldman wrote. “The fact that Flywheel never did is telling, and makes it quite obvious that the claim in your letter is nothing more than a baseless, sanctionable attempt at a shakedown of Peloton ahead of its IPO.”

Peloton’s legal team also produced the initial pitch dek for the Peloton, sent to Flywheel’s CEO in October 2011, a slideshow crudely sketching out the Peloton experience, the potential for trainers to become “somewhat celebrities,” and the pantomimed experience of working out with a class full of friends. Flywheel’s legal team produced its own Flywheel@Home slideshow, but were unable to provide the document in the native format that would prove it originated in July 2011, three months prior to Foley’s pitch, failing to cinch Flywheel’s tech theft accusations.

A Peloton spokesperson told VICE in an email, "Flywheel Sports, Inc. has announced that they will stop offering their Flywheel At-Home service, effective Friday, March 27, 2020. In order to make sure that Flywheel Home Bike owners can continue to get the benefits of indoor cycling at home, we have worked with Flywheel to create an exclusive opportunity for them to join the Peloton community by trading in their Flywheel Home Bike for a like-new Peloton Bike at no cost to them. We look forward to welcoming these new members into the Peloton family." The spokesperson declined to answer questions about Project Magnum.

Flywheel did not respond to a request for comment. In a declaration from Flywheel CFO Jeffrey Naumowitz included with the settlement, he writes "Flywheel admits that Flywheel's Fly Anywhere Bike and associated services infringe the Peloton Patents as alleged by Peloton in the Second Amended Complaint; that Flywheel copied elements of the Peloton bike in developing its Fly Anywhere bike."

Foley did not respond to a request for comment.

Update: This piece has been updated to include comment from Jay Galluzzo and to add more context about Galluzzo and Foley's emails.