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NEW YORK -- Seven years ago Marc Jacobs was struggling to keep his fashion house afloat. Despite critical acclaim, the New York designer was so strapped for cash that he had to moonlight as a consultant to other designers. His business partner, Robert Duffy, refinanced his country house twice.

Then Bernard Arnault, chairman of LVMH Moet Hennessey Louis Vuitton, dangled an irresistible offer: If Mr. Jacobs would lend his creative flair to the venerable but stodgy Louis Vuitton label, LVMH would underwrite his beleaguered design firm.

Since then, the partnership has been one of high fashion's great success stories. Mr. Jacobs's designs have helped boost sales and buzz around the $3.5 billion Louis Vuitton brand, which accounts for 60% of LVMH's operating profits. Last year, his multicolored Murakami handbag turned into a $300 million hit. At the same time, the 40-year-old designer has developed his own Marc Jacobs label, which rang up more than $75 million in sales last year.

But tensions are erupting inside this partnership. Messrs. Jacobs and Duffy think their ambitions to develop the Marc Jacobs brand are being stymied by their French partner. As they prepare for Mr. Jacobs's fall runway show tonight and the opening of a new Louis Vuitton flagship store on Fifth Avenue tomorrow, Messrs. Jacobs and Duffy complain that LVMH hasn't invested enough in the Marc Jacobs business and has locked them out of critical decisions about the operation.

"I'm very proud of the hard work I've done at Vuitton. Without LVMH, we would have never been able to do what we did at Marc Jacobs," says Mr. Jacobs, who has been meeting with Mr. Arnault to revise his eight-year deal with LVMH. "But Marc Jacobs is my priority, and we want to make it a priority at LVMH."

"We want to be big, like Ralph Lauren," adds Mr. Duffy, 49.

In the age of luxury-goods conglomerates, star designers' loyalties often are divided between their own brands and the ones they are paid to design for corporate clients. Michael Kors, Narciso Rodriguez, Alexander McQueen and John Galliano are among those who have worked for big firms while simultaneously designing their own fashion labels. Yet the more famous the designer becomes, the harder it is to pour his identity, and ego, into a brand without his name on it. It's a predicament that neither Giorgio Armani nor Ralph Lauren ever had to face. They spent their entire careers devoted to their own namesake brands.

Creative control became a key sticking point in designer Tom Ford's abrupt decision to exit Gucci Group NV last year. Gucci Group owner Pinault-Printemps-Redoute SA complained that Mr. Ford failed to create two separate visions for Gucci and the group's Yves St. Laurent brand, causing the labels to look too much alike. As fashion magazines referred to designs by "Tom Ford for Gucci," PPR believed Mr. Ford was starting to upstage the Gucci trademark. PPR plans to hire two separate designers for Gucci and YSL.

Mr. Arnault acknowledges that LVMH has been cautious in expanding Marc Jacobs, but says the designer's own label has only recently shown real promise. "I was always very confident with Marc," he says. "Sometimes we disagree on the pace of things. But we are in the process of renegotiating, and I think we will find a solution in the next few weeks."

Mr. Arnault also says that Mr. Jacobs will receive stock options in his new contract, which "will motivate him and make him more interested in the long-term success" of Vuitton.

For the $15 billion LVMH, whose 50 brands include Christian Dior, Moet et Chandon champagne and Duty Free retail stores, Mr. Jacobs has proved to be a potent creative force. When he signed on with Vuitton in 1997, its sales were $1.2 billion, primarily from luggage and handbags. Thanks to Mr. Jacobs's high profile, and a boom in designer accessories, Vuitton's sales doubled to about $2.4 billion by 2001.

But in exchange for its financial largesse, LVMH now owns 96% of Marc Jacobs International and is effectively running that show. Dependent on LVMH for working capital -- it has invested $50 million so far -- Mr. Jacobs and his partner complain that the money hasn't come quickly enough, stalling the development of the brand.

Moreover, Mr. Duffy says that Vuitton currently pays him and Mr. Jacobs less than $1 million annually. "I think Gucci treated Tom Ford better than LVMH has treated me," Mr. Jacobs says.

While not a household name in the league of Gucci or Armani, Marc Jacobs has developed a devoted following among women willing to splurge on a $2,000 tweed jacket with big buttons or a pair of $120 jeans with a bleached crease down the leg. "Marc's appeal is very strong with an artsy and intellectual set," says Judy Collinson, executive vice president of Barneys New York, the upscale fashion chain.

"He doesn't take things too seriously. It's chic but not too done. You look together and not uncomfortable," observes Sofia Coppola, the 32-year-old director of "Lost in Translation" who is a longtime friend of Mr. Jacobs. "I like that when you wear his clothes you can't tell it's Marc Jacobs. It's classic and contemporary."

In the late 1980s, the ponytailed and affable Mr. Jacobs was deemed one of the most promising new talents on Seventh Avenue. In 1989, Mr. Jacobs landed the position of women's designer at Perry Ellis, and Mr. Duffy became the company's president. During his tenure, Mr. Jacobs hired the then-unknown Tom Ford for the Perry Ellis jeans division.

Mr. Jacobs's landmark fashion moment erupted on the runway in 1992 when he dreamed up a collection of scruffy, mismatched plaids, striped knit caps and slouchy work boots, which the press dubbed "grunge." A crowd of downtown New York fashion groupies swooned, including Ms. Coppola, who would later collaborate with Mr. Jacobs on a handbag design. But retailers and Vogue magazine derided the antifashion look, and Perry Ellis fired Mr. Jacobs in 1993. Soon Messrs. Jacobs and Duffy went back out on their own with a fashion studio bearing Mr. Jacobs's name.

Among followers of fashion, Mr. Jacobs was the epitome of laid-back cool, and his runway shows were hot tickets. Supermodels Christy Turlington, Kate Moss and Naomi Campbell strutted his catwalk without pay. Glowing press reviews belied the fact that Mr. Jacobs's business was feeble. In 1996, sales were only about $2.5 million, not including licensing revenue from lines sold in Japan. The company was barely surviving, living "day to day and season to season," recalls Mr. Duffy.

The notoriety paid off when Mr. Jacobs got a call from Mr. Arnault in 1996. The French luxury-goods magnate had several openings for designers at faded labels LVMH had recently acquired. One afternoon, Mr. Arnault and his wife, Helene, dropped by Mr. Jacobs's studio in Soho. At first, Mr. Arnault considered Mr. Jacobs for the Givenchy job. But Messrs. Duffy and Jacobs boldly proposed Vuitton, which Mr. Arnault wanted to put on high fashion's radar with its first women's clothing collection.

"We thought that Vuitton would be a great opportunity and a big stage for Marc," says Mr. Duffy. And because Vuitton was the cash cow of the LVMH empire, "there would be a certain amount of security for us."

Mr. Arnault liked the ideas Mr. Jacobs sketched out for Vuitton, he recalls. He hired Mr. Jacobs as artistic director and Mr. Duffy to work with him under an initial three-year contract. As part of the deal, LVMH took a one-third interest in the Marc Jacobs trademark, the only valuable asset of the struggling New York brand. LVMH agreed to underwrite the Marc Jacobs business so that it could produce two fashion shows a year. LVMH also paid $140,000 for renovations at Marc Jacobs's first store in Soho.

Beyond that, they all agreed that Vuitton and not Marc Jacobs would be Mr. Jacobs's first priority, according to both Marc Jacobs and Vuitton. The designer moved to Paris while Mr. Duffy remained in New York to run the Marc Jacobs firm.

The relationship got off to a rocky start. Vuitton executives in Paris, guardians of a company founded in 1854, were experts at making leather goods and had little interest in producing fashion collections. Mr. Jacobs bristled at being holed up in a little studio on the outskirts of Paris without clear marching orders. He also chafed at being treated as a hired hand at Vuitton. He had total control over his fashion shows but no power to decide which garments Vuitton would produce. Most of his runway fashions, including some that he felt could sell at retail, never made it into stores.

When Mr. Jacobs began experimenting with cashmere sweaters that looked a bit worn, with fuzz balls, the brass at Vuitton didn't believe that his vision was right for the conservative brand. Mr. Duffy also felt ignored. "They thought I wasn't necessary and Marc was," Mr. Duffy says.

"We used to fight . . . I'd write notes, I'd cry, I'd complain to anyone who would listen," Mr. Jacobs recalls. Whenever things got too bad he'd march in to meet with Mr. Arnault, who would smooth things over.

Messrs. Jacobs and Duffy vented their frustrations in a July 1997 New Yorker profile of their firm. At LVMH, "people were mad," says Mr. Jacobs. "That article gave us a scarlet letter."

Mr. Arnault admits that Mr. Jacobs's presence was "a shock" to the structure at Vuitton. "I had to struggle to convince the managers at Vuitton to work with Marc," he says. And he concedes that Vuitton operates far differently from the independent design atelier that Mr. Jacobs was used to. It is a "big network that works in an industrial process, where decisions on what we are going to produce are made by a team," Mr. Arnault explains. "Sometimes Marc creates designs that cannot pass the quality tests we have here, and I know that this creates frustration."

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Mr. Arnault was nevertheless committed to keeping Mr. Jacobs happy. LVMH has successfully retained designer John Galliano to revamp Christian Dior, but many other designers Mr. Arnault recruited didn't thrive at the conglomerate. Alexander McQueen, who designed for LVMH's Givenchy brand, Narciso Rodriguez, who created for Loewe, and Michael Kors for Celine, all left LVMH when their contracts expired.

With Mr. Arnault's support, Mr. Jacobs began to hit his stride at Vuitton. Over the next few years, he learned the ins and outs of designing commercially successful handbags and clothes. In 2001, he collaborated with New York designer Steven Sprouse to produce the Speedy Graffiti, a $495 brown satchel with thick white "Louis Vuitton" graffiti plastered on it. The bag became a bestseller that season, while Mr. Jacobs's new Vuitton women's clothing line also began to sell.

The discipline of having to create two collections in Paris and New York made him stronger professionally, Mr. Jacobs says. After his experience at Vuitton, for example, he introduced his own line of colorful Marc Jacobs handbags, with distinctive clunky hardware. The bags became an instant hit in the U.S. and abroad. They were soon knocked off by mass-market chains.

In 2001, with Vuitton sales soaring, he and Mr. Duffy renewed their contracts for another seven years. LVMH agreed to underwrite Marc Jacobs's first advertising campaign and made promises to invest more in the company. LVMH also formalized its control over Marc Jacobs by taking a 96% interest in the holding company, Marc Jacobs International, leaving the U.S. partners with 4%. They retained two-thirds ownership in the Marc Jacobs trademark.

Yet the culture clash continued. In 2002, Mr. Jacobs had an idea for a fresh, colorful update of the classic Vuitton handbag. In order to make it truly luxurious, the bag would need generous helpings of hardware -- brass rivets and studs. French technicians argued that fewer bells and whistles would boost profit margins. Mr. Jacobs stood firm, and the Murakami bag -- developed in collaboration with Japanese artist Takashi Murakami -- went on to become the company's biggest seller last year.

Mr. Jacobs says he felt left out of many crucial decisions at his own line. He was furious last May when LVMH, as part of closing its U.S. fragrance division, sold his Marc Jacobs perfume to Coty Inc. without informing him. The proceeds went directly into LVMH coffers with no portion going to Marc Jacobs.

More troubling, Messrs. Jacobs and Duffy say, is that the Marc Jacobs fashion house has run through four different chief executives in seven years, all of whom were appointed by LVMH. In almost every case, those CEOs locked horns with Mr. Duffy, who was still calling the shots. Mr. Duffy blames the constant executive turnover for delaying development of the business.

Failing to inform Mr. Jacobs of the fragrance sale was "a mistake," Mr. Arnault says. And he admits that the partners should have been more involved in the CEO appointments. In the future, "we are going to correct this," he says.

Although LVMH continually claimed that tight budgets prevented it from increasing its investment, the business partners were shocked when LVMH found enough cash to buy Donna Karan for $643 million in 2002 and to spend $219 million to boost its stake in Fendi last year. "It was like we were being forced to carry this little tin cup," says Mr. Jacobs. "It was like, `Hey guys, hello? How about us?' "

Fed up, Mr. Duffy called designer Tommy Hilfiger to discuss a licensing deal for a more affordable Marc Jacobs apparel line. Mr. Hilfiger sent him to his former business partners, Lawrence Stroll and Silas Chou, who in 2003 bought Michael Kors's fashion business from LVMH. Messrs. Duffy and Jacobs invited the two investors to a front-row seat at last fall's Marc Jacobs show, fueling speculation that Mr. Jacobs's defection from LVMH could be imminent.

Mr. Duffy acknowledges that any licensing deal would have to be a three-way discussion with LVMH, saying that he wasn't necessarily trying to break away from the French partner. "I'm trying to work within the system, but this is our time. This is our moment," Mr. Duffy says. "The world loves our product. Mr. Arnault now understands, but it has taken us a long time to get to this point."

Mr. Jacobs is now in talks with LVMH to extend his contract for another 10 years. Other considerations, including rolling out boutiques and hiring business expertise to assist Mr. Duffy, are also on the table. But Mr. Arnault says he prefers not to do outside licensing deals for Marc Jacobs.

"We are very happy with them, and these negotiations are normal," says Mr. Arnault. The talks "can create some tension, but at some point, I think we will be able to sort it all out without any difficulties."