The manufacturer isn't seizing it, but they're also not going to adjudicate this on their own. They're going to hold that watch in safe-keeping until a court of competent jurisdiction tells them to do something with it.
So somebody is going to have to file a lawsuit. The judge in that lawsuit is going to expect every party with a stake in the matter is served notice of the lawsuit. That will include the crime victim and the insurance company of the shop that sold it.
Everyone will make their argument, answers and replies will be written, and any arguments by any party will be cross-examined. The judge will rule, time will be given for dissatisfied parties to file appeals, and then the watch will go where the judge said, as will any other compensation that may be ordered.
Since some states provide good-faith buyers a limit to how far back theft claims can go, one of the things that will be litigated is which jurisdiction applies and whether the buyer or seller acted in good faith. That would be based on how a 'reasonable person' would behave given the norms of the high-end watch resale market, a sophisticated market by definition. These aren't cheap bicycles. I would expect things to be raised like
- the use if available of stolen-watch databases.
- the category of dealer the seller is in.
- the price relative to norms and the degree to which a notably low price affects good faith.
- the reason for buying such a watch from a non-shopkeeper if one could get the same thing from a reputable and insured shop at same price.