The revised FTC guides: What’s Permissible, What’s Not

Many changes in the revised guides focus on the sections dealing with diamonds. The most controversial issues concern weight measurement and lasering

The Federal Trade Commission’s revised Guides for the Jewelry Industry have been published in final form; they officially took effect on May 29. The guides now cover 24 pages in a formal booklet. Earlier, the FTC had issued a 114-page document which detailed the reasoning behind some of its decisions. The document also included selected references to comments made to the commission by various people in the industry.

Here are highlights from the gemstone and synthetics sections of the revised guides with, where appropriate, reports on some of the commission’s internal discussion of the issues involved.

Section 23.13. Disclosing existence of artificial coloring, infusing, etc.

“If a diamond has been treated by artificial coloring, tinting, coating, irradiating, heating, by use of nuclear bombardment, or by the introduction or the infusion of any foreign substance, it is unfair or deceptive not to disclose that the diamond has been treated and that the treatment is not or may not be permanent.”

In its discussion of this issue, the commission noted that the Jewelers Vigilance Committee, which spearheaded the the move to revise and update the guides, asked that lasering of a diamond be disclosed.

The commission said that 13 comments opposed the disclosure of laser treatment, arguing that it is a common practice and “an extension of cutting, since soaking out surface black leaves no evidence of soaking. The channel left by the laser is often just one of several or numerous ‘natural’ cracks, inclusions or grain.” The Diamond Manufacturers & Importers Association, in its comment to the commission, noted that lasering is “irreversible, does not add a foreign substance, is readily detectable with a ten power loupe, and does not require disclosure any more than . . . cutting an additional facet to improve the purity of a diamond.” It also noted that the Gemological Institute of America, which refuses to grade diamonds infused with a foreign substance, does grade lasered diamonds, indicating on the grading report ‘inclusions, naturals, extra facets, as well as lasering.”

Rapaport Diamond Report submitted the only comment favoring disclosure of lasering, the commission said, arguing that internal lasering adversely affects the value of a diamond and that a purchaser who is unaware of the lasering will be upset “when an appraisal indicates laser treatment or upon resale when the buyer offers a lower price due to lasering.”

Twelve of the 13 commenters who opposed disclosing lasering said fracture filling should be disclosed. The commission noted that “because fracture filling is not the norm of what consumers, acting reasonably under the circumstances would expect, it would be deceptive to fail to disclose” the filling.

23.17 Misrepresentation of weight and “total weight.”

(a) It is unfair or deceptive to misrepresent the weight of a diamond.

(b) It is unfair or deceptive to use the word ‘point’ or any abbreviation in any representation, advertising, marking, or labeling to describe the weight of a diamond, unless the weight is also stated as decimal parts of a carat (e.g. 25 points or .25 carat).

Note: A carat is a standard unit of weight for a diamond and is equivalent to 200 milligrams (1/5 gram). A point is 1/100 of a carat.

(c) If a weight is stated as decimal parts of a carat (e.g. .47 carat), the stated figure should be accurate to the last decimal place. If diamond weight is stated to only one decimal place (e.g. .5 carat), the stated figure should be accurate to the second decimal place (e.g. ‘.5 carat’ could represent a diamond weight between .495 and .504).

(d) If diamond weight is stated as fractional parts of a carat, a conspicuous disclosure of the fact that the diamond weight is not exact should be made in close proximity to the fractional representation and a disclosure of a reasonable range of weight for each fraction (or the weight tolerance being used) should also be made.

Note: When fractional representations of diamond weight are made, as described in 23.17 (d) above, in catalogs or other printed materials, the disclosure of the fact that the actual diamond weight is within a specified range should be made conspicuously on every page where a fractional representation is made. Such disclosure may refer to a chart or other detailed explanation of the actual ranges used. For example, ‘Diamond weights are not exact; see chart on page X for ranges.'”

The FTC, in its discussion of the weight issue, says that the JVC wanted to rate “unfair” use of the term “points” to represent the weight of a diamond except in direct conversations, arguing that some consumers confuse .25 points (1/400 of a carat ) with .25 carat (1/4 of a carat). The commission asked for comment on the issue and received 35.

Four, including ones from the Postal Service and from the National Association of Consumer Agency Administrators (NACAA), supported the JVC position; 22 recommended limiting the term “points” to oral presentations; and nine said there should be no restrictions. The Postal Service favored prohibiting the term, saying that consumers often do not actually see jewelry before buying it and that the term point (i.e. .25 pt) is used to misrepresent the value of a diamond.

The commission judged, however, that the term “point,” with adequate disclosure, “could be used in a non-deceptive manner.” This conclusion led to its requirement that weight also must be spelled out in decimal parts when the term is used.

On the total weight issue, JVC wanted to brand as unfair any failure to mark new industry products containing one or more diamonds with the minimum total weight of the diamonds. It wanted the same ruling in advertising such products.

Of the 39 comments on this issue, 31favored marking the minimum weight of the diamonds on tags or invoices; eight were opposed.

The commission noted that, in general, the JVC proposal was favored because it would prevent misrepresentation of the weight by manufacturers or other sellers further down in the line of commerce. It quotes GIA as saying there is a tendency for “multistone rings and other jewelry sold as a given weight to weigh less than the indicated weight.” GIA also said, in its experience, “if the total weight is stamped on the jewelry, the manufacturer usually makes sure that the weight is accurate.”

JVC also made recommendations on weight tolerances, urging a tolerance of .005 carat for individual diamonds, whether mounted or loose, and .01 carat for two or more diamonds in a single product. Of 84 comments received, three favored the JVC proposal and 81 opposed it.

The FTC rejected one dissenting argument that few diamond scales can accurately measure to such fine tolerances; in fact five jewelers contacted by the commission all had scales capable of doing so.

Many who objected said “industry practice” is to use fractions to designate weights of less than a carat and that there is a “standard tolerance” for such fractional representations. Service Merchandise objected because the JVC tolerances “would narrowly and unreasonably limit the range of weights available for particular fractions of a carat.” Many said there would be high demand for stones close enough to the fractions to be designated as fractions while other stones could not be used by mass merchants. If retailers were no longer allowed to sell 18 points as a fifth, “then what would happen to all the 18 and 19 pointers?” asked Frederick Goldman.

London Star argued: “This standard would considerably lessen the availability of stones within each size and therefore drastically increase the price to the consumer.”

Others recommended following a practice outlined in a 1986 GIA booklet. It says “approximate weights are often stated in fractions” and gives a chart with average weight ranges for various fractions (i.e. 1/5 ct. refers to .18 to .22 ct.). The booklet adds: “Customers also think in terms of fractions but they tend to expect a half carat stone to weigh exactly 0.50 carat”).

In the end the commission agreed with those opposing the JVC proposal, noting that “the proposed tolerance may be too restrictive and may result in an increased cost to the consumer.” But it also expressed concern that if a consumer receives a diamond that weighs less than the indicated fractional weight, he or she could suffer a significant financial loss. Thus the commission adopted the policy now enshrined in the revised guides: namely that any weight tolerance must be spelled out in fractional detail.

23.22 Misrepresentation as to gemstones.

“It is unfair or deceptive to fail to disclose that a gemstone has been treated in any manner that is not permanent or that creates special care requirements, and to fail to disclose that the treatment is not permanent, if such is the case. The following are examples of treatments that should be disclosed because they usually are not permanent or create special care requirements: coating, impregnation, irradiating, heating, use of nuclear bombardment, application of colored or colorless oil or epoxy-like resins, wax, plastic, or glass, surface diffusion, or dyeing. This disclosure should be made at the point of sale, except that disclosure should be made in any solicitation where the product can be purchased without viewing (e.g., direct mail catalogs, on-line services), and in the case of televised shopping programs, on the air. If special care requirements for a gemstone arise because the gemstone has been treated, it is recommended that the seller disclose the special care requirements to the purchaser.”

The FTC said, in its commentary, that it believes many consumers have no detailed knowledge about the nature and type of gemstone treatments. “However,” it said, “consumers would expect their gemstone purchases to retain their appearance over time, regardless of any treatments, and not to require special care to retain their appearance… The Commission has concluded that non-permanent treatments of various types (not just those that affect color), or any treatments that create care requirements should be disclosed. There is no logical reason to limit disclosure to treatments that affect color. Further, consumers should be informed when the treatment is not permanent.”

The commission received many comments arguing that disclosure of treatment of all gemstones would be expensive for retailers. Service Merchandise said it would be difficult because the stone probably changed hands a few times before being bought by the retailer; Best Products argued that the retailer might not know of the treatment; Finlay Fine Jewelry said it would be an “overwhelming task” for the retailer to get information about treatment from the manufacturer.

The FTC concluded that if, at point of sale or in advertising, a retailer implied great rarity and hence great value in a stone — and, by implication, that it was not treated — then failure to disclose that it was in fact treated might be deceptive. But the commission added that in normal circumstances it is not unfair or deceptive to fail to reveal treatments that are permanent and do not call for special care.

23.23. Misuse of the words “ruby,” “sapphire,” “emerald,” “topaz,” “stone,” “birthstone,” “gemstone,” etc.

(a) It is unfair or deceptive to use the unqualified words “ruby,” “sapphire,” “emerald,” “topaz,” or the name of any other precious or semi-precious stone to describe any product that is not in fact a natural stone of the type described.

(b) It is unfair or deceptive to use the unqualified words “ruby,” “sapphire,” “emerald,” “topaz,” or the name of any other precious or semi-precious stone, or the word “stone,” “birthstone,” “gemstone,” or similar term to describe a laboratory-grown, laboratory-created, (manufacturer name)-created, synthetic, imitation, or simulated stone, unless such word or name is immediately preceded with equal conspicuousness by the word “laboratory-grown,” “laboratory-created,” “(manufacturer name)-created,” “synthetic,” or by the word “imitation,” or “simulated,” so as to disclose clearly the nature of the product and the fact it is not a natural gemstone.

Note: The use of the word “faux” to describe a laboratory-created or imitation stone is not an adequate disclosure that the stone is not natural.

(c) It is unfair or deceptive to use the word “laboratory-grown,” “laboratory-created,” “(manufacturer name)-created,” or “synthetic” with the name of any natural stone to describe any industry product unless such industry product has essentially the same optical, physical and chemical properties as the stone named.”

The FTC received considerable comment on the synthetics issue. Chatham Created Gemstones, which won the right under a 1964 FTC ruling to use the term Chatham-Created for its synthetic stones, said that after 30 years of use there is no evidence that the term has deceived consumers. The American Gem Trade Association, on the other hand, said there should be no acceptable synonyms for the word “synthetic.”

Chatham, J. O. Crystal and Kimberley Created Emerald suggested that synthetic stones could be described as “cultured” — but said the term should be used only for synthetics created by the hydrothermal or flux method, which they use. Others argued that synthetics made by the melt or flame-fusion process also could be described as “cultured.” Those in favor of limiting the term cultured to hydrothermal and flux grown synthetics said these look more like natural stones and are more expensive to produce.

The commission, referring back to the 1964 Chatham case, acknowledged that at the time it agreed that the phrase “Chatham-Cultured Emeralds” was deceptive. But it added that “because there currently is insufficient evidence as to consumer perceptions regarding the use of the term ‘cultured,’ the Commission has not included the term in the Guides as a ‘safe harbor’ (e.g. an example of an adequate disclosure).”

In response to Chatham, the commission agreed that the term “synthetic,” as applied to gemstones, is misunderstood by some consumers to mean something fake or artificial. Thus it sanctioned the various laboratory-grown or created terms.

23.24 Misuse of the words “real,” “genuine,” “natural,” “precious,” etc.

“It is unfair or deceptive to use the word “real,” “genuine,” “natural,” “precious,” “semi-precious,” or similar terms to describe any industry product that is manufactured or produced artificially.”