On Your Laser Drilling Marks …

Gary Roskin, G.G., FGA -- JCK Online, 4/1/2001 3:00:00 AM

Effective April 10, 2001, members of the jewelry industry—including jewelers and manufacturers—will again be required to disclose all laser-drilled diamonds. The Federal Trade Commission, which revised its Guides for the Jewelry, Precious Metals, and Pewter Industries in 1996, has revised them again. (See "FTC Says Disclose Laser Drilling," JCK, February 2001, p. 32.) The changes are the result of efforts on two fronts—one within the industry by Cecilia Gardner, general counsel and executive director of the Jewelers Vigilance Committee, and the other by Bonnie Gaenzle, a consumer who unknowingly purchased a laser-drilled diamond in November 1997.

When Gaenzle threatened to go to the media, in particular PrimeTime Live, in April of 1998, Jewelers of America representatives offered to help her lobby for changes to the Guides instead. JVC asked the FTC to make changes in August of 1998, just after the World Federation of Diamond Bourses passed a resolution mandating disclosure.

The revisions combine section 23.13, which addresses the disclosure of diamond treatments, with section 23.22, which addresses treatments of other gemstones. In addition, these sections now provide for disclosure of any treatment to gemstones that "significantly affects" the value of the gemstone, including laser-drilling of diamonds.

Define "significant." The revision's wording has many people concerned. Robin Rosen Spector, attorney for the FTC, says the use of the words "significantly affects" is a legal requirement of an FTC ruling, which must find "significant harm."

"The Commission often uses the term 'significant' to establish materiality—that is, claims or omissions that are likely to affect purchasing decisions," states the FTC Guides. "For example, the Commission's Deception Policy Statement explains that the Commission considers certain categories of information presumptively material, including claims that 'significantly involve health, safety, or other areas with which the reasonable consumer would be concerned,' including a claim that 'concerns the purpose, safety, efficacy, or cost of the product or service.' Thus, the inclusion of the word 'significant' is meant to provide a practical, common-sense limitation on when disclosures should be made." The Guides go on to say that "retailers should evaluate whether the gemstone treatment makes the product less valuable than it would be if it contained an untreated stone."

The Guides' most important point is this: "The difference in value as a result of a gemstone treatment, although not large from the seller's point of view, might be significant to consumers who might reasonably expect to pay less for a product containing a treated stone or would choose a piece with an untreated stone if the treatment were disclosed. The consumer's point of view is the relevant viewpoint from which to analyze the necessity for disclosure."

In other words, the difference between an undrilled small diamond that costs $10 and a comparable laser-drilled diamond that cost only $9—a 10% difference—may be significant. Thus, it appears that the newly revised FTC Guides cannot be used by large-scale manufacturers of laser-drilled melee to skirt the issue of disclosure of laser-drilling simply because they consider a one-dollar difference to be insignificant.

"I worked practically full-time on this quest for a year and a half, and it cost me time and money," Gaenzle says. "I did this so no one else would get taken like I did." She says when she initially contacted JVC about being sold a laser-drilled diamond without disclosure, the organization responded that there was nothing wrong with the practice. At the time, given the wording in the FTC Guides, that was probably correct. After recently contacting the New York Better Business Bureau, she found that 27 complaints were registered over the past 36 months about the company that sold her the laser-drilled diamond without disclosure, and apparently still nothing can be done. But beginning April 10, all laser-drilled diamonds should be disclosed.