Contents - AL-Tax

74 5 Intercompany Sale of Diamondsheavily in its own mark. Thus, for example, in 2006, De Beers invested an estimated$200 million in advertising and marketing programs both to support its own trademarkand to underwrite similar investments by its sightholders. 17 Sightholdersare also permitted to use De Beers’ Forevermark trademark on DTC-sourcedstones.In short, the DTC regards sightholders’ capacity for, and commitment to, thedevelopment of recognized brand names and proprietary designs as being highlyimportant at this juncture, as its control of the supply of rough diamonds hasdeclined. The DTC bears a portion of the costs of developing sightholders’ marks,and the latter have rights to use its trademark as well.As discussed above, De Beers has very successfully bound together the differentsegments of the diamond pipeline through its captive mines and exclusive rough diamondsupply agreements with other producers, its Supplier of Choice program andits active promotion of exclusive polished diamond supply arrangements betweensightholders and retail customers. Rio Tinto, Aber Diamond Corporation and BHPBilliton, much newer incumbents, have followed suit to a large degree, with differingcombinations of exclusive marketing agreements and acquisitions of prominentretailers; Tiffany & Co. Inc.’s backward integration into production serves the sameeconomic purpose. For this reason, companies all along the diamond pipeline—mines, wholesalers and retailers—benefit from the development and maintenanceof the same brand names and designs, as the following observation by a well-knowncommentator attests to:It may well become of utmost importance to the success of a diamond jewelry retailer tochoose his polished supplier not only on the merits of price, service and quality, but ratheron the basis of the polished manufacturer’s affiliation with, and level of support given by, therough producer. The logos and trademarks of the rough producers will proudly be displayedin the diamond jewelry retail store. . . . 18In essence, retailers’ often-exclusive access to stones cut to proprietary designsand bearing particular laser-inscribed trademarks, whether developed and financedby the manufacturer or the rough stone producer (or a combination thereof),has become an important means by which the retailer distinguishes itself fromcompeting retailers in close physical proximity. This benefit, in turn, creates anincentive for the retailer to co-invest in its supplier’s marks, where such investmentfurther enhances the value of the mark. In this sense, brand ownershiptends to be more diffuse in the diamond industry, as compared with industriesin which individual unaffiliated participants operating at different market levelsare not so closely linked, and where branding has been well-established formany years.17 See the National Jeweler, “Israeli Diamantaires, DTC Pledge Cooperation,” September 2, 2005.18 Even-Zohar, Chaim, “Global Overview of the Diamond Industry Pipeline Today & Tomorrow,”Tacy Ltd., September 1, 2000.