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Swatch awaits decision on limiting component supply

Group hopes to stop the clock on huge distribution of movements and mechanisms to watch industry

The Swiss watch industry is on tenterhooks as it awaits the decision of Switzerland’s Federal Administrative Court on whether Swatch Group will be allowed to limit the number of movements and regulating mechanisms it supplies to third parties.

In 2002, the then chairman of the Swatch Group Nicolas Hayek announced his decision to reduce and eventually discontinue the supply of kits and ébauches from its movement manufacturers ETA, Nouvelle Lemania and Frédéric Piguet to non-Swatch clients from 2006. This also included regulating mechanisms such as balance springs from Swatch-owned manufacturer Nivarox.

The proposal was that Swatch would reduce its supply of movements by 15% and regulating mechanisms by 5%.

Because ETA supplies two-thirds of the Swiss output of mechanical movements, including to non-Swatch brands such as Rolex and Breitling, the Swiss Commission for Competition (ComCo) forced Swatch to amend its deadline to January 2012.

However, Sellita, Switzerland’s second biggest watch movement manufacturer, which buys and customises ETA movements, and eight other plaintiffs have appealed to the Federal Administrative Court to have the ComCo ruling overturned.

Sellita is contesting the decision because it will be affected by a clause in ComCo’s ruling that allows Swatch to cut its sales to other movement makers by 30%. Other plaintiffs are arguing this ruling will kill off brands that are unable to manufacturer their own movements.

On September 6, the Federal Administrative Court upheld ComCo’s interim measure and allowed Swatch to reduce supplies in 2012, but the case is still under consideration.
Swiss Competition Authority deputy director Patrik Ducrey said: “Swatch Group contacted the Swiss Competition Authority in order to find a way compatible with competition laws to stop supplies to third parties. We opened an investigation and obliged Swatch with interim measures to continue the supplies, but allowed it to slightly reduce the quantities in order to maintain an effective competition at retail level.”

The plaintiffs are arguing that Swatch’s near monopoly of the movement and regulating mechanism market means it should be obliged to sell to third parties. However, a report in the Financial Times in November found that, according to Swiss customs data of the 900,000 units exported to China, ETA only sold 17,000 of those. The remaining 883,000 came from other Swiss sources.

According to Ducrey, the case is expected to be concluded in the second half of 2012.

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