The partnership between Tiffany and Swatch to develop Tiffany-brand watches ended last week in a huge blow for Tiffany—a Dutch arbitration panel fined it $450 million for breach of contract; that’s more than the company’s profits for the year 2012. (All in a week where Tiffany had to deal with another headline from hell.)

Given the proceedings were confidential, it is hard to say what went wrong with the partnership, which was supposed to last for 20 years. When it first launched in 2007, Tiffany’s CEO called it the most important linkup in the company’s history. But judging from their press statements, it’s clear that by the end these two companies really didn’t like each other.

This thoughtful analysis from blogger Ariel Adams, which I recommend people read in full, posits it was a question of control. The original deal gave most of that to Swatch:

Tiffany will participate in the watch company’s before-tax profits and in its governance through one seat on its board of five directors, and seats on both the product design and marketing committees. The Watch Company will be wholly owned by Swatch Group.

But, Adams writes, a lot of people considered the watches were produced below par:

As a longtime fan (and owner) of Tiffany & Co. watches, I really wanted the new collection to meet my own expectations. Tiffany & Co. seemed to be entirely absent from the design part of the equation, and the Swatch Group had its own plans for the brand.

Whatever one thought of the final product, Tiffany didn’t seem too enthusiastic about it. Swatch complained it wasn’t getting enough prominence and marketing attention in Tiffany stores. CEO Nick Hayek told The New York Times: “We had a partner who said that his priority was watches, and after signing a contract, you see that his priority is everything but watches.” And so Swatch sued, arguing that it had sunk millions into the venture without adequate support.

Tiffany, for its part, griped that Swatch failed “to respect Tiffany’s rights regarding brand-management and product design,” and countersued. The company was confident enough it was in the right that it wrote that Swatch was “unlikely to prevail” in an SEC filing.

Adams believes that:

Two major groups with major senses of self-worth joined up to hopefully produce something wonderful.… Tiffany & Co. perhaps felt that their name and prestige were so valuable that the Swatch Group was working for them (clearly they’d never worked with the Swatch Group), and the Swatch Group felt that they were doing Tiffany & Co. a service by developing their name into a new watch brand.

Let me add the hard-nosed nature of both companies can be shown by the fact that: they decided to bring this to arbitration, instead of just walking away; and the suit was never settled, but brought to court, a rarity in these kinds of actions.

In fact, this may be a textbook example of the pitfalls of two big companies joining together. When De Beers and LVMH—also two type-A companies—got together to create a retail chain, the partnership held because the two groups had different skill sets; De Beers from the outset admitted that it didn’t know much about luxury retail. But here the competencies of the two players overlapped, and neither player was happy with how things played out.

In any case, Tiffany said it is still committed to developing its watch business, and it will likely figure out a way to do that. And Swatch now owns Harry Winston, a direct competitor to Tiffany in luxury retail. Still, Hayek told the Times the venture was a “missed opportunity.” In a case where so much is up for dispute, that’s something everyone can agree on.

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