FTC Says Disclose Laser Drilling

In an about-face from its decision of four years ago, the Federal Trade Commission has amended its Guides for the Jewelry Industry to require that every link of the diamond chain disclose laser-drilling in diamonds as well as treatments that “have a significant effect on a diamond’s value”-including the Bellataire color-enhancing treatment.

The new guidelines also mandate disclosure if a gemstone treatment is nonpermanent or requires special care.

The revisions-which replace previous rules on treatments-are the result of a Jewelers Vigilance Committee petition asking the Commission to rethink its 1996 ruling that laser drilling did not have to be disclosed. For the first time, they combine the regulations for diamonds and gemstones, as the Commission determined there was no reason for the two sectors to be treated differently.

The new Guides do not include one escape clause JVC requested. JVC asked that disclosure be mandated only if “said treatments are known or reasonably should have been known to the seller at each time of sale.” JVC requested this to lessen the chance a retailer would be held responsible for selling a gemstone he didn’t know was treated.

But the FTC rejected this language-which was opposed by another industry group, the American Gem Trade Association-arguing that members of the jewelry industry have a duty to inquire whether diamonds are treated, and that its rules apply to sellers at every level of the trade. “At the same time, the Commission is mindful that responsible retailers may be misled about whether the gemstones they have purchased have been treated or not,” according to an FTC statement. “The Commission’s ability and willingness to exercise prosecutorial discretion in such situations should alleviate retailers’ concerns that they unreasonably would be held accountable for others’ illegal conduct.”

The FTC also rejected another proposal-pushed by Zale Corp.-that would limit the size of the gemstones affected. Zale argued that inspecting each small gemstone for treatments would be costly and increase prices for consumers. However, the Commission argued that if, in a piece with small stones, “the price of the piece is not based on the value of each individual gemstone … [then] disclosure may not be required under the revised Guide.” It added that disclosure of nonpermanent treatments or treatments that required special care was still required-even in very small stones. But the Commission argued that individual inspection of each stone is not necessary to disclose treatments. “For example, if a jewelry piece contains very small emeralds, the retailers could disclose that the emeralds have likely been treated,” the Commission wrote, noting that some retailers already make similar disclosures on Web sites.

Finally, the FTC denied a request by AGTA that all treatments be disclosed regardless of whether they fit into one of the three categories (see sidebar below): “Failure to disclose a gemstone treatment is deceptive only if absent disclosure consumers would falsely believe that the treated gemstone is as valuable as a similar untreated stone.”

Some wondered about the term “significant effect on a diamond’s value,” noting that the word “significant” was hazy. But the Commission advised that retailers trying to determine what this means “should evaluate whether the gemstone treatment makes the product less valuable than it would be if it contained an untreated stone.”

Although the industry didn’t get everything it wanted, JVC executive director Cecilia Gardner says she’s happy with the revisions and adds that they make the industry’s disclosure requirements clearer than in the past.