PARIS — A Swiss court on Monday handed Swatch Group another victory in its bid to reduce its deliveries of mechanical movements and their components to rival watchmakers.
The Federal Administrative Court in Bern rejected an appeal by nine companies against a ruling by Switzerland’s competition regulator in June that authorizes Swatch Group, the world’s largest watchmaker, to trim its supply of parts in 2012. Officials at the court were not available to provide additional information about the ruling.
The plaintiffs, which included luxury watch brands Frédérique Constant and Raymond Weil, in addition to movement manufacturer Sellita, had contested the decision by the Swiss Federal Competition Commission, or Comco, on the grounds that the sudden reduction in supply could put smaller brands out of business.
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Peter Stas, co-founder and chief executive officer of Frédérique Constant, said the court’s decision left independent brands with no choice but to produce the parts themselves — a process which he deemed impossible to complete in the six months between the publication of Comco’s decision and its going into effect.
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“To give companies half a year to solve this, that’s impossible. This is going to take years, so before 2014, 2015, there is no solution, and it is for this period in between that normally companies like ourselves, the smaller ones, are protected,” he said.
“It clearly shows, both from the Comco and from the Administrative Court, that we cannot expect any safeguards from there,” Stas added.
The plaintiffs have the option of taking their appeal to the Federal Supreme Court of Switzerland, but Stas said he would not pursue the matter.
“I can’t speak for the other plaintiffs, but we’re not going to continue down that road,” he said. “We are not going to spend more money and more time on legal actions. I think [today’s ruling] clearly shows it is futile.”
Comco opened an inquiry on June 6 into whether shutting off supply to third parties would constitute an abuse of Swatch Group’s dominant position, in violation of competition law. It expects to complete its probe in the second half of 2012.
In the meantime, the Biel-based company, whose 19 brands run the gamut from luxury Breguet timepieces to affordable plastic Swatch watches, will be allowed to reduce its supply of assortments by 5 percent versus 2010 and mechanical movements by 15 percent.
The ruling also includes a clause allowing Swatch to slash its sales to other movement makers, like Sellita, by 30 percent.
Officials at Swatch Group were not available to comment on Monday’s court decision.
Supply shortages are one of the main challenges facing Swatch Group after sales hit a record 6.44 billion Swiss francs, or $6.19 billion, in 2010, up 18.8 percent in organic terms versus 2009 and up 8 percent compared with 2008, its previous record year.
Swatch Group chief executive officer Nick Hayek has stated repeatedly his intention to wean other brands from their dependence on ETA, the Swatch Group subsidiary that supplies watch movements to most of the industry, in the interests of promoting research and development.
Swatch Group accounts for 70 to 80 percent of total market share in the watch movement market in volume terms, according to a Bernstein Research study published in March. It identified Rolex, Bulgari, LVMH Moët Hennessy Louis Vuitton’s Tag Heuer brand and Franck Muller as major customers.
Major luxury players like LVMH, PPR and Hermès have responded by snapping up their suppliers. Stas said LVMH and Tag Heuer were initially part of the group of plaintiffs contesting Comco’s decision, but later withdrew from the proceedings. Both LVMH and Tag Heuer declined to comment on the court case.
Stas said Frédérique Constant was also working to become more self-reliant. It started developing its own calibers in 2001 and now produces 15 percent of its total needs in-house, with a further 45 percent coming from Sellita and some 40 percent from Ronda.
The real problem, he said, was the oscillating system, for which Swatch Group has the market monopoly through its Nivarox subsidiary. Frédérique Constant buys between 10,000 and 12,000 of them per year.
“If here in the industry in Switzerland we are not able in the future to produce a watch oscillating system — so that means the spiral, the balance wheel, the anchor and the escapement wheel — outside the Swatch Group, then three quarters of the watch industry will stop,” Stas warned.
“We, and I’m sure others, are working around the clock to find technical solutions and I’m confident that we will find those,” he said. “Over the summer, we even filed for two patents for those critical components, so there are certainly solutions. It’s only a matter of timing.”