Tiffany Contract Mends A Broken Heart

By Connie Gibilaro [November 23rd, 2012] 

Italian 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. WWD reported that Peretti-designed jewelry has accounted for 10 percent of Tiffany’s net sales since 2009.

Although 72-year-old Peretti receives a royalty for Tiffany’s use of her designs, she is considering her right to terminate her agreement with Tiffany. In 2011, Tiffany reported revenues of $3.64 billion, but it is unknown how much is due to Peretti’s designs. While Tiffany said its financial results might be “adversely affected,” if Peretti terminates the contract, the luxury jeweler is confident that the terms of the contract protect its best interests.

According to WWD, if the deal were terminated, “Tiffany would retain all rights under the agreement for six months, including the right to make Peretti-designed baubles. Following the six-month period, Tiffany would have an additional year to sell any Peretti-designed products on hand or on order. Thereafter, Tiffany would be allowed to sell any Peretti-designed products on hand, subject to the designer’s right to purchase these remaining goods. Tiffany would also be relieved of royalty obligations.”

A golden rule of Drafting Contracts 101 is to anticipate what will happen to your client if the other party exercises his or her right to terminate the agreement. It sounds simple enough, but it was probably difficult for Tiffany’s lawyer to write a clause that would significantly mitigate potential losses in net sales. Although Tiffany has made an offer to Peretti to prevent her from severing the agreement, Tiffany might not suffer significant financial loss because of a favorable termination clause.

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