Swatch Is Secretly Stockpiling Patents

That’s one way to take advantage of the smartwatch boom.

A Swatch Group AG Watch Store As Swiss National Bank Abandons Franc Currency Cap

A pedestrian passes a Swatch store in London on Jan. 16.

Photographer: Chris Ratcliffe/Bloomberg

Ever since smartwatches started hitting the market, Swatch Group Chief Executive Officer Nick Hayek has downplayed their importance, dismissing even Apple’s offering as “not a milestone” and saying the devices pose no threat. But he’s not taking any chances.

Swatch has filed 173 U.S. and international patent applications related to smart- and connected watches in recent years, most of them since 2012, according to Envision IP, a patent law firm in Raleigh, N.C. While aggressive patent filing is an essential protective strategy in the hyperlitigious technology industry, Envision says Swatch is laying the foundation for a potential lineup of smartwatches. The Swiss company has “developed and patented watch circuitry and hardware that will allow them to introduce their own branded smartwatch without having to partner with telecoms and handset makers,” says Maulin Shah, Envision’s managing attorney.

The epicenter of Swatch’s patent efforts is a subsidiary called Ingénieurs Conseils en Brevets, or Patent Consulting Engineers. From offices along a stone-arched arcade in the medieval Swiss town of Neuchâtel, lawyers manage the intellectual property developed by Swatch’s legions of researchers for timepieces ranging from $50 Flik Flaks to $5,000 Omega Seamasters to the $50,000-plus Breguet Classique Hora Mundi. A patent published in March is for a smart battery that allows data transmission. One from May is for a radio-frequency signal receiver. And one from October, naming Hayek as the inventor, is described as a “portable object for detecting presence of apparatus by wireless communication circuit.”

The company declined to say what any of the patents are for or to make Hayek or other inventors available for this article. Swatch says its patent unit filed a record number of applications in 2014, with a goal of protecting its innovations, gathering market intelligence, and fighting counterfeiting. In the past, Hayek has had little positive to say about smartwatches, criticizing them for their short battery life—typically 24 hours or less—and features that are easier to use on smartphones. The Apple Watch, while “the nicest” on the market, breaks no new ground with its design, Hayek said in March. “People are trying to put too much in there that a phone can already do,” he said.

Swatch hasn’t entirely sat out the shift toward smartwatches, though it eschews that label. Since 1999 it’s offered touchscreen timepieces such as the $1,250 Tissot T-Touch Expert Solar watch, which has a compass, can track altitude, and runs on solar power. And Swatch is developing mobile payment capabilities for watches based on technology similar to that in touch-enabled bank cards. The company says early next year it will introduce a $90 watch called the Bellamy that can be used to make electronic payments at stores. Alessandro Migliorini, an analyst at Mirabaud Securities in Geneva, says the company is hedging its bets while waiting to see whether smartwatches take off. “Swatch will experiment with different functionalities, and if there is demand, they will then push more aggressively,” Migliorini says.

Swatch has been burned by earlier forays into new technologies. Hayek has said the company still has unsold models of a 1991 pager that flopped and of the Paparazzi, a watch it made with Microsoft about a decade ago that could receive messages and stock quotes. But he also knows the risks of falling behind trends and the importance of protecting intellectual property. Hayek’s father, Nicolas, formed Swatch in 1983 by merging two struggling Swiss watchmakers. Although the technology for quartz timepieces was developed in Switzerland, Japanese companies had been more successful in commercializing the new watches. The senior Hayek countered with funky, multicolored designs that captured the public’s imagination and secured Swatch’s fortunes. The company is now valued at about $19 billion. “The quartz crisis is in the background of everything they do,” says Jon Cox, an analyst at brokerage Kepler Cheuvreux in Zurich. “It probably leaves a bit of a scar on them, and that’s something in the back of their minds when they have technology: Patent first, ask questions later.”

—With Corinne Gretler and Susan Decker

The bottom line: Swatch has filed smartwatch-related patents in recent years, even though CEO Hayek has been dismissive of the devices.

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