The United States vs. Watchmakers of Switzerland

As I continue to fall down the rabbit hole of the post-WWII decline of America’s watchmaking industry, I have found legal documents that flesh out the Swiss-American tensions observed in two Senate Subcommittee hearings of 1954 and 1964. It was clear from the testimonies that there was a lot going on beneath the surface. Notably, we see the tone change dramatically from 1954 to 1964 – the relationship shifts from partners, or at most rivals, to outright conspirators and adversaries. So what aggravated the relationship between the US and Swiss watchmaking industries in the 1950’s and early 60’s? Part of the answer lies in a lawsuit: The United States vs. The Watchmakers of Switzerland Information Center, Inc., et al. (referred to as US vs. Watchmakers).

Before we dig into the details of the case, let’s note two remarkable things. First is the timing of this lawsuit. Filed by the Department of Justice five months after the first Subcommittee hearing, the lawsuit’s proceedings filled almost the entire decade between the first and second Senate hearings. Second is the defendants – it’s the who’s who of major Swiss horological enterprise. Though “The Watchmakers of Switzerland Information Center” (referred to as Watchmakers) might not be a recognizable name today, the company’s 50-50 owners are Ebauches SA (now ETA) and Federation Suisse Des Associations de Fabricants D’Horlogerie (FH).

The Lawsuit

The lawsuit claimed that a cartel of Swiss entities conspired to unreasonably restrain American foreign and domestic business efforts.

“This complaint attacks restrictive controls upon the American jeweled watch industry which have retarded the growth of the industry and weakened its competitive position. It is imperative that our domestic watch industry be free from practices which curtail domestic production and restrict the importation and exportation of watches.”

— Attributed to the US Attorney General per Arthur Sinkler’s Senate Subcommittee testimony in 1964, President of Hamilton Watch Company

The prosecutors went on to accuse the Swiss Watchmakers of the following:

  1. The prevention of the manufacture of watches and component parts within the US;
  2. The elimination of the importation of component parts from Switzerland into the US;
  3. The establishment of minimum prices for watches and maximum prices for repair parts to be enforced for products imported into and sold within the US.

The backbone of this lawsuit has to do with the FH and Ebauches’ agreements with German, English, and French watch manufacturers to restrict the sale of parts to the American market. The USA argued that the Swiss were signing exclusive supply and purchasing agreements with these other European manufacturers, effectively increasing US dependency on the Swiss supply chain.

The Final Judgment

Unfortunately, I don’t have more granular information on how the arguments made by the DOJ and the defendants played out. I’m still in the process of acquiring and reviewing more case material. What we do know is the court’s judgments, as they exists in two parts.

The first part is a consent decree that was signed by about half of the defendants in 1960. In this group of defendants, we have some names worthy of mentioning, including American Rolex Watch Corporation and Henri Stern Watch Agency (Patek Philippe in the US).* These parties yielded to the DOJ’s demands to halt the manipulation of the supply chain and limit access to parts. Without entering a consent decree, Ebauches and FH and the other defendant’s trial continued for another four years.

The New York District Court entered its final judgment in the USA vs Watchmakers case in January 1964, and found the Swiss defendants guilty on the first two charges – conspiracy to prevent the manufacture of watches and parts in the US and the practice of anticompetitive import/export tactics.

The conspiracy was bound by the charter and express purpose of FH at the time, which the court determined to be an organization designed to thwart the development of competitive watch industries in countries other than Switzerland, and especially in the US. In doing so, FH enabled domestic manufacturers to regulate the manner and conditions under which Swiss watches were to be sold throughout the world.

On import/export, the court concluded that the Swiss’ exclusive buy-sell contracts with German, English, and French watch manufacturers were anti-competitive, and done at the expense of the American watchmaking industry. They also found that FH actively boycotted and blacklisted American companies that would not comply with the organization’s regulations, i.e. attempting to buy from non-FH affiliated manufacturers.

However, the court concluded that the defendants did not practice price fixing on watches or repair parts.

In the final judgement, the court ordered the defendants to withdraw or terminate contracts containing unlawful provisions, as well as to amend anti-competitive policies and contracts. Ebauches and FH were also prohibited from discriminating or retaliating (i.e. blacklisting) anyone in the fallout of the judgement.

The Fallout

Despite the court siding with the USA, the final judgement feels anti-climatic and can be summarized as a slap on the wrist. After 10 years of arguing in the courts, all the Swiss were ordered to do was to “stop what you’re doing”.

One can sense the dismal outcome of the case in its notable absence from the 1964 Senate Subcommittee hearing – it only plays a significant role in the testimony of one person. That’s one out of roughly 50 testimonies heard in the hearing.

It’s tempting to speculate whether ruling in favor of US on price fixing would have changed the outcome of the Senate hearings, and thereby the American watchmaking industry’s fate. At the very least, it would have helped quantify the financial impact of the Swiss cartel’s conspiracy.

Nevertheless, this lawsuit was clearly a factor that shaped the tension between the US and Swiss watchmaking industries. The disappointing final judgment might have irritated the American watchmaking industry more. Is the frustration we hear in the 1964 testimonies caused, in part, by this final judgment? I would speculate so.

The Rabbit Hole Continues…

This set of articles on the decline of the American watchmaking industry are essentially my research notes. I’m still in the early days of putting the puzzle pieces together. But it’s clear that the deteriorating relationship between the Swiss and American watchmaking industries was an integral part.

Another day with the beast,

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