Callanen International, Timex Subsidiary, Files Lawsuit against Fossil in Relation to Planned License Agreement with Guess Inc.; Complaint Alleges Violation of Antitrust and California Business Laws.

NORWALK, Conn. -- Lawsuit Seeks Injunctive Relief to Bar Fossil From Producing Guess Watches; Potential Damages in the Hundreds of Millions of Dollars

If Not Stopped, Fossil Will Control Up to 60% of U.S. Fashion Watch Market

CALLANEN INTERNATIONAL, INC., a wholly-owned subsidiary of Timex Corporation, today filed a lawsuit against Fossil, Inc. (NASDAQ:FOSL) in the United States District Court for the Central District of California, alleging that Fossil, in connection with its proposed license agreement with Guess Inc. (NYSE:GES), has violated federal antitrust laws and state unfair competition laws and interfered with Callanen's contractual relationships.

The lawsuit is seeking injunctive relief barring Fossil from producing and selling watches under license from Guess and to award Callanen treble damages, as authorized by federal antitrust laws.

Callanen International, Inc. currently represents designer brands that include Versace, Versus, Nautica, Marc Ecko and Guess Inc.

Since 1991, Callanen International has had an exclusive worldwide license to manufacture and sell Guess fashion watches pursuant to a license agreement that expires on December 31, 2006. The Guess license agreement was renewed twice over the course of the 15-year period.

On August 26, 2005, Guess announced that it was in "advanced negotiations" with Fossil with respect to a 10-year "global license agreement" which Guess and Fossil expect to finalize next week. The parties said that they plan to base minimum royalties on wholesale sales of $1.36 billion for the initial 10-year term.

"This illegal combination would wrap 60 percent of the fashion watch market around Fossil's wrist, stifling competition and hurting consumers," said Frank Sherer, Senior Vice President and General Counsel of Callanen. "This will be bad for consumers and distributors alike who depend on lively competition for low prices, innovation and promotional spending. We are determined to help preserve a level playing field for American consumers and distributors."

As alleged in the Complaint, Fossil is the largest seller of fashion watches, controlling nearly 40% of the domestic market. Should it finalize its contract for the license of the Guess brand, Fossil's share of the U.S. fashion watch market will increase to approximately 60% of the domestic market, a share four times larger than Fossil's closest competitor.

"Fossil's actions have been motivated by a specific intent to monopolize the market for fashion watches by significantly eliminating effective competition, controlling prices and preventing entry or expansion into that market," the Complaint states. "Fossil's actions, if left unchecked, pose a dangerous probability that Fossil will succeed in monopolizing the market for fashion watches."

Callanen alleges that Fossil's resulting dominance of the market will harm competition by providing Fossil with substantial market power and thus the ability to increase fashion watch prices, while foreclosing price competition and reducing product innovation.

The Complaint further states, "Fossil's anticompetitive conduct will result in a substantial decline in price competition. The acquisition will enable Fossil to raise prices and reduce discounting and promotional spending. Thus, department stores and their consumers will face higher prices and lower quality."

Based on these and other allegations, the Complaint alleges federal antitrust violations under Section 1 of the Sherman Act (unreasonable restraint of trade), Section 2 of the Sherman Act (attempt to monopolize the fashion watch market), and Section 7 of the Clayton Act (acquisition that will substantially lessen competition).

The Complaint also charges Fossil with wrongful conduct in interfering with Callanen's contractual relationships. Specifically, it alleges that Fossil improperly induced Guess to disclose confidential information about Callanen and used such confidential information in its negotiations with Guess to acquire the exclusive Guess license for itself. The Complaint also charges that Fossil impaired Callanen's ability to compete in the fashion watch market by, among other acts, interfering with Callanen's distributors and making false and disparaging statements about the ownership of Callanen.

"Despite its own leading position in the fashion watch market, and despite the ongoing contractual relationship between Callanen and Guess, Fossil sought to acquire the exclusive Guess license for itself and thwart Callanen's and Guess's efforts to reach agreement on the terms of a new license agreement," the Complaint states. "Fossil also sought to use public awareness of its negotiations with Guess to disrupt Callanen's ongoing fashion watch business."

Callanen is seeking, among other relief actions, a permanent injunction barring Fossil from further acts constituting violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. 1-2, and Section 7 of the Clayton Act, 15 U.S.C. 18, with regard to the fashion watch market, including those watches manufactured and sold under license from Guess; a permanent injunction barring Fossil from further acts in violation of California Business and Professions Code Sections 17200 et seq., with regard to the fashion watch market, including those watches manufactured and sold under license from Guess; that Callanen be awarded damages sufficient to compensate Callanen for all direct, special and other damages resulting from defendants' violations of federal antitrust law; and that Callanen's damages be trebled pursuant to 15 U.S.C. 15a.