When Technogym, Gambettola, Italy, introduced its Vario cross trainer last fall, some people thought it resembled Precor’s AMT. And that is because the product uses technology sublicensed from Woodinville, WA-based Precor. Sublicensing technology from one equipment manufacturer to another is nothing new in the fitness industry. However, it is not something that many manufacturers want to admit they do—at least when they are the ones sublicensing the technology from a competitor.
Cybex International, Medway, MA, does not sublicense its technology to outside companies because it values its intellectual property and wants to maintain quality control over the consistency and preciseness of its products, even if that means foregoing possible revenue, the company said in a statement released to Club Industry. The technology behind the equipment is so “uniquely defining” that Cybex does not want to risk putting it into someone else’s hands where the quality assurance of the final product is beyond the company’s control, according to the statement.
Similarly, Octane Fitness, Brooklyn Park, MN, has not sublicensed its technology to outside companies. From 2005 to 2007, a handful of companies approached Octane about purchasing a license as a way to break into the commercial sector, according to Tim Porth, executive vice president of product development and marketing and one of the company founders. Octane declined because it was beginning its expansion into the commercial market from the consumer market.
“They were direct competitors in our market,” Porth says. “If it wasn’t a direct conflict, then we would have considered it, but up to this point, we have stayed away from licensing our patents.”
Competitors also have approached Johnson Health Tech, which owns Matrix Fitness, about sublicensing, but other than sublicensing one of its eight brands to a major retailer in Canada, the Cottage Grove, WI-based company has avoided it.
When deciding whether or not to sublicense its technology, Johnson Health Tech considers the nature of the competitor and the space and channel in which the competitor specializes, says Mark Zabel, vice president of global marketing. It also tries to determine whether it would make good business sense from a strategic and financial perspective.
The terms of a sublicense agreement are handled on an individual basis.
Companies that sublicense their technology can protect their profitability by writing into the agreement that the sublicensee can’t make changes to a particular technology. Otherwise, a competitor can beat a company at its own game if it can find a better or cheaper way to make a piece of equipment, Porth says.
Sublicenses often last for the term of a patent, which generally lasts between 17 to 20 years. After that, patents are in the public domain. However, technology may be sublicensed at any time during the patent term.
“You never know where it will go,” Porth says. “If you write the right deal up, you can make a ton of money off of it, but it could also hurt your business. You have no control over the end result.”
When a company decides to sublicense its technology, it is introducing a competitor in the space, which carries a risk, says Doug Johns, global marketing director for Precor. The company that is granting the sublicense needs to be confident that the value it offers goes well beyond the specific patent on a product and that its level of service is appealing so it can continue to compete.
“If there is a company that just has one technology, and that’s the whole core of their business, and they give it to other people, they might find themselves out of a job,” Johns says. “You can’t take it lightly.”
Sublicensing technology to other companies has its drawbacks, but at the same time, multiple competitors in a particular category can bring more attention to the overall category, which can be good for business, Johns says. For example, in 1995, the elliptical category did not even exist, and now it is the second-largest equipment category behind treadmills.
“We have a very large market share of [ellipticals] in the club space,” Johns says, noting that Precor introduced the first elliptical and sublicensed some of that technology. “I’m certain we wouldn’t have sold as many ellipticals as we did if it weren’t for other companies eventually getting into that space and advertising ellipticals.”
Manufacturers also might sublicense their technology to prevent other companies from trying to design around their patent. It takes time to obtain a patent, and in those years, companies may start a competing product in the same category.
In most cases, manufacturers will only sublicense their technology to companies that specialize in another category or a different price point. Vendors often license out their technology if they are not able to service all of the various markets from low-end retail to high-end commercial, says Jim Birrell, chief innovation officer at Precor.
Whether a manufacturer opts to sublicense its own technology or sign a sublicense agreement with another vendor, sublicensing ultimately has a significant impact on the health club industry. By selling innovative equipment, manufacturers can help health clubs attract and retain members.
“All of us manufacturers want health clubs to be successful,” Porth says. “New ideas are the life of a club, and they keep people interested. Innovation is a huge deal in the fitness industry.”