Tiffany Must Pay Swatch $450 Million After Losing Arbitration

It looks like Swatch has eaten Tiffany’s breakfast. 

On Dec. 21, a Dutch arbitration panel delivered a big victory for Swatch, with Tiffany now forced to pay the timepiece giant $449.5 million (CHF 402.7 million) plus interest, in a case stemming from the two companies failed joint watch venture.

The panel also dismissed a Tiffany counterclaim. However, Tiffany prevailed on the method of calculating damages, with the total resulting in only 8.8 percent of what Swatch requested.

Tiffany is also required to pay two-thirds of the cost of the arbitration, which comes to approximately $800,000, as well as two-thirds of legal fees, which comes out to $8.8 million.

Michael J. Kowalski, chairman and chief executive officer, said in a statement that he was “shocked and extremely disappointed” by the judgment. The company has previously called a Swatch victory “not probable” in SEC filings. 

“We firmly believe the panel’s ruling is not supported by the facts of this case or the various agreements between the Swatch parties and the Tiffany parties,” Kowalski said, adding the company was “reviewing our options with our legal counsel.”

Tiffany spokesman Mark Aaron told JCK he “could not expand” on what those options might be.

Kowalski stressed the company has “sufficient financial resources to pay the full amount” and that it won’t impact its “ability to realize our existing business plans in the short or long term.” 

Still, the loss caused Tiffany to reduce its fiscal-year guidance, to $2.30 to $2.35 a share, from the previously announced $3.65 to $3.75.

The arbitration also formally canceled the Swatch-Tiffany agreement, but Tiffany says it still plans to manufacture Tiffany & Co. watches.

Swatch and Tiffany first struck their deal in 2007, which was supposed to be a 20-year agreement for Swatch to manufacture Tiffany watches. 

The Tiffany brand will become “one of the most important watchmakers in the world in the next five to ten years,” declared Nicolas G. Hayek, Sr., Swatch Group chairman and co-founder, at the time. 

But four years later, the venture came to a bitter end. Swatch complained of Tiffany’s “systematic efforts to block and delay development of the business,” while Tiffany retorted that “Swatch has failed to provide appropriate distribution for Tiffany & Co. brand watches, with the result that our current business forecasts do not include any meaningful increase in watch sales or royalty income.” 

Later that year, Swatch took Tiffany to the arbitration court, and Tiffany launched a counterclaim.

The arbitration panel is confidential and ruled 2 to 1 in Swatch’s favor.

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JCK News Director