SFIA Litigation, Regulatory & Risk Management Summit Highlights Potential Risks in a Market Impacted by Emerging Technologies

May 12, 2017

By Brian C. Konkel, JD, of DUGGAN BERTSCH, LLC
 
The Sports & Fitness Industry Association (SFIA) held its annual Litigation, Regulatory & Risk Management Summit on April 26th and 27th in Chicago. The event addressed a wide array of industry related topics with insightful presentations on emerging concerns in light of an evolving market, and emerging trends. One common theme in a number of the subjects discussed during the event is that the sports and fitness industry, like many other industries, has been transformed by exponential technological advances.
 
The impact of technology was readily apparent in the state of the industry presentation by SFIA President and CEO, Tom Cave, who kicked off the event. The industry as a whole is experiencing slow growth, impacted by a number of factors including retail disruption. The rise in e-commerce business has had a profound effect on the industry, with major retailers recently downsizing or filing for bankruptcy, including Sports Authority, MC Sports, Gander Mountain, and Jack Rabbit.
 
E-commerce growth has also impacted retailers due to brands’ ability to make direct sales to consumers via the internet. In a similar vein, marketing techniques have evolved, and the rise of social media has impacted consumer trends. Amazon recently launched its own online sports and fitness store as traditional retailers fight to survive. Companies must evolve, or risk being left behind.
 
The equipment and apparel itself is also evolving, and these changes have had a mostly positive impact on the industry. New technologies are allowing athletes across all skill levels and disciplines to experience more sophisticated training, monitoring, and interaction, which in turn has led to increased involvement in sports and fitness activity. Examples of technology discussed during the event include ubiquitous fitness trackers such as Fit Bit, clothing containing wearable sensors, equipment with tracking technology, and virtual trainers such as Peloton, a popular indoor exercise bike that can be linked to live and recorded classes and trainers streaming via the internet.
 
These types of devices, which track and monitor user data, are part of a larger space commonly referred to as the “Internet of Things,” a term that aptly describes the growing connectivity of our society in all facets of life. The benefits of this are immense, but these technologies exacerbate long-known risks, and expose companies to new liabilities, some of which may yet be known.
 
A presentation by AIG Insurance outlined a number of concerns precipitated by new trends and technologies. The assumption of risk doctrine is something that is being reexamined in light of industry changes. Participants in athletics generally assume the risks of the activity, especially when the risks are well known to the general public. For example, a participant or spectator at a baseball game is generally aware of the risks associated with batted balls.
 
But what happens when the risks of an activity, for example an exercise class with unique training methods, are not as well known? This defense is less certain when the risks are unknown or enhanced. This is a major liability concern facing popular exercise studios such as Soul Cycle, which has been the subject of multiple lawsuits by customers injured during its high intensity spinning classes.
 
Another legal question with an unclear answer is how far a duty extends in circumstances where user data is monitored, often in real time. This has become a major concern for companies that aggregate and track user data and information, which is often a selling point for consumers. Strava, a company that tracks data for runners and cyclists, was the subject of a much-publicized wrongful death lawsuit after a cyclist in California was killed trying to obtain a “King of the Mountain” title on Strava, a moniker given to a user that completes a particular stretch of road faster than other users. The lawsuit alleged that this type of competition encouraged dangerous behavior that led to the cyclist’s death.
 
The suit was ultimately dismissed, but the legal theory of liability based upon data monitoring and aggregation raises real concern. Questions persist as to how far a duty extends, and where a duty lies. It is unclear whether virtual trainers, such as Peloton for example, are obligated to monitor the heart rates and respiration of each participant in one of its video classes. Likewise, there is no defined standard for warning labels or announcements.
 
Beyond potential consumer injury and products liability, there are a number of other risks that industry leaders must grapple with as technology emerges. Intellectual property protection is a major concern industry wide. The internet of things has created a burgeoning market for new ideas and concepts, but patent protection and infringement pose a serious threat to the growth of a new product, whether by a startup, or fortune 500 company. Non-practicing entities (frequently known as patent trolls) are a real problem in this space, too, and startup companies must plan for the possibility of a lawsuit, even if the suit has no merit.
 
Likewise, counterfeiting is persistent risk facing companies at all levels of the supply chain, with new technologies allowing for dissemination of forged products that may not be easily discernable from the genuine item. Fortunately, technology has also spurred advances in companies’ ability to prevent this through sophisticated tracking methods and design components.
 
Privacy issues also create uncertainty in the space. The amount of user data being aggregated must be protected, or companies risk further litigation by consumers, or at minimum, loss of consumer trust in the brand. With near constant connectivity, cyber hacking of devices is a concern that the sports and fitness industry must also meet head on.
 
The event provided great insight into industry trends, but also the risks that accompany novel concepts and ideas. Overall, it is evident that the sports and fitness industry will continue to explore new ways to engage with consumers, and that technology will continue to change the way consumers partake in activity. From a business perspective, technology offers a vast canvass for new ideas, but those in the industry must have the foresight to avoid the accompanying legal pitfalls, and be prepared to address unforeseen risks that may arise.


 

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