Among the greatest innovations in the laminate flooring sector was, without a doubt, the??glue-less click system, which improved the ease of installation, increasing the product appeal to the end-user. The pioneers of the new technology were Unilin and Valinge. For the past twenty years, their competition has been the major topic in the industry as the patent-related war span over a decade before settling in 2007. The world market is still split between the two companies and a much needed change is not likely to appear on the horizon. Both boast huge R&D budgets, countless patents and top law firms on their side, hence their estimated annual 1bn USD of loyalty fees is not a big surprise
The current status quo works to disadvantage of manufacturers and customers. Moreover, it leaves plenty of unanswered questions about the way click systems are, and ought to be, manufactured. That is precisely the aim of this small-scale investigation, and exploring answer to the questions that follow should satisfy curiosity of those present in the flooring business. In reality and on paper, what is the factories??? compliance rate with patents? What are the most commonly used tricks to escape or avoid the law? What are the viable alternatives to the persistent duopoly? How can one determine whether or not a particular product is patented? And most importantly, what is the future going to look like?
The Chinese mindset
Any laminate flooring factory can manufacture goods with the Uniclic (Unilin???s trademark), Valinge, or unlicensed click system, the last possibly leading to facing a fine. It is relatively astonishing that for so many years there has not been anybody to propose a new choice. This is directly linked to the above mentioned global giants, each with a portfolio of hundreds of patents in all key regions around the world. Furthermore, locking system innovation is fairly limited simply due to the lack of technical sophistication. A more pragmatic view of the problem would dictate that it is relatively hard to convince retailers, distributors and end-customers to any new system. The complicated, and long patent application process and its later protection is expensive and demands expertise. Fortunately, there are promising exceptions to the rule, and among the recent innovators is Yekalon, a producer that previously fought a legal dispute with Unilin and has since developed its own Tap&Go system that is not licensed to third parties.
A vast majority of manufacturers are left with Uniclic/Valinge click systems, which translates into applying for a license, going through a brief inspection and then paying royalties per sqm of their output. There is an estimated 250-300 official licensees of the two systems around the world, yet there are thousands of producers in the industry, thus ??it does not take much effort to doubt the legality of their operations.
Our recent trip to the Chinese hub of laminate flooring, Changzhou, in Jiangsu Province, resolved those doubts, as the common practice is to collectively use patent licenses. In practice it means that
- an unlicensed company collaborates with licensed manufacturers, or
- an unlicensed manufacturer sets up a separate entity for the sole reason of obtaining a license.
In the latter case, both enterprises are effectively owned by the same investor, but registered under different ???shareholders???. This way, the manufacturer can still continue their exports to countries with poor patent protection without paying their patent fees, while exports to more developed countries can be engaged through the company with the license, whose goods will be closely scrutinised.
In order to make it more clear, let us consider an example. An unlicensed company A might start company B, which would then get a Uniclic license. B then shares A???s production line. The difference between the two is that A can produce and sell both licensed and unlicensed click systems, whereas B can only the former one.
This approach is on the verge of law, yet Unilin, which has been shutting down booths of unlicensed brands at trade shows and frequently fined producers, cannot alter the situation in Changzhou. That is mainly because the enforcement of patent rights is much more strict in developed markets than in the developing ones, and thus the main aim of licensors is to convince as many companies to become licensees. Those who are purchasers can rest assured that their getting licensed products, as not complying poses a risk facing a fine of about 100k US dollars for infringing a patent.
Laminate flooring manufacturers in Changzhou are looking forward to the next year as they await Uniclic???s patent to expire in 2014. Let us see how will that impact production volumes, amounts of orders, and the level of prices by the end of 2013 and in the beginning of 2014. Most importantly, however, everybody should be hoping for increased innovation through greater competition in the flooring industry, most probably leading to better and more efficient products as well as lower prices in the long-term.