# Guides for the Metallic Watch Band Industry and Guides for the Jewelry Industry > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A96-13524 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** May 30, 1996 - **Citation:** 61 FR 27178 ## Text SUMMARY: The Federal Trade Commission (``Commission'') announces that it has concluded a review of its Guides for the Metallic Watch Band Industry (``Watch Band Guides'') and Guides for the Jewelry Industry (``Jewelry Guides''). The Commission rescinds the Watch Band Guides in a document published elsewhere in this issue of the Federal Register. The Commission is consolidating certain provisions of the Watch Band Guides with the Jewelry Guides. The Commission is renaming the Guides for the Jewelry Industry the Guides for the Jewelry, Precious Metals and Pewter Industries. The Commission also revises the Jewelry Guides by defining the scope and application of the Guides and adding new provisions regarding the use of the terms ``vermeil'' and ``pewter.'' The Commission is also making substantive changes to the existing provisions of the Jewelry Guides, as discussed in detail herein. The Commission is not making any changes to the provisions regarding the use of the word ``platinum'' at this time and will request additional comment on possible revisions to this section in a separate Federal Register notice. EFFECTIVE DATE: May 30, 1996. ADDRESSES: Requests for copies of this document should be sent to the Public Reference Branch, Room 130, Federal Trade Commission, Washington, DC 20580. FOR FURTHER INFORMATION CONTACT: Constance M. Vecellio, Attorney, 202- 326-2966, or Laura J. DeMartino, Attorney, 202-326-3030, Division of Enforcement, Federal Trade Commission, Washington, DC 20580. SUPPLEMENTARY INFORMATION: I. Introduction The Commission revises the Guides for the Jewelry Industry and the Guides for the Metallic Watch Band Industry (``Guides''), 16 CFR Parts 23 and 19, respectively, as described in detail below. The Commission will announce the results of its review of the Guides for the Watch Industry, 16 CFR Part 245, which was conducted at the same time as the review of the other Guides, in a separate notice. The Commission published a Federal Register Notice (``FRN'') soliciting public comment on amendments to the Guides on June 12, 1992, in response to a petition from the Jewelers Vigilance Committee, Inc. (``JVC'').\1\ The comment period, as extended, ended on September 25, 1992.\2\ --------------------------------------------------------------------------- \1\ 57 FR 24996 (June 12, 1992). The JVC, located at 401 East 34th Street, NY, NY 10016, is a trade association that was formed in 1912 to promote ethical practices in the jewelry industry. Its initial petition is dated April 15, 1986; additional proposed revisions were submitted on February 20, 1989. \2\ 57 FR 34532 (Aug. 5, 1992). --------------------------------------------------------------------------- The FRN solicited comment on the JVC's proposal to revise the Guides.\3\ The FRN summarized the major amendments proposed by the JVC, as well as revisions that Commission staff was proposing. In addition to requesting comment on the proposed revisions generally, the FRN asked for comment on 34 questions. --------------------------------------------------------------------------- \3\ Because of its 71-page length, the JVC proposal was not published. But, the proposal, and a document showing how the current Guides would be changed by the JVC proposal, was placed on the public record for inspection and is available in the Public Reference Room of the Commission. --------------------------------------------------------------------------- The Commission received 263 comments. In the remainder of this notice, the comments are cited to by an abbreviation of the commenter's name and the document number assigned to the comment on the public record. A list of the commenters, including the abbreviations and document numbers used to identify each commenter, is attached as an Appendix.\4\ --------------------------------------------------------------------------- \4\ In summary, the comments are from 19 trade associations, 85 diamond dealers, 53 colored stone dealers, 37 retail jewelers, 10 synthetic gemstone manufacturers, 12 pewter manufacturers, 10 watch manufacturers, 9 general manufacturers, 5 gemologist/appraisers, 7 precious metals firms, 3 catalog houses, 2 manufacturer representatives, 2 writing implement manufacturers, 3 pearl dealers, and one each from: The Canadian Government, the U.S. Postal Service, the National Association of Consumer Agency Administrators, a scientist who works with laser technology and crystal growth, an economics professor, an importer, a retired trade association executive, and an editor of Jewelers Circular-Keystone, and a trade magazine. --------------------------------------------------------------------------- The revisions are discussed section-by-section by category.\5\ Below, Part II addresses the standard regulatory review questions that were included in the FRN. Part III discusses general issues regarding the proposed revisions to the Guides. Part IV analyzes the proposed revisions to the Jewelry Guides section-by-section (including the Watch Band Guides, now consolidated with the Jewelry Guides). --------------------------------------------------------------------------- \5\ Various sections of the Guides that pertain to particular subject areas are referred to as ``categories,'' in the Appendix to the current Guides, i.e., Category I: Jewelry industry products in general; Category II: precious metals; Category III: diamonds, genuine and imitation; Category IV: pearls, genuine, cultured and imitation; Category V: gemstones, genuine, synthetic and imitation. --------------------------------------------------------------------------- II. Regulatory Review and Related Questions As part of the Commission's ongoing program to review all of its rules and guides periodically, the FRN included questions about the Guides' economic impact and continuing relevance, any compliance burdens, changes needed to minimize their economic impact, their relation to other federal or state laws or regulations, and the effect of any changed conditions since the Guides were issued. The Commission also solicited comment on general issues regarding the Guides, such as whether the JVC's proposed provisions accurately reflect accepted practices, technology or nomenclature used in the trade; whether proposed changes would result in a lessening of competition or increased prices; and whether the JVC's petition to revise should be rejected and the current Guides retained. Because these questions concern fundamental issues about whether the Guides should be retained, deleted or revised, the Commission addresses them first. A. Summary of the Comments All but one of the 37 comments specifically addressing the economic impact of the Guides stated that any compliance costs are far outweighed by the benefits to the industry and to consumers.\6\ None of the comments provided any figures or estimates of the monetary costs incurred in complying with the Guides. --------------------------------------------------------------------------- \6\ E.g., Fasnacht (4) p.1 (the Guides have a positive economic impact by creating a level playing field); Schwartz (52) (the Guides have a positive impact on the industry by establishing standards that offer consumers protection without undue cost); JMC (1); Thorpe (7); King (11); Gold Institute (13); Honora (15); Argo (17); AGS (18); AGTA (49); Estate (23); G&B (30); Jabel (47); Skalet (61); Handy (62); Lannyte (65); Newhouse (76); GIA (81); Nowlin (109); McGee (112); ArtCarved (155); Bales (156); Bridge (163); LaPrad (181); IJA (192); CPAA (193); Mark (207); Canada (209); Bedford (210); JVC (212); Matthey (213); Bruce (218); Service (222); MJSA (226); Preston (229); Timex (239); and Sheaffer (249). Service (222) agreed with regard to the current Guides, but thought that the compliance costs associated with the proposed revisions outweighed the benefits. --------------------------------------------------------------------------- Thirty-eight comments specifically addressed the continuing need for the Guides and all agreed that there is a continuing need, with most stating that the Guides protect consumers and industry.\7\ One comment stated, [[Page 27179]] ``Without the guides to serve as a reference manual, every manufacturer or producer would have their own interpretation [of what constitutes fair industry practices].'' \8\ --------------------------------------------------------------------------- \7\ The commenters are the same as in footnote 6 supra, with the addition of Eisen (91). With regard to the current Guides, Best (225) stated, at p.2, that the Guides ``are well developed and provide protection to consumers and to reputable jewelers against otherwise false and deceptive practices. The Guides offer a great measure of certainty to jewelers' business practices as historical application and interpretation have better defined the parameters of acceptable conduct. This certainty has value because it contributes to an efficient and free flow of information to consumers in the marketplace.'' AGTA (49), at p.2, stated: ``If consumers cannot be confident that what they are paying for is what they have been told it is, our trade cannot survive. The FTC guides provide a structure upon which our industry has built regulations for the consumer's protection, which is ultimately our own as a trade. Therefore, AGTA endorses their continued existence, timely revision, and a strong enforcement.'' \8\ Skalet (61) p.1. --------------------------------------------------------------------------- Twenty-nine comments specifically addressed the burdens of complying with the Guides. Seven comments stated there are no compliance burdens.\9\ Three also stated that, if everyone complies, the burdens of compliance are evenly distributed and will not benefit one business at the expense of another.\10\ Ten comments stated that the burdens are minimal \11\ and six thought the burdens were ``worth it.'' \12\ The seven comments that itemized the burdens (``testing and planning,'' ``monitoring suppliers,'' ``controls,'' ``measurements,'' ``record keeping,'' ``time,'' and ``personnel''), concluded that the costs are acceptable because of the benefits received.\13\ None of the comments identified the extent of the costs in money or in time. --------------------------------------------------------------------------- \9\ Fasnacht (4); Honora (15); G&B (30); Lannyte (65); Newhouse (76); CPAA (193); and Bedford (210). \10\ Honora (15); G&B (30); and Newhouse (76). \11\ JMC (1); King (11); AGS (18); Estate (23); Schwartz (52); Handy (62); Nowlin (109); Bridge (163); MJSA (226); and Preston (229). \12\ Argo (17); AGTA (49); Bales (156); LaPrad (181); Mark (207); and Matthey (213). \13\ Jabel (47); Skalet (61); McGee (112); ArtCarved (155); IJA (192); Canada (209); and MJSA (226). --------------------------------------------------------------------------- Although 29 comments responded to the question regarding changes needed to minimize the economic effect of the Guides, they did not offer detailed explanations or suggestions. Fifteen comments stated that no changes are necessary.14 Six comments stated that the changes proposed by the JVC are sufficient to minimize their economic effects.15 Two comments recommended simplifying the Guides to avoid misunderstandings (e.g., about the proper use of terminology).16 Canada stated that harmonizing standards with Canada would minimize the economic effect on entities subject to the Guides' requirements, reduce costs and promote international trade, by not requiring manufacturers to mark products for domestic use differently than those made for foreign use.17 --------------------------------------------------------------------------- \14\ JMC (1); Fasnacht (4); Thorpe (7); Honora (15); Argo (17); Estate (23); G&B (30); Jabel (47); Schwartz (52); Skalet (61); Handy (62); McGee (112); LaPrad (181); IJA (192); and Mark (207). \15\ AGTA (49); GIA (81); Bridge (163); Bedford (210); JVC (212); and Preston (229). \16\ ArtCarved (155) and Matthey (213). \17\ Comment 209, p.1. --------------------------------------------------------------------------- Twenty-seven comments addressed the relation of the Guides to federal, state or local laws or regulations. Twenty-one comments specifically stated either that there is no conflict or overlapping or that they are unaware of any.18 Six stated that if there was any duplication, it should not deter the Commission from approving comprehensive guidelines.19 (No examples of duplication were provided.) However, the Postal Service stated that the Guides ``overlap with Postal authority, sometimes undermining our position in false representation and fraud actions.'' 20 The Postal Service stated that the Guides do not adequately address the situation where the consumer purchases jewelry before actually seeing it. The Postal Service proposed changes to the Guides to help remedy this problem.21 As discussed below, the Commission has revised the Guides to mitigate this problem. --------------------------------------------------------------------------- \18\ JMC (1); Fasnacht (4); Thorpe (7); King (11); Honora (15); Argo (17); Handy (62); Lannyte (65); GIA (81); NACAA (90); McGee (112); ArtCarved (155); Bridge (163); IJA (192); Phillips (204); Bedford (210); JVC (212); Matthey (213); Best (225); MJSA (226); and Preston (229). \19\ Estate (23); G&B (30); Jabel (47); AGTA (49); LaPrad (181); and CPAA (193). \20\ Comment 244, p.1. The Postal Service enforces 39 U.S.C. 3005, which prohibits persons from obtaining mail or property through the mail by means of false representation. The Postal Service also brings actions under the criminal mail and wire fraud statutes, 18 U.S.C. 1341, 1342 & 1345. Id. \21\ Comment 244, pp.1-3. --------------------------------------------------------------------------- Thirty-one comments discussed economic or technological changes since the Guides were issued and the effect on the Guides. Three comments 22 stated that economic and technological changes have had no effect on the Guides and 28 comments stated that such changes have had an effect on the Guides.23 The changes the commenters specified, which they thought should be reflected in the Guides, are new gemstone enhancement techniques,24 laser treatment of diamonds,25 fracture-filling of diamonds,26 new methods of metal plating,27 diffusion-treated sapphires,28 advanced testing techniques,29 new synthetic gemstones,30 and possible new platinum products.31 --------------------------------------------------------------------------- \22\ JMC (1); Handy (62); and McGee (112). \23\ JMC (1); Fasnacht (4); Thorpe (7); King (11); Honora (15); Argo (17); AGS (18); Estate (23); AGTA (49); Lannyte (65); Newhouse (76); GIA (81); Eisen (91); McGee (112); ArtCarved (155); Bales (156); Bridge (163); LaPrad (181); IJA (192); CPAA (193); Mark (207); Canada (209); Bedford (210); Matthey (213); MJSA (226); Preston (229); Timex (239); and Sheaffer (249). \24\ AGS (18); AGTA (49); GIA (81); Eisen (91); ArtCarved (155); LaPrad (181); and IJA (192). \25\ Fasnacht (4); Thorpe (7); Honora (15); ArtCarved (155); and Preston (229). \26\ Thorpe (7); Estate (23); ArtCarved (155); IJA (192); and Preston (229). \27\ Newhouse (76); ArtCarved (155); Canada (209); and Preston (229). \28\ Thorpe (7); Honora (15); and Preston (229). \29\ ArtCarved (155); LaPrad (181); and Preston (229). \30\ Honora (15) and ArtCarved (155). \31\ ArtCarved (155). --------------------------------------------------------------------------- On the economic side, Richard C. Mark commented on the dramatic increase in the price of gold since the Guides were most recently revised, which, he stated, increases the significance of any rules dealing with gold.32 Another comment stated that greater economic advantage to the trade would occur if national and international standards are uniform.33 --------------------------------------------------------------------------- \32\ Comment 207, p.2. In 1957, when the Guides were last revised, gold cost $35 an ounce. The current price fluctuates between $350 and $400 per ounce. \33\ Matthey (213) p.1 (stating that ``Competition on a global as well as a national basis make the establishment of standards and clear definitions of terminology even more critical''). --------------------------------------------------------------------------- Twenty-four comments addressed whether proposed provisions accurately reflect accepted practices, technology or nomenclature used in the trade. Fourteen comments stated that there are no requirements in the JVC proposal that do not fairly and accurately reflect trade practices.34 Some comments, however, identified parts of the proposed Guides that they contended are contrary to accepted industry practices. Specifically, Best and Service Merchandise stated that the JVC's proposed diamond weight tolerances, restrictions on the use of the term ``point,'' and proposed disclosures regarding gemstone enhancement do not conform with accepted trade practices.35 Other responses to this question were not directly responsive because they did not contend the JVC's proposals were out of step with current trade practices, but instead proposed adding new terms and standards to the Guides.36 --------------------------------------------------------------------------- \34\ JMC (1); Fasnacht (4); Argo (17); Capital (19); Estate (23); Jabel (47); Skalet (61); Handy (62); Newhouse (76); GIA (81); McGee (112); ArtCarved (155); IJA (192); and Bedford (210). \35\ Best (225) p.4 and pp.7-8 and Service (222) p.1 and 5 of letter and p.3 of comment. See also MJSA (226) p.7 (opposing proposed diamond weight tolerances as contrary to industry practice). \36\ For example, AGTA (49) suggested banning certain terms in use that relate to synthetic gemstones and plated gold jewelry. See also Lannyte (65); Eisen (91); CPAA (193); and Matthey (213). (Their proposals are discussed under the appropriate categories infra.) --------------------------------------------------------------------------- Thirty-one comments directly responded to the question regarding [[Page 27180]] whether any proposed changes to the Guides would result in a lessening of competition, barriers to entering the industry or increased prices to consumers. Twenty-five answered ``no'' or ``probably not.'' 37 But, numerous comments regarding the JVC's proposed weight tolerances for diamonds believed a narrow tolerance requirement (as the JVC proposed) would increase costs to consumers.38 Jabel stated that paperwork and the printing of definitions and descriptions the JVC proposed as new requirements may increase consumer prices.39 --------------------------------------------------------------------------- \37\ JMC (1); Fasnacht (4); Sibbing (5); Thorpe (7); King (11); Honora (15); Argo (17); AGS (18); Estate (23); G&B (30); AGTA (49); Schwartz (52); Skalet (61); Handy (62); Lannyte (65); GIA (81); Nowlin (109); McGee (112); ArtCarved (155); IJA (192); CPAA (193); Mark (207); Canada (209); Bedford (210); and Matthey (213). In addition, most of the 72 comments supporting a different tolerance for diamond weights indicated that requiring the merchant to state more accurately the weight or weights of diamonds would result in increased costs to consumers. \38\ E.g., Service (222) and Best (225) (implementation of the JVC proposal would result in lessened competition and higher prices, particularly for low margin jewelry retailers, which would be passed on to consumers). The comments opposing the proposed diamond weight tolerance and alleging consequential costs are listed and examined in detail in the discussion of diamonds below. \39\ Comment 47, p.2. --------------------------------------------------------------------------- Preston commented that, although he was not specifically aware of any proposals that would lessen competition, produce barriers to entry or increase prices to consumers, he thought these results could occur on a modest scale.40 Thorpe stated, on the other hand, but without giving any reasons, that the JVC proposal would increase competition based on quality, value and service, and that the proposal would lower prices to consumers by allowing them to shop and compare ``on a level playing field.'' 41 Bales recommended that the Guides allow products of less than 10 karat gold to be sold as a karat gold product because it would increase competition in the industry.42 Other comments, while not specifically responding to this question, stated that the JVC's proposal to prohibit the use of the term ``gemstone'' to describe synthetic or imitation products would be anticompetitive.43 --------------------------------------------------------------------------- \40\ Comment 229. \41\ Comment 7, p.2. \42\ Bales (156) suggested that a quality mark be permitted on a product called Balesium that is 4\1/2\ karat gold. See discussion below regarding the 10 karat minimum standard for karat gold. \43\ Service (222) p.1 and p.4; Best (225) p.3; AGL (230) p.3; NRF (238) pp.1-2; Kyocera (242) p.1; River (254) p.1. Dealers in synthetics, which are materials made in a laboratory that have the same chemical, physical and optical properties as a natural gemstone, contend they should be able to describe their products as gemstones with appropriate qualification to indicate that they are laboratory made. --------------------------------------------------------------------------- One hundred eighty-one comments responded to the question of whether the JVC's petition to revise should be rejected and the current Guides retained. Many comments stated that the petition to revise should not be rejected.44 For example, AGTA affirmatively favored revising the Guides and 56 AGTA members filed individual comments endorsing the AGTA position. Twenty three other comments did not respond specifically to Question 34, but endorsed revision of the Guides.45 --------------------------------------------------------------------------- \44\ E.g., JMC (1); Fasnacht (4); Thorpe (7); King (11); Gold Institute (13); Argo (17); AGS (18); Capital (19); Estate (23); G&B (30); Jabel (47); AGTA (49); Schwartz (52); Skalet (61); Handy (62); GIA (81); Nowlin (105); McGee (112); ArtCarved (155); Bales (156); LaPrad (181); IJA (192); CPAA (193); Mark (207); Canada (209); Bedford (210); Matthey (213); and Preston (229). \45\ JMC (1); Littman (2); JA (3); Overstreet (8); Kennedy (9); Collins (12); Von's (16); Jeffery (21); Stanley (83); General (88); APG (89); NACAA (90); Eisen (91); Alie (106); AWI (116); USWC (118); Krementz (208); JVC (212); WGC (223); MJSA (226); Swiss Federation (232); AWA (236); and ISA (237A). --------------------------------------------------------------------------- Service Merchandise and Best recommended rejecting the petition to revise in favor of retaining the current Guides.46 Service Merchandise stated that the proposed revisions are anti-competitive and offer insufficient benefit to the affected industries or their consumers to justify the additional efforts and costs that they allege will result.47 Additionally, 72 comments recommended rejecting the JVC proposal and retaining the current Guides, apparently because of their objection to the JVC's proposal regarding diamond weight tolerances.48 --------------------------------------------------------------------------- \46\ Comment 222 and Comment 225. \47\ Comment 222, p.1. \48\ These 72 comments, mostly using one of four form letters, also urged that all proposed changes be rejected. One writer from this group indicated that he had a change he would like to suggest but stated ``my understanding is that it [the JVC proposal] must be accepted in whole or rejected in total.'' Comment 60, p.1. Staff contacted this commenter, Richard Goldman, president of Frederick Goldman, Inc., who indicated that the group to which he belongs was advised, by a person he did not identify, that the JVC proposal had to be accepted or rejected in its entirety. Thus, this group's opposition to all other proposed revisions appears to be based on a false premise. These 72 commenters are: London Star (20); Luria (28); Armel (32); Mendelson (33); Fashion (35); Courtship (36); MAR (37); NY Gold (39); Aviv (40) and (41); TransAmerican (43); Saturn (46); Faleck (50); Alarama (51); Fabrikant (53); Light Touch (54); Disons (55); Astoria (56); PanAmerican (57) and (101); Odi-Famor (58); Black Hills (59); Goldman (60); Almond (63); Brilliance (68); Oroco (69); Fargotstein (70); Simmons (71); Mikimoto (72); Evvco (73); Renaissance (74); Harvey (75); JGL (77); Raphael (78); AMG (79); Vijaydimon (80); Philnor (93); Orion (94); Flyer (95); Classique (96); Vardi (97); K's (98); Diastar (99); Foster (100); Fame (102); Cheviot (104); M&L (105); Kurgan (107); Rosy Blue (108); NEI (110); Leer (114); Majestic (115); Imperial (117); Schneider (119); Precision (121); New Castle (122); Stern (157); Consumers (158); Ultra Blue (160); DeMarco (161); Little (164); Golden West (179); Stanley (180); Mastro (190); Capitol Ring (191); Bogo (201); Schaeffer (211); Suberi (214); Impex (220); Landstrom's (241); Ultimate (243); and Murrays (264). --------------------------------------------------------------------------- B. Conclusion The comments largely favor retention of the Guides and state that there is a continuing need for the Guides. The comments indicate that the benefits of the Guides outweigh the costs, and present no persuasive evidence that the Guides have outlived their usefulness or impose substantial economic burdens. Accordingly, the Commission is retaining the Guides. Many comments recommended that the Guides be revised to reflect changed technologies, and the Commission has considered these comments in amending the specific provisions of the Guides, discussed below. The comments that favored rejecting the JVC proposal and retaining the Guides as they exist now usually did so because of a particular JVC recommendation. The objections to those proposals also are addressed as they occur in the different Guide categories. III. Changes to the Form of the Guides A. Legal Language Used in the Guides The legal language in the Guides has been revised to conform to the Commission's view on deception and unfairness as expressed in its Policy Statements on Deception and Unfairness.49 Specifically, the phrase ``it is an unfair trade practice,'' generally has been revised to state ``it is unfair or deceptive to * * *.'' --------------------------------------------------------------------------- \49\ Statement on Deception, appendix to Cliffdale Assocs., Inc., 103 F.T.C. 110, 1734-84 (1984) and Statement on Unfairness, appendix to International Harvester Co., 104 F.T.C. 949, 1072 (1984). --------------------------------------------------------------------------- B. Consolidation of the Guides Detachable metallic watch bands are the subject of the Guides for the Metallic Watch Band Industry (``Watch Band Guides''), 16 CFR Part 19. Metallic watch bands that are permanently attached to the watch are included in the Guides for the Watch Industry, 16 CFR Part 245. The JVC proposed combining the Watch and Metallic Watch Band Guides with the Jewelry Guides and the FRN solicited comment on this proposal. Thirty comments addressed this issue, and 22 stated the Guides should be consolidated.50 Most [[Page 27181]] of those who gave reasons for favoring consolidation mentioned the Watch Band Guides rather than the Watch Guides.51 --------------------------------------------------------------------------- \50\ JMC (1); Fasnacht (4); Gold Institute (13); Benrus (22); Estate (23); G&B (30); Jabel (47); Skalet (61); Lannyte (65); Newhouse (76); Nowlin (109); McGee (112); ArtCarved (155); Bales (156); Bedford (210); Bridge (163); IJA (192); Canada (209); Matthey (213); Bedford (210); MJSA (226); and Leach (258). \51\ E.g., Bedford (210) commented, at p.3, that ``as watch bands are mostly sold and fitted by jewelers, it would seem appropriate * * * that they be combined with the jewelry guidelines.'' However, no commenters identified themselves as watchband manufacturers. --------------------------------------------------------------------------- Six of the eight comments opposing consolidating the Guides were from watch manufacturers or trade associations.52 The reasons given for opposition were primarily related to the consolidation of the Watch Guides, not the Watch Band Guides. The American Watch Association stated that the Guides correctly reflect the fact that watches and jewelry are different products, ``by imposing substantially different definitions and standards for watches and jewelry.'' 53 For example, the minimum thickness in the Watch Guides for gold electroplated watches is about 100 times thicker than the minimum thickness for gold electroplated jewelry in the Jewelry Guides.54 --------------------------------------------------------------------------- \52\ USWC (118); JCWA (216); NACSM (219); Best (225); Citizen (228); Swiss Federation (232); AWA (236); and Timex (239). Only one comment from the affected industry, Benrus (22), favored consolidation of the Watch Guides. \53\ Comment 236, p.1. See also Swiss Federation (232) p.1 (the industries are separate and consolidating the Guides would make use of the Guides difficult) and Citizen (228) p.5 (watches and jewelry are dissimilar and should not be combined). \54\ See also JCWA (216) p.4 (favoring separate Guides because the application of materials and quality demands differ for watches and jewelry); Timex (239) pp.9-10 (opposing consolidation if doing so would create any additional compliance obligations); Swiss Federation (232) p.38 (stating that jewelry, watch and watch band companies are separate industries, with separate trade associations). --------------------------------------------------------------------------- Based on the comments, the Commission has determined not to combine the Guides for the Watch Industry with the other two Guides. The Guides for the Watch Industry will remain as separate Guides and are discussed in another Federal Register notice. However, the Commission has determined to consolidate the Guides for the Metallic Watch Band Industry with the Jewelry Guides.55 The Watch Band Guides primarily concern ``fineness'' standards for precious metals, which are the same as those contained in the Jewelry Guides.56 Thus, unlike the Guides for the Watch Industry, the Watch Band Guides share many common elements with the Jewelry Guides.57 Therefore, consolidation of these two Guides eliminates unnecessary duplication.58 --------------------------------------------------------------------------- \55\ JCWA (216), Citizen (228), and AWA (236) stated that all three Guides should be kept separate, but none of these provide reasons for keeping the Watch Band Guides separate. \56\ ``Fineness'' refers to the amount of precious metal in an article. \57\ For example, the provisions for gold electroplated metal watch bands in the Watch Band Guides are the same as those for gold electroplated metal products included in the Guides for the Jewelry Industry. \58\ More than half of the material in the Metallic Watch Band Guides duplicates material in the Jewelry Guides. --------------------------------------------------------------------------- IV. Category-By-Category Explanation of Revisions This section discusses specific proposed revisions on which the Commission sought comment in the FRN and additional issues raised by the comments. This discussion includes a summary and analysis of the comments on each issue and a discussion of the revisions that the Commission has made. (In some instances there were no comments on particular proposals.) A. Pre-Category I--Scope and Application: Sec. 23.0 Section 23.0 in the current Guides is captioned ``Definitions,'' and gives definitions for: ``diamond,'' ``pearl,'' ``cultured pearl'' and ``imitation pearl.'' In the JVC proposal, section 23.0 is titled ``Scope and Application,'' and the definitions appear in the sections that specifically address these products. The Commission has determined that this organizes the Guides in a more helpful fashion and adopts these changes. Part (a) of section 23.0, as proposed by the JVC, lists industry products to which the Guides apply and part (b) defines industry members. The term ``industry products'' is used throughout the Guides, but it is not explicitly defined. To avoid any uncertainty about their intended coverage, the revised Guides include a definition of ``industry products.'' The JVC petition specifically suggested that the term ``industry products'' include pens, pencils and optical frames containing gold or silver. The FRN sought comment on whether provisions applying to the gold or silver content of pens, pencils and optical products should be included in the Guides, and whether they should be the same as the current provisions for jewelry. Thirty-one comments addressed this issue, and 25 favored including these products, including two major manufacturers of writing implements, Sheaffer and A.T. Cross.59 The six commenters that opposed the inclusion of these products simply stated that they saw no need for the inclusion of these products or that they were not ``really'' jewelry products.60 --------------------------------------------------------------------------- \59\ Fasnacht (4); Gold Institute (13); Estate (23); Korbelak (27); G&B (30); Jabel (47); Schwartz (52); Skalet (61) p.3 (stating that the items are typically sold in jewelry, department and gift stores, and thus should be subject to the same standards as jewelry sold in the same store); Handy (62); Lannyte (65); Newhouse (76); McGee (112); Bales (156); Bridge (163) p.2 (stating that the metallic content of the items is more likely to be misrepresented if they are not included in the Guides); Cross (165) p.1 (favoring inclusion, because the mislabeling of these products, ``especially by counterfeiters, has caused confusion by customers and harmed the business of legitimate manufacturers''); IJA (192); Tru-Kay (196) p.1 (stating that the public would find different standards for the metal content of these items as opposed to jewelry confusing); Mark (207) p.3 (same as Tru-Kay); Canada (209); Bedford (210); MJSA (226) p.3 (stating that without inclusion in the Guides, there may be more misrepresentation of metallic content); Preston (229); Sheaffer (249) p.2 (favoring inclusion, but objecting to ``unnecessary and arbitrary limitations'' on the use of the term `Plate' to describe gold electroplated articles); Franklin (250); and Knight (256). Although no current manufacturers of eyeglass frames commented, Knight (256) stated, at p.2, that ``We at one time owned the largest manufacturer of gold filled and rolled gold plate frames in the U.S.A. and they followed the jewelry guides.'' \60\ LaPrad (181); Nowlin (109); ArtCarved (155); Service (222); Franklin (250); and NACSM (219). --------------------------------------------------------------------------- The comments generally indicate that pens, pencils, and opticals made of precious metals are viewed by consumers as similar to jewelry because of their metallic content and where they are sold. Thus, consumers would tend to expect that claims about such products would be guided by the same standards that apply to other industry products. Because consumers' expectations about the meaning of terms such as ``gold'' are likely to be the same for any product, the Commission is including these items in the Guides. These products and detachable metallic watch bands are now specifically listed in Sec. 23.0(a) of the revised Guides. The title of the Guides is now the Guides for the Jewelry, Precious Metals, and Pewter Industries to reflect the coverage of the Guides.61 --------------------------------------------------------------------------- \61\ See infra for a discussion of the inclusion of items made from pewter. --------------------------------------------------------------------------- Although the JVC petition did not list hollowware or flatware as ``covered products,'' section 23.6A of the JVC petition addresses sterling hollowware and flatware. The Franklin Mint objected to this because these items are not jewelry.62 However, these items are commonly sold in jewelry stores, and at least one of the commenters simply presumed that these items were covered [[Page 27182]] by the Guides.63 As with pens and pencils made of precious metal, the Commission believes that consumers would tend to expect that claims about silver or gold hollowware or flatware would be guided by the same standards that apply to other industry products. Therefore, these products also are included in the list of industry products covered by the Guides. --------------------------------------------------------------------------- \62\ Comment 250, p.3. The Franklin Mint stated that ``industry products'' should be limited to jewelry, which it defined as an ornamental item worn on or about one's person for personal adornment. (The Franklin Mint primarily markets objects that are not used for personal adornment, but which incorporate or are made of precious metals or gemstones, so that its proposal would exempt most of the products it carries from the application of the Guides.) \63\ See Gold Institute (13). --------------------------------------------------------------------------- The Guides also refer to ``industry members,'' but do not define this term or give examples. The JVC proposed that the Guides state they apply to ``every firm (a person, group of persons, or corporation) engaged in the business of selling'' industry products. One commenter noted that the Guides need to clarify that purchasers at all levels of the industry are protected by the Guides, since it is commonly assumed by courts that merchants are experts who should know better than to rely on suppliers' representations as being accurate.64 --------------------------------------------------------------------------- \64\ ISA (237) p.12 (stating further that the Guides should ``address all issues of intended disclosure to resellers of jewelry products so that this information can accurately and completely be passed on to the ultimate consumer''). --------------------------------------------------------------------------- The Commission agrees that it would be useful to clarify that retailers, as well as consumers, are meant to be protected from deceptive practices addressed by the Guides. Therefore, the revised Guides state that they apply to persons, partnerships, or corporations at every level of the trade. The JVC also proposed, in section 23.0(b), including in the description of industry members (in addition to sellers) those who are engaged in ``identifying, grading, appraising, promoting the sale of or counseling the purchase or barter of industry products.'' The FRN specifically requested comment on whether the Guides should be expanded to include appraisals of jewelry in addition to sales and offers to sell jewelry. Thirty-five comments addressed this question.65 The comments generally favored including appraisers of jewelry industry products among those subject to the Guides. The main effect of including appraisers (or those ``identifying'' and ``grading'' industry products) among those covered by the Guides would be to ensure that they would be guided by the same definitions and standards as those selling the products. To confirm the value of an intended purchase, consumers often seek an appraisal because they rarely independently have the knowledge to determine the quality or value of jewelry.66 The Commission has concluded that it would be unfair or deceptive for appraisers to ascribe meanings to standard terms that are used in the jewelry industry that are different from the meanings attached to those terms by the sellers of the products. Thus, appraisers and those ``identifying'' and ``grading'' industry products are advised to follow the admonitions of the Guides.67 --------------------------------------------------------------------------- \65\ E.g., AGS (18); AGTA (49); GIA (81); IJA (192); and ISA (237 and 237A). \66\ An ``independent'' appraisal is one done by a person who has no commercial relationship to the seller and does not sell competitive merchandise. In other words, the person who does the appraisal does not stand to benefit beyond his appraisal fee. \67\ The Commission is omitting from the list those who promote the sale, or counsel the purchase or barter, of industry products, because this language is unnecessarily specific, and because such persons are already covered by the language of the Guides (e.g., persons who sell or offer for sale industry products). --------------------------------------------------------------------------- However, 29 of the comments also recommended that the content of appraisals be covered by the Guides. Fifteen of these stated this change should be effective with this revision.68 --------------------------------------------------------------------------- \68\ JMC (1); Sibbing (5); Thorpe (7) p.2 (stating that appraisals are sometimes used to make a sale by showing the consumer ``a signed document stating an inflated value''); King (11); Estate (23); G&B (30) p.7 (noting that ``you are going to have to understand appraisals are subjective''); Jabel (47); Skalet (61) p.3 (suggesting that ``appraisers should be certified or licensed and should have no connection with those who are making the sale''); Lannyte (65) p.4 (proposing that the Guides state that ``an appraisal has to be qualified as to the purpose of appraisal and the market level of the value quoted''); Eisen (91) p.1 (suggesting that the Guides should provide for ``a statement on no conflict of interest, disallowance of a percentage fee, and a resume with the appraiser's qualifications''); McGee (112); ArtCarved (155); LaPrad (181); AGL (230) pp.4-6 (proposing that the Guides state that it is unfair for a seller to provide an appraisal to a consumer when the appraiser is also the supplier of the item being appraised, and recommending that the Guides specify certain required content of appraisals of diamonds or colored stones (e.g., ``appropriate tolerance information for each element that impacts on the value of the gemstone''); and ISA (237) and (237A) p.5 (stating that important problems are misrepresentation of qualifications and overstating of value to justify the selling price). Only one comment, LaPrad (181), proposed standards to use (those of the Appraisal Foundation). --------------------------------------------------------------------------- However, if the Guides were to regulate the content of appraisals, standards for establishing a value would be needed.69 Fourteen comments, including those of the American Gem Society, the American Gem Trade Association, and the Gemological Institute of America, recommended including appraisals in the Guides when there is adequate agreement on what the standards for appraisals should be.70 --------------------------------------------------------------------------- \69\ ISA (237A) noted, at p.18, that a New York City ordinance requires that appraisals state that ``the opinions of appraisers can vary up to 25%.'' ISA stated that the opinions of appraisers, ``depending on marketplace, variances in grading, and geographical market locations, as well as various purposes and functions and the method of value conclusion can cause appraisers to vary in their opinions of value for amounts potentially greater than 25%.'' Id. \70\ AGS (18); AGTA (49); GIA (81); IJA (192); Fasnacht (4); Honora (15); Bridge (163); Mark (207); Bedford (210); Matthey (213); MJSA (226); and Preston (229) p.6 (stating that there are different formats and standards used for jewelry appraisals and that ``[t]here is no overall agreement within the industry on precisely what does or does not constitute the ultimate desirable appraisal''). --------------------------------------------------------------------------- Although the Commission has determined that for the sake of consistency for consumers purchasing industry products, the Guides will state that those who appraise, identify or grade industry products should follow the Guides, they do not otherwise purport to guide these industries.71 --------------------------------------------------------------------------- \71\ ISA (237) noted, at p.2, that its members are appraisers in more than ``130 subspecialty areas of the major personal property disciplines * * *.'' It stated, at p.7, that while it prefers to have its own industry guide, it favors the inclusion of appraisals in the Guides, because ``many times we serve as expert witnesses in court and rely on the content of the guides to inform the court as to what is or is not acceptable.'' The Commission believes ISA's concerns will be satisfied by the language added to the Guides. --------------------------------------------------------------------------- The JVC proposal included, in section 23.0(c), a description of the behavior (claims and representations) to which the Guides apply. It is similar to Sec. 23.1(b) of the current Guides, but does not list the specific forms of advertising (periodicals, radio, television) that are described in Sec. 23.1(b). The Commission's authority, however, is broader than the items currently listed as advertising in the Guides, and therefore the specific list unnecessarily limits the scope of the Guides. The National Retail Federation comment stated that such specifically enumerated limitations are helpful as they may prevent other representations, such as in-store signs or flyers, from being treated as advertising.72 However, that is not the intent of that section. Accordingly, Sec. 23.0(c) of the revised Guides encompasses express and implied claims in all types of advertising and promotion. --------------------------------------------------------------------------- \72\ Comment 238, p.1. --------------------------------------------------------------------------- B. Category I: Secs. 23.1-23.4 Guides in this part apply to all industry products regardless of their composition. Section 23.1(a) of the current Guides contains a list of attributes, such as origin and durability, which industry members are advised not to misrepresent. The JVC proposal omits ``manufacture'' from the list (possibly in error). The Commission has found no basis in the record for deleting ``manufacture'' from the list of items not to be misrepresented. The JVC proposed adding the following attributes to the list of [[Page 27183]] characteristics that should not be misrepresented: ``clarity,'' ``enhancement,'' ``future value,'' and ``prospects of resale.'' The Commission believes that the term ``clarity'' is unnecessarily specific, as it is already covered by the current Guides under ``grade'' and ``quality.'' Therefore, this term has not been included. ``Enhancement'' is the term used by the trade to describe the treatment of gemstones to improve their color or otherwise improve their appearance. However, the Commission has determined that a more accurate term is ``treatment'' and has added this term, in lieu of ``enhancement,'' to the list of attributes that should not be misrepresented. The Commission has determined that the third term, ``future value'' should not be added to the Guides, because the Guides already list ``value,'' and ``future value'' is subsumed in value. The Commission also has determined that ``prospects of resale'' should not be added to the Guides. Representations regarding the prospects of resale go to the investment of gems, and the Commission has concluded that the sale of investment gems is unsuitable for treatment in guides. The JVC proposed adding five additional parts to Sec. 23.1, which would be designated as follows: Misrepresentation of the character or identity of business; Misuse of the term ``certified,'' etc.; Deception (as to gemstone investments); Misuse of the term ``investment quality''; and Deception as to warranties on gemstone investments. Discussion of each of these proposed additions follows. Misrepresentation of the character or identity of business was the caption of a section of the Jewelry Guides that was in effect from 1957 to 1979. This section admonished sellers from, for example, misrepresenting themselves as wholesalers or as offering wholesale prices.73 NACAA commented that it is important to prohibit such a misrepresentation, noting that ``retailers use phrases such as `factory direct' to imply that items are less expensive, when in fact they obtain their merchandise through jobbers and other outside sources.'' 74 However, Sec. 23.1 warns against misrepresentation as to the ``manufacture'' or ``distribution'' of industry products and this provision would encompass misrepresentations about the nature of the seller's business. --------------------------------------------------------------------------- \73\ The JVC also proposed expanding this section by adding ``investment broker'' and ``independent testing laboratory'' to the list of examples of trade designations that firms are not to use falsely. ISA (237) recommended adding ``gemological laboratory'' and ``appraisal facility'' to the list. \74\ Comment 90, p.2. --------------------------------------------------------------------------- Misuse of the term ``certified,'' etc. was the caption of a section in the Guides that were in effect between 1957 and 1979 and which the JVC proposed reinstating. This section stated that it was an unfair trade practice to refer to an industry product as ``certified'' unless the identity of the certifier and the specific matter to be certified is disclosed; the certifier examines the product, makes the certification, and is qualified to certify; and the certifier makes available a certificate that includes certain information about the certifier and the certification.75 --------------------------------------------------------------------------- \75\ The JVC also proposed requiring the disclosure of any business relationship between the certifier and the seller. --------------------------------------------------------------------------- Thirty-two comments favored requiring the seller to make available to the purchaser a certificate disclosing the name of the certifier and the matters and qualities certified.76 The term ``certified'' or certificates of authenticity are likely to be used as a way of giving credence to a quality claim. If, in fact, the product is not ``certified'' in a valid manner or a certificate misrepresents the qualities of the item, the seller is not complying with the Guides' admonition in Sec. 23.1 not to misrepresent important qualities or otherwise deceive purchasers. For this reason, the Commission is not including a provision relating to certificates in the Guides.77 --------------------------------------------------------------------------- \76\ JMC (1); Fasnacht (4); Thorpe (7); King (11); Honora (15); Argo (17); AGS (18); Capital (19); Estate (23); G&B (30); Jabel (47); AGTA (49); Schwartz (52); Skalet (61); Lannyte (65); Newhouse (76); GIA (81); NACAA (90); Nowlin (109); McGee (112); ArtCarved (155); Bridge (163); LaPrad (181); IJA (192); Matlins (205); Bedford (210); Matthey (213); Bruce (218); MJSA (226); Preston (229); ISA (237A); and Leach (257). Opposed to this provision are: Bales (156) p.5 (stating that it would raise costs and eliminate many smaller jewelers); NACSM (219); Service (222); and Franklin (250). With respect to the issue of whether there should be a disclosure that there is subjectivity in the grading and appraising of diamonds and colored stones, a comment form AGTA (49) and 56 individual AGTA members opposed disclosure, stating at p.6, that the degree of subjectivity is ``better addressed by those in the business of operating laboratories for certificates * * * and to those associations governing appraisers.'' However, ISA (237A) stated at p.21, that appraisal reports should disclose that diamond and colored stone gradings are subjective in nature. Thorpe (7), AGS (18), Schwartz (52), Skalet (61), NACAA (90), Bruce (218), and Preston (229) were also in favor of the disclosure of the degree of subjectivity in grading. \77\ Certificates have no accepted meaning in the industry and are not defined in the standard dictionary for the industry [``Jewelers' Dictionary'' (3d ed. 1976)]. See AGTA (49) p.5 (favoring the proposal, but stating that since ``there are no nationally accepted standards for certification,'' the requirement that a certificate state the name of the certifier ``is no assurance of either expertise or quality''); NACSM (219) p.24 (stating that the proposed section was ``vague and broad in that it could be construed to make any sales slip identifying the product a certification''); Service (222) p.2 (stating that the current Guides ``are sufficient to prevent deception with certifications and appraisals''). --------------------------------------------------------------------------- However, some commenters suggested that the Guides address misrepresentation of the system of grading that was used in any certificate or grading report.78 There are several different diamond color grading systems in general use, each having its own standards and terminology, and several grading systems for colored stones.79 --------------------------------------------------------------------------- \78\ Rapaport (233) p.1 (stating that misuse of GIA color and clarity terminology by sellers (as opposed to appraisers or graders) is a major problem and suggesting that the Guides state that it is unfair to misuse GIA grading terminology); Thorpe (7) p.2 (stating that an identification of the grading system used ``is necessary to make accurate quality comparisons''); Shor (257) p.1 (suggesting that the Guides state that it is unfair to describe diamonds by color and clarity grades developed by GIA or other recognized gem labs ``unless they conform exactly to the standards set forth by those institutions''). \79\ Richard T. Liddicoat, Jr. & Lawrence L. Copeland, ``The Jewelers' Manual'' 29-32 (1967); AGL (230); Rapaport (233) p.1. The Gemological Institute of America (GIA) and the American Gem Society (AGS) employ different grading systems, and some diamond graders have their own ``in-house'' grading systems. The letter ``D'' designates the best color in the GIA grading system. Some in-house grading systems have grades that start with ``A,'' ``AA,'' or ``AAA'' and consequently ``D'' in their systems stands for a much poorer color grade. --------------------------------------------------------------------------- The Commission is persuaded that a representation that a stone is a specific grade could be deceptive if the identity of the grading system used is not disclosed. Section 23.1 states that it is unfair or deceptive to misrepresent the grade of an industry product. The Commission has added a Note to Sec. 23.1 that states that, if any representation is made regarding the grade assigned to an industry product, the identity of the grading system used should be disclosed. The FRN solicited comment on the JVC's proposed subsections 23.1(d) through (f), which address deception involving gemstone investments. Section 23.1(d) would require, in the sale of gemstones as investments, a disclosure that profit or appreciation cannot be assured, that no organized market exists for the resale of gemstones by private owners, and that the seller is in compliance with all applicable laws and regulations governing securities dealers. In general, the comments favored these disclosures.80 --------------------------------------------------------------------------- \80\ JMC (1); Fasnacht (4); Sibbing (5); Thorpe (7); King (11); Honora (15); Argo (17); AGS (18); Capital (19); G&B (30); Jabel (47); Schwartz (52); Skalet (61); Lannyte (65); GIA (81); Eisen (91); Nowlin (109); McGee (112); ArtCarved (155); Bales (156); Bridge (163); IJA (192); Bedford (210); Matthey (213); Bruce (218); Shire (221); MJSA (226); Preston (229); Limon (235); ISA (237A); Leach (257); and AGTA (49) (favoring the proposal for sales to consumers but opposing the proposal for inter-trade transactions (e.g., a sale by a dealer to a retailer). Opposed to this provision: Onyx (162) and Rapaport (233) p.4 (stating that ``there are regular ongoing markets for the resale of diamonds and colored stones by private owners'' such as auction houses, jewelry stores, estate jewelry shows, and pawnshops). But see Shire (221) p.3 (stating that these examples do not constitute a ready market, since auction houses, for example, only want specific items and do not take everything for sale). The Commission believes that most consumers know that they, as individuals, would not have access to a market comparable to the stock market; hence, a disclosure would not be necessary to prevent deception in the absence of an affirmative misrepresentation as to the nature of the market. There is no evidence indicating that consumers believe that sellers of investment gemstones are governed by laws and regulations covering securities dealers. --------------------------------------------------------------------------- [[Page 27184]] The comments favoring these disclosures also generally favored the proposed sections 23.1(e) and (f). Proposed part (e) would prohibit the seller from implying that a gemstone sold for investment purposes is more desirable or different than gemstones marketed for use in jewelry.81 Proposed part (f) states that it is an unfair practice to limit a purchaser's opportunity for an independent examination of an industry product by delivering a product in a sealed container with a warranty that becomes void if the seal is broken.82 This practice makes it impossible for the consumer to examine the product or retain an independent expert to examine or appraise the product to determine whether the seller has fairly represented it. On the other hand, a consumer can refuse to buy a product sold under these conditions. --------------------------------------------------------------------------- \81\ See comments cited in note 80, and NACAA (90) and LaPrad (181). These comments are mostly from retail jewelers who would not usually sell gemstones as investments. Ethical sellers of gemstones for investment purposes may provide gemstones that are a higher grade then those commonly sold as jewelry. \82\ See comments cited in note 80. Rapaport (233) stated, at p.4, that it would be acceptable to deliver the product in a sealed container with a warranty that becomes void if the seal is broken, if the sealing agency allows the re-sealing of the product at a reasonable cost and discloses this at the time of sale. --------------------------------------------------------------------------- The FRN asked if there would be voluntary compliance with the proposed guidelines for sellers of investment gemstones. Thirteen comments stated that voluntary compliance could not be expected.\83\ Six comments stated that compliance could be expected only from legitimate operators.\84\ Five comments anticipated voluntary compliance by all concerned.\85\ --------------------------------------------------------------------------- \83\ King (11); Argo (17); Jabel (47); Schwartz (52); Skalet (61); GIA (81); Nowlin (109); McGee (112); ArtCarved (155); IJA (192); Matthey (213); Shire (221); and Leach (257). \84\ Fasnacht (4); AGTA (49); Bales (156); LaPrad (181); Bedford (210); and ISA (237A). \85\ Sibbing (5); Thorpe (7); Honora (15); Bridge (163); and MJSA (226). --------------------------------------------------------------------------- An industry guide is not appropriate if there is an indication that the violations are willful or wanton and will not be voluntarily abandoned. The experience of the Commission in bringing cases against sellers of investment gemstones indicates that most of the sellers have been engaged in fraud. Thus, they are unlikely to comply with practices that would be likely to put them out of business. The Commission has concluded that a case-by-case approach is a more appropriate way to address the problem of gemstone investment claims than inclusion in the Guides. The JVC did not propose any substantive changes in the last three sections in Category I (23.2, 23.3, 23.4), and there were no comments pertaining to these sections. The Commission has decided to retain sections 23.2 and 23.4. Section 23.2 states that it would be deceptive to use depictions that would materially mislead consumers about the product shown.\86\ Section 23.4 states that it would be deceptive to use the term ``handmade'' unless the item is entirely handmade or made by manually controlled methods consistent with consumer expectations. --------------------------------------------------------------------------- \86\ The Postal Service (244) stated that mail order purveyors of jewelry sometimes use deceptive photographs to sell their wares. This section notes that such a practice is unfair or deceptive, and a following Note specifically states diamonds should not be depicted in greater than actual size without a disclosure that the depiction is an enlargement. The JVC proposed expanding the Note to include depictions of gemstones other than diamonds, and the Commission has made this change. In addition, because television shopping programs or computer images also may contain misleading images of jewelry, the Commission has added ``televised or computer image'' to the list of covered ``visual depictions'' in this section. --------------------------------------------------------------------------- However, the Commission has determined to delete section 23.3. The admonition in section 23.3(a) against misrepresenting the origin of a product repeats the general guidance provided in section 23.1 (which provides a list of characteristics, including origin, which should not be misrepresented). Section 23.3(b) states that a disclosure of foreign origin should be made only when it is deceptive not to do so. A Note following this section explains that it is not necessary to disclose the foreign origin of small and functional parts, or other items (such as diamonds) which are primarily obtained from sources outside the United States. U.S. Customs requires products being imported into the U.S. to be marked with the country of origin unless they will be substantially transformed in the United States.\87\ Thus, the Commission has concluded that this section of the Guides is unnecessary. --------------------------------------------------------------------------- \87\ See The Tariff Act of 1930, as amended, 19 U.S.C. 1304, and Customs' implementing regulations, 19 CFR 134.11. --------------------------------------------------------------------------- The Commission also has deleted Sec. 19.4(b) of the Watch Band Guides, which states that it is unfair to fail to disclose that a metallic watchband, or a substantial part thereof, is of foreign origin.\88\ No commenters identified themselves as watchband manufacturers or marketers, and very few commenters even addressed the existence of the Watch Band Guides. It is unclear whether the fact that a watchband is made abroad is material to consumers, or whether consumers currently expect that any unmarked metallic watchband was made in the U.S.A. However, as noted, U.S. Customs requires imported watchbands (and other items of commerce) to be marked with the country of origin. Therefore, the Commission has concluded that this section is unnecessary.\89\ --------------------------------------------------------------------------- \88\ The Watch Band Guides contain very detailed instructions as to the labeling of watchbands assembled in the U.S. of foreign components. 16 CFR 19.4(b), note 2. Several Commission orders, from the 1960's or earlier, require similar detailed disclosures. However, the Commission recently issued a ``Sunset Rule'' that terminates administrative orders automatically after 20 years. 60 FR 58514 (Nov. 28, 1995). \89\ More specific guidance on when industry products can be marked ``Made in the U.S.A.'' is likely to be addressed further by the Commission later this year. --------------------------------------------------------------------------- C. Metals (Category II): Secs. 23.5-23.8 Guides in Category II, in both the current Guides and the JVC petition, apply to industry products composed in whole or in part of precious metal. In the JVC petition, this category also includes a proposed standard for pewter. 1. Inclusion of Metallic Watchbands As noted previously, the Guides for the Metallic Watchband Industry have been combined with the Jewelry Guides. The Commission believes that, in most respects in which the Watch Band Guides differ from the Jewelry Guides, the Watch Band Guides are unnecessarily restrictive or no longer represent the Commission's views of how the law should be applied. For example, unlike the Jewelry Guides, the Watch Band Guides state that it is unfair to fail to disclose the metallic composition of a product which has the appearance of gold but is not gold (Sec. 19.2(A)(2)). There is no evidence that suggests that consumers today will infer that a gold-colored metal watch band is gold. The prices for gold-colored [[Page 27185]] metallic watch bands compared to what gold watch bands (or other gold jewelry) would sell for is at least one way consumers are alerted that a gold-colored band is not gold.\90\ Thus, the Commission has omitted this provision from the Guides. --------------------------------------------------------------------------- \90\ To the extent that sellers purposely inflate the price of their gold-colored products to lead consumers to believe they are purchasing a gold item, they are probably engaging in fraud and are likely to misrepresent the item as gold when it is not, which would be a deceptive practice under Sec. 23.5(a). --------------------------------------------------------------------------- Other differences between the Watch Band Guides and the Jewelry Guides are noted at appropriate portions below. 2. Misrepresentation as to Gold Content: Sec. 23.5 Section 23.5(a) of the current Guides states that it is an unfair trade practice to sell or offer for sale any industry product by means of any representation that would deceive purchasers as to the gold content. Section 23.5(b) identifies specific practices that may be misleading and section 23.5(c) lists markings and descriptions that are consistent with the principles described in the section. These latter provisions are ``safe harbors'' (i.e., examples of ways of avoiding misrepresentations). a. General provision as to misrepresentation: Sec. 23.5(a). As noted, Sec. 23.5(a) of the current Guides contains a general provision admonishing against misrepresenting the gold content of industry products. The JVC proposed adding definitions of ``karat,'' ``gold,'' ``karat gold,'' ``fine gold,'' ``mark,'' and ``apply or applied'' to this section.91 No evidence indicating confusion as to the meaning of the terms was presented. In some cases, the terms are already defined very succinctly in the current Guides.92 For these reasons, the Commission has not included the proposed definitions in the Guides. --------------------------------------------------------------------------- \91\ Only one comment specifically addressed the proposed definitions. Finlay (253) stated at p.1 that it did not object to the proposed definitions of ``gold.'' \92\ For example, the JVC proposed defining ``fine gold'' as ``gold of 24 karat quality.'' However, Sec. 23.5(b)(1) of the current Guides simply refers to ``fine (24 karat) gold.'' Similarly, although the JVC proposed a new definition for ``quality mark'' specifically for gold, the more general definition in Sec. 23.8 of the current Guides (defining the term ``mark'' in conjunction with precious metals generally) is clearer and more accurate. See discussion regarding quality marks below. --------------------------------------------------------------------------- The JVC also proposed including a statement that no mark other than the quality mark (e.g., 14 K) shall be applied to an article indicating that it contains gold or as to the quality, fineness, quantity, weight, or kind of gold in an article. The Commission found no justification or need for such a broad statement. Section 23.5(a) already states that misrepresentations about the gold content of an article are unfair or deceptive. b. Specific provisions and ``safe harbors'': Sec. 23.5(b)-(c). Section 23.5(b) in the current Guides identifies specific practices that may be misleading. Subsection (1) states that the unqualified use of the word ``gold'' is limited to 24 karat gold. The JVC proposed adding that the unqualified use of ``solid gold'' is limited to 24 karat gold. There were two comments on this issue, one favoring the JVC proposal because ``solid gold should mean that the product is 100% gold,'' and one against the proposal, since fineness must be disclosed for all gold other than 24 karat gold.93 The Commission believes that the term ``solid gold'' is not inherently deceptive or unfair.94 Accordingly, the Commission has rejected this proposal. --------------------------------------------------------------------------- \93\ Lee (153); NRF (238) p.1. \94\ For example, the phrase ``solid 10 karat gold'' is not likely to lead consumers to believe the item is 24 karat gold. See Advisory Opinion, ``Solid'' and ``karat'' used together, 71 F.T.C. 1739 (1967). --------------------------------------------------------------------------- Subsection (2) in the current Guides advise that (except for 24 karat gold), the karat fineness be stated when the word ``gold'' is used. The JVC did not suggest any changes in this section, and only suggested minor changes in the corresponding ``safe harbor'' provision in Sec. 23.5(c)(1).95 However, Finlay argued that the word ``gold'' should be allowed in product advertising without a designation as to karat fineness.96 Including karat fineness in advertising, however, helps consumers make basic comparisons among competing products offered by different retailers. Therefore, the Commission has not changed this provision. --------------------------------------------------------------------------- \95\ This safe harbor provision simply states that an industry product composed throughout of an alloy of gold of not less than 10 karat fineness, may be described as ``Gold'' when the word ``Gold'' is immediately preceded by a correct designation of the karat fineness. The JVC suggested following the words ``an alloy of gold of not less than 10 karat fineness'' with ``less tolerance set out in 15 U.S.C. 294, et seq.'' [the National Stamping Act] and footnoting that statement with a detailed explanation of the tolerance. The tolerances are set forth in Sec. 23.5(d) of the current Guides and are more easily understood in the current format. \96\ Comment 253, p.1 (stating that this ``will not mislead consumers where all other requirements of the guidelines have been met and where information as to karat fineness is given at the point of sale''). See NRF (238) p.1 and discussion infra, regarding the scope and application of the Guides. --------------------------------------------------------------------------- A Note following the first ``safe harbor'' provision, Sec. 23.5(c)(1) in the current Guides, deals with hollow products and advises that there be a disclosure that these products, whatever their gold content, have hollow centers, when the failure to make such a disclosure would be deceptive. It also states that these products should not be referred to as solid gold. The JVC proposed revising the note to drop the guidance that there be a disclosure that the product is hollow. However, the Commission has determined that this disclosure is useful because, otherwise, consumers would be unaware that the product is only hollow. Thus, the Commission has not deleted this provision. The JVC also suggested that the note be changed to state that products that are filled with cement or some other filler may not bear a quality mark. However, such products are essentially ``gold plated'' products, and as long as they conform with the Guides' provisions about how to mark such products, consumers are not likely to be deceived. Thus, the Commission has decided not to adopt this proposal. Subsections (3)-(5) advise against particular uses of the word ``gold'' (e.g., plated, filled, rolled, overlay) unless they are so qualified as to be non-deceptive. Subsection (6) advises against representing that one gold product is superior to another unless the representation is true.97 --------------------------------------------------------------------------- \97\ A Note following this section provides guidance for the use of the word ``gold'' as applied to certain words (Duragold, Diragold, Noblegold, Goldine). The JVC proposed adding ``Layered Gold'' to this list, and the Commission has done so. --------------------------------------------------------------------------- Subsection (7) advises against the use of the word ``gold'' on any product of less than 10 karat fineness. Bales proposed in its comment that the Guides be amended to permit gold alloys containing less than 10 karats of gold (less than .416 percent gold) to be marketed as containing gold. Bales has a patent on a product in which the gold content varies from four to six karats and which is alleged to have good corrosion resistance.98 This issue was addressed comprehensively by the Commission in 1977.99 Thus, the [[Page 27186]] Commission has not changed this provision. --------------------------------------------------------------------------- \98\ Comment 156, pp.5-8. LaPrad (181) stated at p.2 that ``gold plated items should include any item that is not at least 10 karat solid gold in fineness throughout the item.'' This suggests that an alloy that contained less than 10 karat gold could be described as ``plated.'' However, ``plated'' has been used for many years to refer to a base metal product with a coating of gold. Extending the meaning of the term to low-karat alloys would be confusing. \99\ The 10 karat minimum standard has been used at least since 1933, when it first appeared in Commercial Standard CS 67-38, promulgated by the then Bureau of Standards of the U.S. Department of Commerce. It was incorporated into the Trade Practice Rules for the Jewelry Industry, 16 CFR Part 23, in 1957. In 1977, the Commission proposed permitting sellers to market gold of less than 10 karat and silver of less than 92.5% if the quality was accurately disclosed. This proposal was published for public comment. Over 1200 comments were received, many from consumers, and over 98% of the comments opposed lowering the 10K standard. The Commission found, based on articles and test reports, that articles of less than 10 karat fineness tend to tarnish and corrode. The Commission ultimately retained the 10 karat minimum fineness for gold and the 92.5% standard for silver. 42 FR 29916, 29917 (1977). --------------------------------------------------------------------------- The JVC petition also included an admonition against applying a quality mark (e.g., 9 karats) to any article of less than 10 karat fineness regardless of whether the word ``gold'' is used. Because the word ``karat'' is so clearly associated with gold content (even without the use of the word ``gold''), the use of the term ``9 karat'' is likely to represent that the item is 9 karat gold. The Commission has determined that advising against this use is consistent with and clarifies the Guides. On the basis of comments received in response to questions in the FRN, the Commission has revised current Secs. 23.5(b)(3), (4), and (5). These changes are explained in detail below, along with the changes to the corresponding ``safe harbor'' provisions in subsection 23.5(c) of the current Guides. i. Mechanically or electrolytically ``plated'' products. There are two basic kinds of ``plated'' gold. Mechanically plated gold has a layer of gold alloy bonded to a base metal by heat and pressure. Gold electroplate has a layer of gold alloy electrolytically deposited on a base metal. Section 23.5(b)(3) of the current Guides states that a surface-plated or coated article can only be referred to as ``gold'' when the term is adequately qualified so as to disclose that the product or part is only surface-plated or coated with an alloy of gold. However, for mechanically plated articles, it adds that the word ``gold'' should be preceded by a designation of the karat fineness.100 --------------------------------------------------------------------------- \100\ Canada (209) suggested, at p.4, that gold plated articles ``be prohibited from using the quality mark `karat'* * *'' because such use confuses the consumer as to the value of the article. In fact, the current Guides (in Secs. 23.5(b)(5) and (c)(3)) appear to prohibit a quality mark on gold electroplated items. However, a designation of karat fineness has been recommended in the Guides for mechanically plated articles for many years, and Commission staff is not aware of complaints from consumers who were deceived by this representation. No other commenters suggested that the Guides advise against the use of a quality mark on mechanically plated items. Hence, the revised Guides, in Secs. 23.4(b)(5) and (c)(3), continue to recommend that items identified as mechanically plated contain quality marks. --------------------------------------------------------------------------- Section 23.5(b)(4) states that certain terms (``gold-filled,'' ``rolled gold plate,'' ``rolled gold plated,'' ``gold overlay,'' ``gold plated,'' or ``gold plate'') should only be used for mechanically- plated items (i.e., not gold electroplate) and that the gold on these items should be of ``such thickness and extent of coverage that the terms will not be deceptive.'' It also states that the karat fineness should be included with these terms. The safe harbor provision in Sec. 23.5(c)(2) states that these terms are not deceptive when used for mechanically-plated items if the karat fineness is stated and the gold is of ``substantial thickness'' and constitutes 5% of the weight of the item. Section 23.5(c)(2) also creates a safe harbor for all these terms except ``gold filled'' when the gold weight is less than 5% if they are preceded by a fraction indicating the gold weight (e.g., \1/40\ 12 Kt. Rolled Gold Plate). ``Gold filled'' is reserved for items with a gold weight of 5% or more.101 --------------------------------------------------------------------------- \101\ The Watch Band Guides contain almost identical provisions for mechanically plated watch bands, but they contain a section (Sec. 19.2(e)(2)) entitled ``Examples of Proper Markings for Expansion Bands of Specified Composition and Construction.'' The main point made by the ``Examples'' is that quality marks on gold- filled portions of a watchband should not imply that base metal portions of the band are gold. The Commission believes the section of the current Jewelry Guides dealing with quality marks (Sec. 23.8) adequately addresses this issue. See discussion of quality marks, infra. Therefore, the Commission is not including the ``Examples'' in the revised Guides. --------------------------------------------------------------------------- The JVC proposed adding a note to Sec. 23.5(c)(2) of the current Guides, stating ``The actual gold content of gold-filled and rolled gold plate articles shall not be less than the gold content indicated by the quality mark by more than ten percent.'' Only three comments addressed this issue, all opposing the provision.102 Section 23.5(d) of the current Guides provide that ``the requirements of this section relating to markings and descriptions of industry products and parts thereof are subject to the tolerances applicable thereto under the National Stamping Act (15 U.S.C. 294, et seq.) * * *.'' The National Stamping Act provides that, for articles made of gold, ``the actual fineness * * * shall not be less by more than three one- thousandths parts than the fineness indicated by the mark * * *.'' 15 U.S.C. 295 (1993). No reason was offered for the much larger, proposed tolerance. Accordingly, the Commission has not adopted this change.103 --------------------------------------------------------------------------- \102\ NACSM (219) p.24; Leach (258) p.9 (stating that the tolerance is ``by far too liberal''); Korbelak (27) p.4 of attached letter of April 23, 1982 to Susanne S. Patch (stating that the proposal is ``unsupportable'' and ``contrary to the spirit of the recent amendment of the Marking Act which tightened tolerances on karat goods''). [The National Stamping Act was amended in 1976.] \103\ A ten percent tolerance is found in Voluntary Product Standard PS 67-76, ``Marking of Gold Filled and Rolled Gold Plate Articles Other than Watchcases.'' The tolerance is apparently meant to apply to weight claims, such as ``10% 14 karat gold''. This standard is referred to in the current Guides [Secs. 23.5(d) and 23.5(f) (as ``Commercial Standard CS 47-34'')] with respect to the exemptions applicable to the tolerance when a test for metal content is being performed (e.g., excluding ``joints, catches, screws'' etc.) Other Voluntary Product Standards are also referred to in the current Guides for the same reason (i.e., a list of parts of jewelry exempt from assay.) The JVC recommended including in the Guides the full text of all five Voluntary Product Standards for precious metals that are referred to in the current Guides as ``Commercial Standards.'' Commercial Standards were promulgated by the U.S. Department of Commerce and administered by the National Bureau of Standards (``NBS''). Later renamed by the NBS as Voluntary Product Standards (``VPS''), they had the same legal significance as FTC guides. The Department of Commerce and the NBS, which is now called the National Institute of Standards and Technology (``NIST''), withdrew these and all other VPS, as an economy measure, on January 20, 1984. The JVC proposed preserving the material in the VPS by incorporating it into the Jewelry Guides. Only one comment addressed the issue of whether to include the VPS in the Guides. The Gold Institute (13) agreed that the VPS should be incorporated, but gave no reasons. The Commission has included the material pertaining to exemptions from assay (with some changes, discussed infra) in the Appendix. However, the Commission has concluded that it is not necessary to include other portions of the VPS. The VPS state the standards that must be met for each product, if the product is represented to be in compliance with the VPS. However, the VPS have been withdrawn so such a representation is obsolete. --------------------------------------------------------------------------- Section 23.5(b)(5) states that the terms ``gold electroplate'' or ``gold electroplated'' can only be used when the plating ``is of such karat fineness, thickness, and extent of surface coverage that the use of the term will not be deceptive.'' The safe harbor provision in Sec. 23.5(c)(3) states that these terms are not unfair or deceptive when used for items with a coating of seven millionths of an inch of fine (24 karat) gold, or the equivalent. [If the gold coating is, for example, 12K (half as fine), the coating should be 14 millionths of an inch thick (twice as thick).] ``Heavy gold electroplate'' may be used for a coating equivalent to 100 millionths of an inch of fine gold. This subsection also states that the terms ``gold flashed'' or ``gold washed'' may be used to describe an electroplated coating that is thinner than seven millionths of an inch of fine gold or its equivalent (the minimum thickness for the use of the term ``gold electroplate'').104 --------------------------------------------------------------------------- \104\ The Postal Service (244) p.2, commented that the use of ``gold flashed'' or ``gold washed'' is misleading to consumers, particularly where items are ordered by mail and not seen by the consumer until after purchase. However, the terms ``gold flashed'' and ``gold washed'' have been in common use for many years. The Commission does not have sufficient evidence at this time to advise against the use of these terms in all circumstances. --------------------------------------------------------------------------- The FRN sought comment on how ``gold plate'' should be defined in the Guides. (As noted, current Sec. 23.5(b)(4) allows ``gold plate'' to be used to describe only mechanically plated items.) Six comments opposed allowing [[Page 27187]] electroplated items to be described as ``gold plate.'' 105 Most gave no reason other than stating that there should be a distinction between products that are mechanically plated and those that are electroplated. --------------------------------------------------------------------------- \105\ Gold Institute (13) p.2 (defining ``gold plate'' as an optional term to describe a mechanically plated article); Handy (62); Newhouse (76); Mark (207); MJSA (226) p.4 (limiting ``gold plate'' to mechanically plated articles is ``generally consistent with terminology used in the trade''); and Knight (256) p.2 (stating that consumers know electroplate is inferior to mechanically plated gold). --------------------------------------------------------------------------- Twelve commenters favored letting electroplated items be designated as ``plate.'' 106 Sheaffer noted that ``gold electroplate,'' the designation currently advised by the Guides, is too lengthy for many of its products and is unknown to consumers in foreign countries, who are familiar with the term ``plate.'' 107 Sheaffer stated that most foreign countries permit ``plate'' or ``plated'' to be used to describe an article coated with gold, regardless of the method of application, and that a change in U.S. requirements would allow them to stock inventory of items marked as ``gold plate.'' Further, one commenter interviewed by Commission staff stated that some manufacturers would like to market items that are the product of both mechanical plating and electrolytic plating, that could be labeled ``gold plate.'' 108 --------------------------------------------------------------------------- \106\ Fasnacht (4) p.1 (stating that ``gold plate'' has historically been used in the trade ``for any application of a karat gold to a base''); Benrus (22); Estate (23); Korbelak (27) p.3 (stating that the trade now uses ``gold plate'' to mean gold applied electrolytically); G&B (30); ArtCarved (155); LaPrad (181); Matthey (213); Bruce (218) p.7 (stating that the trade now uses the term ``gold plate'' to mean gold applied electrolytically); Citizen (228) p.3 (stating that the term should not ``be restricted to any particular method of applying the gold covering'' and noting that ``the vast majority of gold coverings are applied electrolytically''); Sheaffer (249); and Leach (257). Four of these (Fasnacht, G&B, Matthey, and Estate) stated that the method should be disclosed. \107\ Comment 249, p.2. Section 23.5(c)(2) states that ``adequate abbreviations'' are not unfair or deceptive for mechanically plated gold, which is also referred to as ``gold filled'' and abbreviated as G. F. Section 23.5(c)(3) makes no such provision for electrolytically plated gold. Moreover, in an advisory opinion issued in 1971, the Commission stated that ``gold electroplate'' could not be abbreviated. Advisory Opinion, Designation of gold content on ball point pens, 79 F.T.C. 1052 (1971). However, the Commission currently has no information that consumers would understand abbreviations for mechanically plated gold but not for electrolytically plated gold. Thus, the Commission has revised the Guides to state that adequate abbreviations are not unfair or deceptive for electrolytically plated gold (e.g., 12 Kt. G. E. P.). Therefore, the advisory opinion is withdrawn. \108\ Matthew Runci from MJSA. --------------------------------------------------------------------------- Some comments stated that the relevant issue for consumers is durability, and not the method of plating. Sheaffer stated that ``[t]he normal consumer is totally unconcerned about the process which a manufacturer might use to apply gold or silver plate to an article so long as the precious metal plate meets all appropriate required standards.'' 109 Canada commented that ``gold plate'' is ``simply a layer of gold placed over a base substance'' and that the ``important reference should inform the consumer of the thickness of the plate.'' 110 --------------------------------------------------------------------------- \109\ Comment 249, p.3 (noting that ``silverplate'' is allowed under the current Guides regardless of the method of application and that this has not misled consumers). \110\ Comment 209, p.4. --------------------------------------------------------------------------- Although the comments indicate that there are differences of opinion in the industry regarding industry custom and usage of the term ``plate,'' under the current Guides the term ``gold plate'' can only be used for mechanically plated gold. Historically, mechanically plated gold has contained a thicker coating of gold and has been more durable than gold electroplate, both because it was thicker and because it was less porous. However, the comments indicate that electroplating has been significantly improved in recent years.111 Other comments indicate that gold electroplate could now be as desirable, or more desirable, than mechanically plated gold.112 Commission staff conducted telephone interviews of seven commenters, who, with one exception, indicated that gold electroplate can be made as thick and as durable as mechanically plated gold.113 Furthermore, all of the commenters whom Commission staff interviewed stated that mechanically plated gold has usually been marketed as ``filled gold,'' ``rolled gold,'' or ``gold overlay'' (instead of ``gold plate''). --------------------------------------------------------------------------- \111\ Benrus (22) p.2 (stating that ``The science of gold plating has improved greatly in the past 15 years and the requirements in the current Guides . . . are simply not in tune with today's technology or market practices''); Alan Foster, ``Electrodeposited and Rolled Gold,'' Gold Bulletin 64 (1982), attached to comment 27 (indicating that the electroplating of gold was greatly improved about 30 years ago). Korbelak (27) (attached letter of April 23, 1982 to Susanne S. Patch) states that the current Guides ``perpetuate an economic advantage to one method of manufacturing [mechanical] over another.'' \112\ Catholyte (34) p.1 (stating that when corrosion is the quality criterion, ``mechanically cladded material is not the present day choice because machining processes which produce the desired designs will destroy the starting clad stock and yield `raw' or cut edges which will have little or no clad matter present. (This procedure necessitates the use of electroplate to `cover' those edges which are exposed.)''). Other comments indicate that mechanically plated gold normally has a surface coating of electroplate. Korbelak (27) (see articles attached to comment); Tru- Kay (196) p.1 (stating that its major product was mechanically- plated jewelry, and noting the existence of ``the surface coating of gold electroplate'' on gold filled items); Mark (207) p.3 (owned and operated a gold-filled manufacturer and distributor for 25 years and referred to the ``surface coating of gold electroplate'' on gold filled (i.e., mechanically-plated) items). \113\ Matthew Runci, Executive Director, MJSA (226); George Knight, former president of the Gold Filled Manufacturers Association (256); Irving Ornstein, Vice President, Leach & Garner (258); Howard Solomon, Vice President, Donald Bruce & Co. (218); I.L. Wein, President, Benrus (22); Barry Sullivan, President, ArtCarved (155); Kenneth Genender, U.S. Watch Council (118). Only Mr. Knight stated that gold electroplate is inherently inferior to mechanically plated gold. --------------------------------------------------------------------------- Based on the comments, the Commission has determined that the current Guides reflect the now-outdated belief that gold electroplate is inherently inferior to mechanically plated gold. The Guides may thus unfairly give mechanical plating a competitive advantage and may make international trade more difficult. Further, the comments indicate that the term ``gold plate'' has not been used extensively for mechanically plated items, and therefore, consumers may not expect an item labeled as ``gold plate'' to have been mechanically plated. Moreover, the Commission agrees with the comments that state that consumers are unlikely to distinguish between products on the basis of the method of plating used and are more concerned with the durability.114 Thus, the distinction between mechanically plated and electroplated products no longer serves a useful purpose. Therefore, the Commission has concluded that the term ``gold plate'' would not be inherently deceptive when applied to electroplated items with a sufficient layer of gold that assures reasonable durability. This will allow products composed of a combination of types of plating, or newer methods of plating that are developed, to be called ``gold plate.'' --------------------------------------------------------------------------- \114\ Consumers can determine for themselves whether they like the appearance of the product, but the consumer has no way of determining durability. --------------------------------------------------------------------------- For these reasons, the Commission has created a safe harbor that would allow ``gold plate'' to be used for gold applied by any process so long as the coating is sufficiently durable to satisfy consumer expectations that the plated product would retain its appearance for a reasonable period of time.115 The Commission believes that a standard based on thickness, rather than weight of the gold coating, is more relevant to [[Page 27188]] consumer expectations.116 For the reasons discussed below, the Commission has established a safe harbor for products with a minimum thickness of one half micron of gold coating. --------------------------------------------------------------------------- \115\ Although the evidence indicates that the term ``gold plate'' has not been frequently used, because plating generally has been in use for many years, consumers reasonably would expect a certain minimum level of durability from an item so labeled. The Commission believes it is appropriate to create a safe harbor with a numerical standard for a specific term such as ``gold plate'' when consumers would expect certain qualities from products described by the term and products at or above the standard would have such qualities. \116\ Sheaffer (249) p.4 (stating that a standard based on a weight ratio (e.g., 1/20th) can ``encourage the production of inferior articles lacking strength and rigidity as the thickness, and thus, the cost of the plate can readily be reduced by use of a very thin base material''). But cf. AWA (236) p.2 (in discussing ``gold flashed'' watches, stating that thickness ``is only one factor in determining the esthetic qualities and durability of the electroplating process,'' that different technologies produce varying thicknesses, all of which provide durable coverage, and that establishing a threshold standard for ``gold flashed'' or other similar terms creates an arbitrary standard that distorts the marketplace); and NAW (251). However, because of the other comments discussed in the text, the Commission believes that identifying a minimum thickness and fineness is appropriate for a safe harbor for ``gold plate'' claims for jewelry. --------------------------------------------------------------------------- In developing this safe harbor, the Commission has considered the standard for gold plated jewelry established by the International Organization for Standardization (``ISO''): ``ISO International Standard 10713 Jewellery [sic]--Gold alloy coatings.'' 117 This standard sets a minimum thickness of half a micron of fine gold (or its equivalent) for both mechanically plated and electrolytically plated gold jewelry. --------------------------------------------------------------------------- \117\ The Trade Agreements Act of 1979 states that federal agencies must, in developing standards, ``take into consideration international standards and shall, if appropriate, base the standards on international standards.'' 19 U.S.C. 2532(2)(A) (1980). A ``standard'' is defined as ``a document approved by a recognized body that provides, for common and repeated use, rules, guidelines, or characteristics for products or related processes and production methods, with which compliance is not mandatory.'' 19 U.S.C. 2571(13) (1995). An international standard is defined as a standard promulgated by an organization engaged in international standards- related activities, the membership of which is open to representatives, whether public or private, of the United States and all members of the World Trade Organization (``WTO''). 19 U.S.C. 2571(5), (6), and (8) (1995). A WTO member is ``a state or separate customs territory (within the meaning of Article XII of the WTO Agreement), with respect to which the United States applies the WTO Agreement. 19 U.S.C. 3501(10) (1995). ISO is, according to the ``foreword'' sections in several ISO standards attached to the Swiss Federation comment (232), ``a worldwide federation of national standards bodies. The work of preparing International Standards is normally carried out through ISO technical committees.'' ISO is open to representatives from the United States and to representatives from members of the WTO, and qualifies as an international standards organization. However, the Trade Agreements Act also explicitly states several reasons why basing a standard on an international standard may not be appropriate, including the prevention of deceptive practices and fundamental technological problems. 19 U.S.C. 2532(2)(B)(i). --------------------------------------------------------------------------- The Commission also considered the ISO standard for gold plated watches, which sets a minimum thickness standard of 5 microns, and comments submitted as to the current standard in the Watch Guides, to determine a sufficiently durable coating of gold for plated jewelry. Watches have historically been assumed to be subjected to more wear than other articles of jewelry.118 The comments that address gold- plated watches indicate that a one micron thickness may be durable. Benrus commented that thicknesses of up to \1/2\ micron ``are unsubstantial and wear very quickly'' but that there is ``a new industry `standard' of a minimum of 1 micron of gold plating (40 millionths of an inch) which has substantial durability and reliability and gives years of satisfactory service.'' 119 The U.S. Watch Council also noted that the watch industry has adopted 1 micron of thickness (described as 40 millionths of an inch of 23 karat gold) as a standard for gold plating.120 Two commenters interviewed by Commission staff, Benrus and U.S. Watch Council, stated that watches with a one micron coating of gold, if worn every day, could be expected to last between two and four years. --------------------------------------------------------------------------- \118\ This is reflected in the current Guides. Watches marked ``gold electroplate'' should be plated with at least three-fourths one thousandths of an inch of 10 karat gold (or 750 millionths of an inch) whereas jewelry should be plated with at least 7 millionths of an inch of 24 karat gold or the equivalent. The American Watch Association (236) stated at p.1, that standards for gold plating should be similar for watches and jewelry because ``consumers can be confused when faced with jewelry and watch products subject to entirely different definitions and standards.'' However, watches may be subjected to more wear than most jewelry (because they are usually worn daily), and, based on past practice, consumers may expect watches to have a thicker coating of gold plate than jewelry. Moreover, there are different ISO standards for plated jewelry and plated watches. \119\ Other commenters interviewed by Commission staff stated that \1/2\ micron was not very durable [Irving Ornstein from Leach (257); Kenneth Genender from U.S.W.C. (118)]. Catholyte, (34) p.1 (a ``quality'' product would contain 5 microns). \120\ Benrus (22); USWC (118). --------------------------------------------------------------------------- Because most jewelry gets less wear than watches, the Commission believes that the ISO standard of half a micron of fine (24 karat) gold plating for jewelry constitutes a ``floor'' of sufficient durability, so that consumers are unlikely to be misled about the durability of an item marked ``gold plate.'' However, the Commission recognizes that some commenters indicated that half a micron is not very durable. Also, certain items of jewelry receive more wear than others, and some items, such as rings, might actually receive more wear (and more friction with skin) than watches.121 --------------------------------------------------------------------------- \121\ Telephone interview with I. L. Wein, President, Benrus. Bruce (218), in discussing vermeil (which is gold plate over sterling silver), stated that one micron of plating would be sufficient for some items such as earrings, two microns for other such as necklaces, but that an item like a ring would require three microns. --------------------------------------------------------------------------- Therefore, to ensure that consumers are not deceived by the implied claims of durability arising from the term ``gold plate,'' the ``safe harbor'' in the revised Guides (Sec. 23.4(c)(2)) reflects the Commission's view that the term ``gold plate'' is not inherently deceptive or unfair when used for gold applied to an industry product (excluding watches) by any process so long as the following two conditions are met: (1) The product contains a coating of half a micron, or 20 millionths of an inch, of fine gold or the equivalent; and (2) The coating is ``of substantial thickness,'' 122 which for items that are subject to a great amount of wear, such as rings, should be more than half a micron of fine gold or the equivalent. This second provision ensures that products that are subject to greater wear should have a coating of greater thickness than the minimum half micron. Moreover, it ensures that products that are subject to a great amount of wear in certain areas would have a more substantial coating in those areas. --------------------------------------------------------------------------- \122\ ``Substantial thickness'' is defined in a footnote which is similar to the present footnote 1 in the current Guides. --------------------------------------------------------------------------- The Commission has indicated that the thickness of the gold plating may be marked in microns on the item itself if it is followed in close proximity by a gold quality mark (e.g., 2 microns 12 K. G. P.). A note following this section recommends that if a product has a thicker coating in some areas than others, the area of least thickness should be marked. This allows manufacturers to inform consumers of the minimum thickness of the plating, and consumers may therefore shop for items with more or less plating depending on their needs and budget. The ISO standard, in section 5.4, prohibits quality marks on gold plated items. However, the Commission does not believe it is appropriate to include this portion of the international standard in the revised Guides. The quality mark in combination with an indication of the thickness of the gold plate, can communicate important information to consumers. The ISO standard also sets up a system whereby gold plated products can be labeled ``A,'' ``B,'' or ``C,'' with A indicating products that have a minimum of 5 microns of 14 karat gold (or the equivalent), B indicating a minimum of 3 microns of 14 karat gold (or the equivalent), and C indicating a half micron of 24 karat gold (or the equivalent). However, American [[Page 27189]] consumers are not familiar with this system, and the Commission does not believe it is appropriate to include it in the Guides at this time.123 --------------------------------------------------------------------------- \123\ ISO standard 17013 also provides a similar system of marking mechanically plated gold items (e.g., ``A'' indicates a thickness of 5 microns), based on the thickness of the gold plate. However, the Guides allow marking of mechanically plated items (e.g., gold-filled or rolled gold plate), based on the weight of the gold in the item. The current system in the Guides has been used for many years and the ISO system of marking may be confusing to consumers. Thus, the Commission has not included the ISO system in the revised Guides. The Commission believes that omitting the ISO system of marking mechanically plated gold from the Guides will not pose a barrier to international trade, because manufacturers can mark the product ``gold plate'' according to the new provisions for gold plated items, discussed above. --------------------------------------------------------------------------- The safe harbor for ``gold plate'' (Secs. 23.4 (b)(4) and (c)(2)) will be in addition to those already contained in the Guides. Thus, Secs. 23.4 (b)(5) and (c)(3) of the revised Guides indicate that mechanically plated gold can be called ``gold filled,'' ``rolled gold plate,'' or ``gold overlay.'' However, items mechanically plated with gold also can be referred to as ``gold plate,'' in accordance with the guidance of Sec. 23.4 (c)(2) of the revised Guides. Electroplated items can be marked as ``gold electroplate'' or ``GEP,'' in accordance with the guidance of Secs. 23.4(b)() and (c)(4) of the revised Guides,124 or as ``gold plate,'' in accordance with Sec. 23.4(c)(2). --------------------------------------------------------------------------- \124\ The JVC petition suggests revising the sections pertaining to electroplate by substituting the word ``electroplate'' for the word ``plate'' and ``electroplating'' for ``plating.'' This revision clarifies that products coated with gold by a process other than electroplating should not be sold as ``gold electroplate.'' --------------------------------------------------------------------------- c. New methods of plating. The FRN solicited comment on whether newer methods of plating should be included in the guides and how they should be addressed. Nineteen comments addressed this issue, and of this group, only one commenter stated that he was unaware of new techniques.125 The most frequently mentioned new method was ``electroforming,'' a process in which gold is deposited over materials that are removed, leaving a hollow item.126 (If all of the foreign material is removed, the product is not actually plated.) Citizen Watch (228) described a process called ``ion plating,'' and Sheaffer (249) described ``vapor deposition,'' ``sputtering,'' and ``electroless immersion.'' However, Sheaffer stated that these processes could be handled in the same basic manner as mechanical plating and electroplating and noted that the terms ``plate'' or ``plated'' should be available to describe products coated by any of these methods.127 As discussed supra, the Commission has revised the Guides to indicate that it is not misleading to describe an item as gold plate, whatever method is used to apply the gold, so long as it meets the suggested minimum thickness and fineness standards. The Commission does not have enough information at this time to provide more detailed guidance regarding the newer methods of plating. --------------------------------------------------------------------------- \125\ Gold Institute (13); Estate (23); Korbelak (27); G&B (30); Handy (62); Newhouse (76); Eisen (91); ArtCarved (155); Bales (156); LaPrad (181); Mark (207); Canada (209); Matthey (213); Bruce (218); WGC (223); MJSA (226); Citizen (228); Sheaffer (249); and Leach (257). Leon Newhouse (76), a former executive in the watch industry who stated that he has been retired since 1971, said he was not aware of any new techniques. Handy, Mark, Matthey and MJSA stated the techniques can be adequately dealt with by the existing provisions in the Guides. \126\ Bruce (218) (stating that it produces this type of jewelry); Bales (156) p.8 (stating that such jewelry is often sold by weight and that ``[m]any times, the manufacturer leaves a measurable amount of residue inside the shell and weighs it, and actually sells [it] as gold or silver''); Canada (209) (stating that the problem of foreign substances left inside plated articles deserves review). Section 23.5(a) of the Guides makes clear that overstatement of the quantity of gold in a product is unfair and deceptive. \127\ Comment 249, p.3; ArtCarved (155) (stating that ``gold plate'' should be allowed for all methods). Two comments, Estate (23) and G&B (30), stated that the method of application should be revealed, but gave no reasons. --------------------------------------------------------------------------- d. Nickel in gold-filled jewelry. The FRN solicited comment on whether the Guides should advise against the use of the term ``gold- filled'' to describe a product in which nickel is inserted between the gold-filled item and a surface coating of gold electroplate. The FRN also asked if it would be acceptable to permit the insertion of nickel so long as the lessened durability of such an item is disclosed, and asked what type of disclosure should be made.128 --------------------------------------------------------------------------- \128\ The JVC proposed this provision to prevent ``the occasional expediency, in the manufacturing of finished products, to `hot nickel' or use some other non-precious electroplating over the mechanical precious metal surface and then merely to apply a flash of precious metal electroplating.'' Petition Section 23.5 C(2), Footnote 2. ArtCarved (155) suggested, at p.3, that ``on some surfaces nickel serves as a leveling agent.'' Korbelak (27) stated, at p.4, that ``nickel is apparently used to prevent corrosion of the unavoidably exposed copper alloy base of the mechanically coated stock.'' --------------------------------------------------------------------------- Most of those who commented believed that jewelry made in this way should not be called ``gold-filled.'' 129 Tru-Kay (which stated that gold-filled jewelry is its major product line) noted that the insertion of nickel would adversely affect durability and quality.130 Three comments contended that nickel should not lessen durability.131 --------------------------------------------------------------------------- \129\ Fasnacht (4); Gold Institute (13); Estate (23); Korbelak (27); Newhouse (76); Tru-Kay (196); Phillips (204); Mark (207); Matthey (213); Bruce (218); WGC (223); MJSA (226); and Leach (257). Two commenters, G&B (30) and Jabel (47), favored allowing the insertion of nickel with a disclosure, but G&B noted that there may be a need to ``have a new term.'' \130\ Tru-Kay (196) p.1. \131\ Handy (62); ArtCarved (155); and Sheaffer (249). --------------------------------------------------------------------------- Mark stated that if a layer of nickel ``has covered the basic material, it will show up as soon as any gold surface coloration has worn through* * *.'' 132 This is particularly important since the metal color would change from yellow to white. Mark also stated that ``[t]o cover the mechanically bonded layer of gold [with nickel] which is the essence of the gold-filled product defeats the purpose of the gold-filled standard to the consumer.'' 133 --------------------------------------------------------------------------- \132\ Mark (207) p.4. \133\ Id. --------------------------------------------------------------------------- The Commission agrees with the argument of the majority of the commenters that a thin wash of gold could wear away and reveal the nickel. Thus, the use of the term ``gold-filled'' to describe such a product does not comport with Sec. 23.4(b)(5) of the revised Guides, which states that the product should contain ``a surface-plating of gold alloy applied by a mechanical process which is of such thickness and extent of surface coverage that reasonable durability is assured.'' The Commission has concluded that the use of ``gold-filled'' or other terms to describe mechanically plated gold covered with nickel that is washed with gold involves a misleading use of the word ``gold'' because it does not disclose that this product has only a thin wash of gold over a surface layer of nickel.134 To clarify this point in the revised Guides, the Commission has added a provision, Sec. 23.4(b)(6), that states that such a product should not be described as ``gold plate'' or ``gold-filled'' unless it contains a disclosure that the primary gold coating is covered with a base metal, which is gold washed. Such a product comports with the guidance in the current and revised Guides for ``gold washed'' or ``gold flashed'' and, if the seller wished to do so, the seller could so describe it.135 --------------------------------------------------------------------------- \134\ The Commission rendered an advisory opinion on this issue in 1966, stating that ``a purchaser of such an article would not get the type of performance expected from gold filled articles because points of wear would expose the coating of white nickel at a very early stage and the ornamental value would be seriously reduced.'' Advisory Opinion, Improper Use of terms such as ``gold filled'' or ``rolled gold plate'', 69 F.T.C. 1234 (1966). \135\ The Gold Institute stated, that ``Nickel is a recognized skin irritant,'' and urged that the use of nickel in gold jewelry be prohibited. Comment 13, p.2. Several other commenters took this position. However, the fact that nickel is a skin irritant would require the disclosure of its presence in all jewelry, not just rolled gold jewelry. This was not proposed in the FRN and there is not an adequate basis at this time for adding such a provision. --------------------------------------------------------------------------- [[Page 27190]] e. Provisions relating to vermeil. Vermeil, a product made of sterling silver with a coating of gold, is a special form of gold plate.136 The JVC proposed including provisions for vermeil in the Guides and the FRN solicited comment on whether a recommended minimum plating of 120 millionths of an inch of fine gold, or its equivalent, over sterling, was appropriate. --------------------------------------------------------------------------- \136\ ``Tiffany's Sterling: History and Status,'' National Jeweler (undated) (attached to Korbelak (22)) (stating that vermeil is a unique product with a ``silver-gold'' glow, which has been on the market for a long time). However, no provisions pertaining to vermeil have ever been included in the Jewelry Guides. --------------------------------------------------------------------------- Eighteen comments addressed this issue.137 Two comments stated the proposed standard was not appropriate; one offered no reason and the other stated that the standard should be up to the manufacturers.138 Three comments stated that the proposed standard was thicker than necessary.139 Other commenters offered various opinions on the proposed standard.140 Most of the other comments simply said the proposed standard was appropriate but offered no reasons. --------------------------------------------------------------------------- \137\ Fasnacht (4); Gold Institute (13); Korbelak (27); G&B (30); Jabel (47); Handy (62); Newhouse (76); ArtCarved (155); IJA (192); Tru-Kay (196); Mark (207); Canada (209); Bruce (218); Impex (219); MJSA (226); Sheaffer (249); Knight (256) and Leach (257). \138\ Newhouse (76) and Impex (219). \139\ Korbelak (27) p.4 (stating that ``a floor of 100 millionths of an inch was established by the trade many years ago''); Tru-Kay (196) p.2 (stating that the proposed standard was ``quite excessive'' and not necessary ``in order to give the consumer a quality product''); Bruce (218) p.8 (stating that the proposed standard was ``very heavy'' and noted that ``the nature of the product and the wear it is subjected to would be a more appropriate guide for plating thickness''). Bruce (218) suggested that the proposed standard was appropriate for items such as rings (which receive a lot of wear) but suggested 40 millionths of an inch for earrings and pendants and 80 millionths of an inch for bracelets and neck chains. \140\ MJSA (226) pp.4-5 (stating that the JVC recommended 120 millionths of an inch simply because it is higher than the 100 millionths of an inch required for heavy gold electroplate); G&B (30) p.8 (indicating that the point was simply to set some standard); ArtCarved (155) p.4 (stating that ``if vermeil is the standard word used for 120 millionths of an inch, this would be okay''); Canada (209) p.4 (noting that it has a quality mark for vermeil but has yet to establish a minimum standard for plating). --------------------------------------------------------------------------- MJSA supported the proposed standard stating that it ``assures an extremely high level of durability and low porosity.'' However, MJSA stated that ``it is possible to establish a highly durable coating of gold over silver at substantially lesser thicknesses,'' and noted that many manufacturers currently produce such a product.141 In the Jeweler's Dictionary, modern usage of ``vermeil'' is defined as ``Heavy gold electroplate over sterling silver * * * or a substantial layer of karat gold mechanically applied over sterling silver.'' 142 The current Guides identify the minimum thickness for heavy gold electroplate as the equivalent to 100/1,000,000ths of an inch of fine gold. --------------------------------------------------------------------------- \141\ Comment 226, pp.4-5. \142\ ``Jewelers' Dictionary'' 253 (3d ed. 1976). --------------------------------------------------------------------------- The JVC petition indicates that vermeil is susceptible to discoloration, presumably because the silver might tarnish.143 Because gold itself deters tarnishing, the thicker the coating of gold, the less likely the underlying silver will tarnish. However, Korbelak (27) p.4, stated that ``gold coatings are permeated by sulfides in the average atmosphere up to thicknesses of 10 microns (0.0004 inch).'' Thus, even a gold coating of 120 millionths of an inch (or 0.00012 inch), or about 3 microns would not completely solve this problem. --------------------------------------------------------------------------- \143\ The JVC recommended the addition of a note that states that a diffusion barrier (typically of nickel) may be electrolytically applied, in a thickness of no more than 50/ 1,000,0 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A96-13524. Public record. Not legal advice.