Peloton has come out on top of the litigation leaderboard yet again. As we previously blogged about here, Peloton is no stranger to trade secret litigation. Peloton recently won dismissal of a “mirror image” declaratory judgment counterclaim asserted against it by rival ICON Health (“ICON”) in a Defend Trade Secrets Act (“DTSA”) matter pending in the United States District Court for the District of Delaware.
Peloton filed suit against ICON under the DTSA alleging theft of trade secrets after it learned that ICON had solicited Peloton advertising materials from a contractor. In its complaint, Peloton claimed ICON engaged in a “fraudulent campaign to improperly acquire Peloton’s trade secret advertising plans by soliciting the disclosures from an advertising and production company with which Peloton contracted.”
ICON answered the complaint and filed a “mirror image” counterclaim seeking a declaratory judgment that “(1) ICON did not engage in trade secret misappropriation; (2) the Peloton advertising plans do not constitute trade secrets under the DTSA; (3) Peloton failed to take reasonable measures to keep the materials secret; (4) ICON did not obtain the materials via improper means; and (5) Peloton brought this litigation in bad faith.” Peloton filed a motion to dismiss the counterclaim for failure to state a claim arguing there was a complete identity of factual and legal issues between ICON’S counterclaim and Peloton’s complaint. In opposing Peloton’s motion, ICON argued its counterclaim should survive because it is entitled to a declaratory judgment that decides every element of the DTSA claim. ICON further argued its adjudication of its counterclaim would benefit investors and the public.
In the decision, the court noted that a redundant counterclaim is subject to dismissal if it would become moot upon adjudication of the underlying claim. It went on to hold “ICON does not explain how its requests for specific declarations are not rendered moot by an adjudication of the DTSA dispute, which is the only case or controversy underlying this action.” The court was unpersuaded by ICON’s public policy argument that addressing each element of the DTSA through its counterclaim would serve a useful purpose to the public. In addressing the public policy argument, the court noted ICON would be able to challenge Peloton’s narrative during the adjudication of the merits of the complaint and affirmative defenses.
ICON tried to save their counterclaim by arguing their claim for attorneys’ fees differed from Peloton’s complaint. Specifically, ICON alleged that Peloton had brought its DTSA claim in bad faith and was therefore on the hook for ICON’s attorneys’ fees. The court recognized a split of authority in district courts nationwide on whether bad faith counterclaims seeking attorneys’ fees could survive dismissal. Ultimately, the court held the dispute for attorneys’ fees was not ripe and could not “keep [ICON]’s counterclaim on ‘life support.’” The court granted Peloton’s motion and dismissed the counterclaim.
“Mirror image” counterclaims asserted under the DTSA likely will not survive a motion to dismiss because they will become moot upon adjudication of the DTSA claims. However, there is a split at the district court level as to whether a counterclaim seeking attorneys’ fees for bad faith prosecution of a DTSA claim can survive a motion to dismiss. It remains to be seen if Peloton will prevail on its claims against ICON, but stay tuned for further analysis of the case as it progresses.