Swatch threatens damages over Swiss Competition Commission ban
In a statement published on December 18, Swatch Group threatened to pursue damages after the Swiss Competition Commission (Weka, or Comco) earlier signaled that it will ban sales of Swatch Group subsidiary ETA’s movements to third parties in 2020 (as we reported on Sunday here). The statement begins:
The provisional measures adopted by the Competition Commission (COMCO) are incomprehensible and unacceptable. Above all, they are unnecessary because the situation in the market for Swiss Made mechanical movements has changed drastically since the settlement of 2013. Furthermore, they reinforce the positioning of a new dominant player.
Of course, the “new dominant player” to which Swatch Group is referring is Sellita. The company has quickly ramped up its movement production in the last few years to meet movement demand as Swatch Group has decreased the sales of its ETA movements to third parties. While Sellita began its business largely as an assembler of ETA components, it has transitioned into manufacturing its own movements, based on ETA technology and expired patents. According to Swatch Group’s statement, Sellita produced and supplied one million mechanical movements in 2019, roughly twice that of ETA, making it the market leader in the sector.
Next, Swatch Group makes its demands as clear as possible:
With its decision, COMCO is also interfering in economic policy and is restructuring the entire Swiss watchmaking industry. In doing so, it is exceeding and violating its authority. In view of the negative financial repercussions that these decisions will entail, Swatch Group reserves the right to claim damages. Swatch Group requests that the settlement reached in 2013 be terminated as planned on 31 December 2019.
In pointing out that Swatch Group reserves the right to claim damages in view of the “negative financial repercussions” of Comco’s decision, Swatch Group is likely hoping to point to its lost profits and revenues as a potential basis for any recovery against Comco and its decision.
As Swatch Group points out, the competitive landscape is drastically different than it was in 2013. Indeed, in 2013, Swatch was fighting for the right to not sell its ETA movements to third parties (it had been mandated to sell ETA movements in an earlier decision by Comco), believing this put it in the awkward and unfair position of supplying some of its competitors components that were critical to their products.
However, now Swatch Group is fighting this potential 2020 ban against the sale of ETA movements. Why? Well, it’s never a good sign if a government regulator is looking to ban your company from selling its products. While Swatch Group has spun the facts to point to Sellita’s rise as a mitigating factor making such a ban unnecessary, it seems likely that ETA still has significant market power. Per previous reporting, the Swiss Competition Commission commissioned a study of this sector back in September of 2018. Reports have suggested that the results of this study may have led to the ban. In other words, the 2013 accord reached between Swatch Group and the Competition Commission was intended to open up the market for mechanical movement suppliers. While it’s allowed some companies to thrive (Sellita, as Swatch Group is quick to point out), it may be that the market is still too concentrated to be considered sufficiently competitive.
Swatch Group’s statement continues:
With its decision prohibiting ETA completely from making deliveries to third parties in 2020, COMCO is effectively driving ETA out of the market (exceptions for SMEs are stipulated in theory, but de facto impossible). On the other hand, Sellita will become an even more dominant player due to its production volume. COMCO has thus reshuffled the cards for the industry and is, in effect, making economic policy by completely restructuring a strategic market area. However, this contradicts its mission and its authority. One of COMCO's mandates is precisely "the prevention of state restrictions on competition". In this case, however, it has created such a restriction itself and is giving even more clout to an already very dominant player.
And there’s Swatch Group’s key concern, stated explicitly: if it has to sit on the sidelines for a year, Sellita will grow into an even more formidable competitor. Here, it’s also important to point out that Sellita is still largely dependent on another Swatch Group manufacturer, Nivarox, for its hairsprings (i.e. escapement components), and Swatch Group is obliged to supply these until 2023.
Reuters has reported that Comco will issue a statement on December 19, and was quick to point out that the agency’s approach will allow Swatch to continue delivering its ETA movements to small- and medium-sized companies.
Because it’s a fascinating read in the continue saga, here’s the rest of Swatch Group’s statement:
It is also very surprising that the main arguments for these provisional measures are fully in line with the wishes expressed by Sellita in the course of the proceedings. The terms used by COMCO in its official communication correspond, practically word for word, to those used by Sellita. This raises the question of whether the COMCO Secretariat can be influenced – or is even already under outside influence – and whether it still takes its decisions completely independently.
The timing of the decision is also problematic. The COMCO Secretariat apparently took neither the urgency of the dossier nor the planning timeframe into account. However, the deadline set at the end of 2019 has been known to COMCO for six years within the framework of the settlement. Swatch Group has repeatedly tried unsuccessfully to draw COMCO’s attention to the urgency of the situation and has insisted on the absolute necessity for the Commission to take a definitive position on this matter. Swatch Group officially called COMCO’s attention to the matter no fewer than six times between September 25, 2018 and August 27, 2019. Other players in the watchmaking industry have also warned COMCO in view of the approaching deadline. In vain.
Not only for Swatch Group but also for all its customers – whether larger companies or small and medium enterprises (SMEs) – it was extremely important to know what would happen in this matter and whether and in what quantities they could purchase mechanical movements. For planning reasons alone. COMCO’s decision, and this is just a provisional measure, will officially be announced only tomorrow. This means only 12 days before the end of the year. From an industrial point of view, this is absurd.
How is it possible to plan and prepare seriously for the 2020 financial if COMCO suddenly decides at the end of 2019 to change the previous conditions fundamentally by prohibiting ETA from supplying its customers? Swatch Group and its customers generally plan their future production twelve months (or more) in advance. It is customary to place orders for movements no later than the 30th of June for the following year, which COMCO itself acknowledges. We would like to point out that Swatch Group has always stressed that it intends to continue its deliveries beyond the end of 2019, choosing its own customers. The other players in the watch industry who expect ETA products to equip their watches in 2020 are now in a very complicated position. Starting with SMEs, which ETA cannot supply due to COMCO’S dictates. But how can a watch be sold without a movement?
What will tomorrow bring? In addition to the many obstacles that COMCO has imposed on the industry for 2020 - with repercussions until 2021-22 due to delivery deadlines - uncertainty will prevail for many months and investments will be slowed down. The Commission is unlikely to take a final decision on this sensitive matter of mechanical movements until sometime in 2020. At this stage, COMCO has not yet announced any timetable.
We’ll have more on this story as it develops.