Swatch court case kicks off

2.0 k views | Posted July 20, 2010 |

The long-awaited legal dispute between Swatch Group Australia and its former general manager Mark Watson began yesterday.

Watson, who was forced to leave Swatch’s head office in Glen Iris last November, has accused the company of price fixing and is suing Swatch Group in the County Court for loss and damages.

The hearing began yesterday with Judge Kennedy making an early observation about the complexity of the matter. “I am presented with challenges to contain this case, but believe me I am going to contain it,” she said.

The case is slated to last 10 days but could go as long as 12 given that senior Swatch executives from its various international offices will fly to Australia to appear as witnesses. The case looks likely to be a costly and drawn-out legal dispute.

Watson claims he was dismissed because he refused to enforce Swatch’s preferred retail price on stockists, preventing them from offering discounts on Swatch products to consumers. In doing so, he would have been breaking the law.

Judge Kennedy noted, “I haven’t seen anything quite like it where someone is readily prepared to acknowledge unlawful conduct.”

Watson has claimed in court documents that Swatch Australia was in breach of the Trade Practices Act in relation to resale price maintenance.

Specifically, the claim states that these same executives directed and/or required Watson to make it known to all Swatch retailers at various times between 2005 and June 2008 that Swatch would not supply retailers unless they agreed not to sell watches below their recommended retail prices and/or the Swatch store prices.

In doing so, Watson will have been involved in unlawful conduct. Judge Kennedy told the court that Watson’s self-incriminating evidence “troubles me”, adding later, addressing the defendant’s counsel, “if he gives [self-incriminating] evidence it will be on his head”.

Senior counsel for the defence Michael Mc Donald noted that Watson’s claims were a contradiction given that he has made certain admissions. “There’s a disconnect by Watson to engage in unlawful conduct but then claim he was dismissed because of his refusal to do it.”

Stuart Wood, the barrister acting for Watson, said in his opening remarks to the court that Watson was made aware of a four-step plan to maintain retail prices of Swatch product.

The Melbourne court heard how, during January 2004 at a Swatch international brand manager’s meeting, Kevin Rollenhagen – now a member of Swatch’s Extended Management Board – told those present to “starve retailer margins to prevent retailers from discounting”.

Wood then outlined Swatch’s strategy for the court; when a retailer was caught discounting, the first step was to offer the retailer a warning. If the retailer continued to discount Swatch product, the retailer’s margin would be cut.

If the retailer continued to discount, the margin would be reduced further or the account would be closed. After the third warning, the final step would always be account closure.

Rollenhagen, along with other senior executives, including Yann Garmard – another member Swatch’s Extended Management Board – are expected to be appear later in the week.

Rollenhagen has previously denied Watson’s claims, telling Jeweller last December, “Swatch Group did not involve itself in any violations of the Trade Practices Act. I wouldn’t say I’m worried [about the trial] because the reason Mark was terminated was clearly spelt out in the termination letter to him. He was terminated for reasons to do with his performance of the management of the company. There were no other reasons.”

Rollenhagen said this would become evident during the hearing: “Mark has made [Swatch Group’s alleged price-fixing policy] an issue in the court case but, as this was not the reason he was terminated, I think this will become apparent when we’re on trial before the judge.”

The Trade Practices Act does not allow resale price maintenance unless there is a benefit to the public. “A supplier must not directly or indirectly fix a price below which resellers may not sell or advertise their products or services, for example, by threatening to cut off supplies or actually cutting them off,” an ACCC document states.?

Such activity would be in breach of the Act, which aims to prevent businesses “fixing, controlling or maintaining” prices, because it constitutes a “substantial lessening of competition”.

The complexity of the matter was demonstrated when the judge made reference to 200 paragraphs in Watson’s affidavit. In fact, the case was stood down 15 minutes after it began so that the parties could confer after Judge Kennedy announced she was concerned it would take days just to get through the defendants’ objections.

After more debate on legal proceedings, Watson unexpectedly took the stand to begin giving evidence, most of which centred on his employment prior to taking the position of general manager at Swatch Australia.

More reading:
ACCC interviews Swatch retailers
Swatch in trouble
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