UPDATE:Court Rules Swatch Can Reduce Component Supply To Rivals

Swiss watchmaker Swatch Group AG (UHR.VX) has won the latest round in its fight to reduce the amount of components it has to supply to rival watchmakers.

A Swiss court Thursday rejected an appeal by 11 watchmakers, who wanted Swatch to be forced to continue the full supply of parts and movements next year while a full investigation into the matter takes place.

Swatch, which makes watches under brands such as Omega, Breguet and the eponymous plastic Swatch watches, is currently taking part in an investigation which could allow it to reduce the parts it supplies to third parties.

The world's largest watchmaker supplies movements and other parts to rivals in Switzerland through its manufacturing operations.

In terms of volume, Swatch controls 70% to 80% of the sector's watch-movement production, according to a research study by the investment firm Sanford C. Bernstein & Co.

This dominant position means it cannot unilaterally halt its supply to other companies, which include Compagnie Financiere Richemont (CFR.VX) and LVMH Moet Hennessey Louis Vuitton (MC.FR), without infringing the Swiss Cartel Act.

In June Swatch asked the Swiss Competition Commission to investigate its position.

The regulator is now speaking to watchmakers to determine the likely impact of Swatch's intentions to cut back its supply to rivals, and is likely to report back in the second half of 2012, commission spokesman Patrik Ducrey said.

Until then interim measures have been brought in, which mean Swatch must maintain supplies at 2010 levels this year, but in 2012 can reduce the supply of movements to 85% of 2010 levels and reduce other components to 95% of 2010 levels.

"The interim measures of the Competition Commission are still valid," said a spokesman for the Federal Administrative Court on Thursday.

The 11 companies who appealed against the interim measures, can appeal to a higher Swiss court or wait for the final decision of the Federal Administration Tribunal, which is expected at the end of the year.

Swatch Group said it welcomed the court decision.

"Everything is going as planned," said spokeswoman Beatrice Howald.

Johann Rupert, executive chairman and CEO of rival Richemont gave his support to Swatch earlier this week.

"I have great empathy with Swatch. None of these people want to invest in their own plants. We invest, Swatch invests, Rolex invests, but there are others who don't but expect to be bottle fed by Swatch," Rupert told Dow Jones Newswires on the sidelines of Richemont's AGM on Wednesday.

Rupert said if Swatch reduced supplies, it will increase costs for watchmakers. "We can live with that, but not all our competitors can," he said.

-By John Revill, Dow Jones Newswires; [phone] ; [e-mail]