By BOB PARKS  l  Businessweek Jan.12, 2012

Late one night in August 1997, 54-year-old inventor Lenn Rockford Hann placed two bottles of Gatorade near Concourse F of Chicago O’Hare International Airport, unlaced his sneakers, removed his socks, then dodged curious maintenance workers for two hours while running 13.1 miles on the walkways. His pace surprised him. He was convinced the springy, resilient surface was almost perfect. “My legs felt amazing,” says Hann, a marathoner. “I’ve been chasing a shoe that feels that good ever since.”

For years, Hann had been designing a running shoe that he hoped would give him an edge. After his airport run (in the days of lighter security, naturally), he knew he was on to something, and he became obsessed with O’Hare’s movable sidewalks. Finding a walkway in the midst of repair on a subsequent jog, he jumped into the pit to look at its clockworks. There he found rollers on each side, with nothing holding people up in the middle but the belt’s tension. The next day, Hann called the belt company, Dunlop Conveyor Belting, and learned they were adjusted to 2,500 foot-pounds of force to create the right balance.

Athletic brands spend millions every year trying to build a better sneaker that will propel them to the front of the $6.3 billion running shoe business, one of the biggest and most visible areas of sporting goods, with 11 percent growth in 2011, according to industry analyst SportsOneSource. Nearly all sneakers have a sole that looks like lasagna, composed of layers of rubber, foam, and plastic. The fluffy foam is made from ethylene-vinyl acetate, or EVA, which has its critics: EVA adds weight to shoes, and lab tests show it requires more energy per stride. Running shoe companies have long sought an EVA substitute that absorbs shock but also returns more energy. “Consumers like the cushioned feeling associated with a conventional running shoe,” says Darren Stefanyshyn, a University of Calgary researcher and former chairperson of the Footwear Biomechanics Group. “If you could provide that without using foam, you’d have a winner.”

It took him eleven years, but Hann finally converted his airport research into a breakthrough sneaker patented in 2008, a shoe with an entirely different system to cushion and propel the foot. It quickly attracted the attention of fast-growing athletic brand Under Armour, which spent two years and hundreds of thousands of dollars to develop it as the prospective centerpiece of the company’s first line of footwear. Hann’s shoe was scheduled to launch early this year and was poised to rock the footwear industry, but it never quite made it to market.

Hann is a former software engineer with glasses, short brown hair, a high domed forehead, and ears that stick out like antennae. He is talkative, relentlessly upbeat, and consistently attired in marathon T-shirts. His Volkswagen bears the license plate TNASHS, for “tenacious.”

In the years following his midnight airport jog, Hann licensed several inventions—an electronic cat toy among them—that brought him modest income, but the shoe was always his favorite project. He tried many materials before landing on carbon fiber, an ultra-strong substance that holds its shape after years of pounding. He engineered carbon fiber shock absorbers into his shoe to give it cushioning and stability in one mechanism. A hinge in the forefoot provided flexibility.

Three days before the 2002 Chicago Marathon, Hann bought industrial carbon fiber fabric and baked it in his kitchen. Once the fumes dissipated, he cannibalized the uppers of a pair of New Balance 763 running shoes for his prototypes. As he hacked off layers of EVA foam from the sneakers with a table saw, his hand slipped and the blade cut deeply into his thumb, embedding bits of blue foam into the wound. Hann rushed to the emergency room, then assembled the shoes the next day.

Hann believes his prototype was responsible for shaving 17 minutes off his record in the marathon. He immediately made more. A member of his pace group wore them, reporting her legs felt “full of energy.” Kris Hartner, owner of Naperville Running in Naperville, Ill., delivered a tougher critique: “pretty good,” he said, but “a bit slappy.” The transitions between midstance and toe-off were “rough.” A shard of carbon fiber came loose, slicing Hartner’s calf.

All the same, Hartner, who has a master’s in biomechanics, took Hann’s concept seriously. When New Balance owner Jim Davis visited the shop, Hartner said he should check out Hann’s shoes. Hann met with New Balance and secured an investor, who contributed $300,000. Hann and the investor made prototypes in Korea, paid an attorney to patent the shoe, and hired an exercise laboratory to test it. The facility found that runners in Hann’s prototypes consumed an average of 2.2 percent less oxygen. That may not sound like a lot, but it pointed to a significant reduction in energy when running long distances.

When it came time to talk price with New Balance, Hann set his offer sky-high. He says he meant it as a starting point, but company executives closed discussions. Hartner remains a supporter of the shoe, but says Hann blew the negotiation. “He would be way better off with an agent to represent him,” says Hartner. “He’s the inventor-scientist guy, you know it from movies. But in real life they sometimes end up shooting themselves in the foot, and it’s hard to watch. They’re not as good at the people thing.”

Six years later, it appeared Hann might be back in business. Kip Fulks, chief operating officer of Under Armour, learned about Hann’s shoe after the inventor completed a small, exploratory project with the company. Fulks wanted to launch a major sneaker development, and in 2009 he invited Hann to the company’s Baltimore headquarters to negotiate. Since its inception in 1996, Under Armour has come out of nowhere with innovative products like its HeatGear compression shirt to stalk Nike and Adidas. The shirt is a nylon garment that hugs the body, and it has largely replaced heavy cotton tees for athletes. But Nike’s annual revenue is around $20 billion vs. Under Armour’s $1 billion, and to truly challenge its competitors, Under Armour needs footwear. (The company hastily designed trainers in 2009, but the attempt impressed neither consumers nor investors.)

The negotiations between Hann and Under Armour were never smooth, but they seemed headed in the right direction. On one side of the table sat Fulks and his designers. On the other was Hann, his investor, and his attorney. First they hammered out an option agreement, a sort of preamble to a longer-term licensing deal. Hann asked for a monthly option fee, basically an advance on future royalties. After some haggling, Fulks agreed to $8,000 per month, to be shared with Hann’s investor and attorney.

Next, Fulks and Hann locked horns over the range for future royalties. Hann asked for 3 percent to 6 percent, a rate more akin to a tech product than footwear. Fulks pulled the pair back to 1 percent to 4 percent. (Aerospace engineer M. Frank Rudy, who sold “Air” to Nike, was awarded a royalty of around a single percentage point when he originally made the deal, according to a source familiar with the contract. Nike would not comment on how much Rudy earned.)

Finally, on Mar. 24, the two signed the option, agreeing to the 1 percent to 4 percent range, with an exact percentage to be determined later. It was a huge step. To celebrate, an Under Armour design manager invited Hann to a nearby bar; they drank beers into the night while talking footwear tech. Hann proudly showed off the blue foam embedded in his thumb. They toasted the new shoe. “At that point, I suddenly realized that more people had gone to the moon than had ever licensed running footwear,” he recalls. “We were almost there. I was in heaven.”

That year, Hann was an electrical storm of activity, calling the company almost daily with ideas. Under Armour made six rounds of “prototype tooling,” the aluminum molds for model shoes, and performed extensive testing with favorable results. The project was getting close to “final tooling”—when expensive steel molds are struck in all sizes, men’s and women’s. Then, in summer 2010, Fulks announced that it was time to settle on a licensing agreement. To Hann, this seemed like a formality. He suggested leaving it to the attorneys. Then he waited.

After a four-week silence, Hann couldn’t take it and called a former Under Armour employee for insight. “It’s a delaying tactic,” guessed the acquaintance. “This is their way of introducing sharp elbows.”

Three weeks later, Hann traveled to Portland, Ore., for a hastily scheduled meeting with Adidas. Executives there were encouraging, but they didn’t want a bidding war with Under Armour. That very afternoon, Under Armour sent an apologetic e-mail with the much-anticipated licensing agreement. (Hann doesn’t know whether this was somehow triggered by the Adidas trip.) It included a royalty rate of 1.5 percent for the first stage of sales, and 1 percent thereafter. Through his attorney, Hann countered with 5.75 percent and 4.25 percent. Hann’s lawyer says Under Armour took the soaring rates like a jab in the eye; Under Armour would not comment on the specifics of the negotiations.

For the next three months, Under Armour refused a face-to-face meeting but did make concessions, raising its percentage and throwing in a monthly advance. Hann held out for higher numbers. He fielded interest from a new set of investors and became more wary of Under Armour. “I feel like the mouse dancing with the bear,” he said. “No matter how careful the bear is, the mouse better watch out.” In late October 2010, Kevin Haley, senior vice-president of innovation, took over the project from Fulks. Haley offered to put the licensing negotiation on hold and renew the option agreement at $15,000 per month. The implication was that this would allow them to work together like old times.

Hann rebuffed the offer, believing Under Armour was bluffing and it was a way of avoiding a licensing agreement. In early December 2010, Under Armour’s attorney delivered the news: The company decided to move in a different direction. Hann’s work with the company was over.

Last month, Under Armour introduced its Charge RC running shoe. It features a strip of carbon fiber along the bottom, not for cushioning but to enhance the ride and response. “It’s a different use of carbon fiber than what we were exploring,” says Haley. “But I think it shows that Under Armour takes an open approach to innovation—we test a lot of technologies and make a lot of different prototypes before arriving at what comes to market.”

Unlike Hann’s prototype, the Charge RC fits the current trend of minimal running shoes; it weighs under 10 ounces and has a sole close to the ground. Hann’s shoe weighs more and sits higher. Asked why Under Armour didn’t go with Hann’s shoe, Haley says: “We go down the path of evaluating new technologies with more people than other companies, so we’re going to encounter more situations where it doesn’t work out for us as a commercial product.”

For Under Armour, making a shoe with such an unprecedented technology would have been a challenge to source, manufacture, test, and market. Could Under Armour have managed those logistics given another few months of exploratory development? We’ll never know; Hann’s over-the-top royalty demands denied it that opportunity.

Hann accepts that he had a role in the falling-out. “I know I screwed up,” he says. “But despite my bumbling efforts, the technology deserves to be out there.” In the last few months, he has continued pitching his sneaker. He says he now has a promising new partner, and is also in talks with a medical device company about an electronic invention for hospitals. He has not hired an agent.

Curious about Hann’s supershoe, I took a few turns around his cul-de-sac in the upscale suburb of Wheaton, Ill., with a test pair. I was surprised to see lots of EVA. Hann argues that some foam is needed to hold the carbon fiber in place, but that it doesn’t cushion the shoe. The sneakers didn’t exactly feel like they were injected with gravity-defying Flubber, but there was something different about them. Even though they weren’t especially light, they felt light—like floating on little trampolines.