Ever wonder what else his watch can do?
Future evidence has been found:
In that scene, the device in Tarvek's hand probably was his watch, and nothing more. He just told the spy that it detected him so as to avoid hurting the spy's feelings or pride (though he could concievably have some other motive). Right after the spy leaves, Tarvek states that if he wants to sneak up on someone, he should not come via the sewers. From that we can assume that it was not the pocketwatch that detected the spy, but Tarvek's own sense of smell. -by Someone Who has Not Yet Registered