September 8, 1996 in Nation/World

Expiring Patents Threaten Nike’s ‘Reign Of Air’ Sneaker Maker’s Rivals Will Be Free To Imitate Its High-Tech Soles

Mark Hyman The Baltimore Sun
 

“We don’t sell dreams, we sell shoes,” goes the latest marketing slogan from Nike Inc.

How many? Thirty-six percent of the fragmented athletic shoe market in 1995. More shoes than any of its competitors since 1987.

At the core of Nike’s success is Air, a line of shoes worshiped as a fashion accessory and admired for its high-tech, gas-inflated soles.

But Nike’s “Reign of Air” is in doubt. And the threat comes from the unlikeliest of places: the U.S. Patent Office.

After 17 years, Nike will soon relinquish its rights to two “Air” patents. When the last of the non-renewable patents expires September 1997, Nike’s rivals are free to develop their own lines of atmospheric shoes.

Nobody can be sure which competitors, if any, will enter the Air Race. Some say brand-name, shoe manufacturers may rush out with air models.

Others predict a glut of Air imitators in the bargain stores. As the thinking goes, such outlets would be havens for consumers hungry for shoes that look like Nike, but cost a fraction of the price.

“You’ll see a lot of knock-offs,” predicts Robert Liewald, USA general manager at Fila, a competitor whose U.S. operations are based in Hunt Valley, Md. “But among (major) brands, nobody is trying to get where Nike is - they’ll be someplace else when you get there.”

Nike is reluctant to speculate. Company President Tom Clarke deflects such questions, saying he doesn’t know what other manufacturers are planning. But for the record, Clarke adds, “I think a smart competitor wouldn’t do it.”

What’s beyond dispute is Nike’s leading role in footwear history. In little more than 20 years, the Oregon-based behemoth has transformed simple sneakers into little technology machines, complete with waffle soles and air cushions.

The air sole is a unique system of gas-filled pockets and channels that minimizes jarring hits when shoe meets court or pavement.

Nike claims its cushioning system is the best, superior to alternatives, including Reebok’s Hexalite, Brooks’ Hydroflow, Etonic’s Stable Air and Fila’s 2-A.

Air may be unmatched in another critical respect. It can be explained.

“It’s such a simple engineering concept, it’s hard to beat,” says Clarke, the Nike president, who is a former track coach with a doctorate in sports related biomechanics. “Everybody understands an air mattress or air in tires.”

When Air had its first tryout in an athletic shoe 19 years ago, Nike had little idea what lay ahead.

Now, the Air shoe is the engine that drives a company with revenues in the billions and customers from Cleveland to Calcutta.

The company’s opulent headquarters near Portland is far removed from Nike’s beginnings.

Nike began in the early ‘60s, founded by Phil Knight and Bill Bowerman, Knight’s former track coach at the University of Oregon. They ran a small, profitable company for a decade, slowly gaining on industry leaders, Adidas and Puma.

A turning point came in 1977, when Frank Rudy, an unemployed aerospace engineer, pitched an invention to Knight: the air sole.

From a gimmick limited to a few models, Nike expanded Air to 50. From 1986 to 1993, Nike sold more than $2 billion in Air shoes. Now Nike remains No. 1 and continues to gobble market share. From 20 percent nine years ago, Nike’s market share in the United States topped 36 percent in 1995. Reebok was a distant runner-up, at 20 percent.

After nearly 17 years, Rudy’s air-sole ideas remain among the most valuable in the business.

“Our lawyers have told me the strength of the two (air) patents comes along every 50 to 100 years,” says Tom McGuirk, Nike director of Air Technologies. “If you’re talking about chairs, the patents we’ve had prevented people from making chairs.”

Not that some manufacturers haven’t tried. In an industry in which lawsuits are filed at the drop of a shoestring, Air has been at the center of much litigation. Over the years, Nike has sued rivals Etonic and L.A. Gear, alleging infringement of protected technology. The companies denied the allegations.

Rudy’s patent for the “basic air sole” expires on Jan. 15, 1997, and the patent for “foam encapsulation,” on Sept. 2, 1997.

With a number of moves, Nike officials say, they long ago insulated themselves from harm that could have occurred when the patents expired.

They include Nike’s purchase of Tetra Plastics, the world’s leading manufacturer of air bags suitable for air soles. Nike’s deal ensures that Tetra Plastics only would make air bags for its shoes.

Nike also has doubled its budget for research and design, says Clarke, the company president.

And Clarke points to numerous new patents obtained by Nike, which he says will give it the edge on air ideas into the next century.

“My No. 1 point is we have moved far beyond what the (original) patents cover,” he says. “To put out a shoe that looks 10 years old seems like a mistake. I wouldn’t imagine our serious competitors would put themselves in that position.”


Thoughts and opinions on this story? Click here to comment >>

Get stories like this in a free daily email