RAPAPORT... Jewelry designer Elsa Peretti, who has created and designed jewelry for Tiffany & Co. for 38 years, could end her relationship with the luxury jeweler.
Tiffany has been the sole licensee for the intellectual property rights to make and sell Peretti-designed products since 1974. According to a U.S. Securities Exchange Commission (SEC) filing, Peretti's designs accounted for 10 percent of Tiffany's net sales in 2009, 2010 and 2011.
Under the terms of her written license agreement with the company, Peretti retains ownership of the her Intellectual Property and exercises approval rights for important aspects of promotion, display, manufacture and merchandising of her designed products. In addition, Tiffany is required to devote a portion of its advertising budget to promote Peretti's jewelry.
The two parties are currently in the process of negotiating a price for Tiffany to purchase Peretti's intellectual property rights, which the company sees as a "significant investment" likely to improve cash flows and operating results in subsequent years.
However, if a price is not agreed on, Peretti might terminate the agreement. According to the agreement either party can terminate with written notice. This means that Tiffany will still retain rights under the license agreement for six months, after which the company will have an additional year to sell any Peretti designs it has on hand or on order. After this time, Tiffany will only be able to sell any products it has on hand, subject to Peretti's right to purchase these remaining products.
Tiffany noted that if the company is not able to retain intellectual rights to Peretti designs, the company's operating results may be adversely affected. However, separation provisions in the contract will minimize the short-term impact a termination of the agreement will have. Tiffany’s management believes that potential losses in net sales could be substantially mitigated through efforts that include the design and merchandising of new products, redeployment of advertising and display resources now devoted to Peretti-designed products, and changes in the promotion, display and merchandising of existing products. Tiffany will also be relieved of its royalty obligation and its advertising commitment.
"Tiffany has enjoyed significant success and profitability from its longstanding relationship with Ms. Peretti, and there can be no assurance as to whether or the extent to which such mitigation efforts would offset the results realized under the license agreement, " according to the luxury retailer.
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