Regulatory Review and Regulatory Flexibility Act Review of Rules and Regulations Issued Under the Hobby Protection Act

FEDERAL TRADE COMMISSION

16 CFR Part 304

Regulatory Review and Regulatory Flexibility Act Review of Rules

and Regulations Issued Under the Hobby Protection Act

AGENCY: Federal Trade Commission.

ACTION: Confirmation of rule.

-----------------------------------------------------------------------

SUMMARY: The Federal Trade Commission (FTC or Commission) has completed

its regulatory review and Regulatory Flexibility Act (RFA) review of

the Rules and Regulations Issued Under the Hobby Protection Act. The

Rule regulates the marking of imitation political and numismatic items.

Pursuant to its regulatory review, the Commission concludes that the

Rule continues to be valuable both to consumers and firms. The

Commission also certifies, pursuant to the RFA, that the Rule has not

had a significant economic impact upon a substantial number of small or

other entities or otherwise merits revision.

DATES: This action is effective as of July 7, 1998.

FOR FURTHER INFORMATION CONTACT:

Robert E. Easton, Special Assistant, Division of Enforcement, Bureau of

Consumer Protection, FTC, Washington, DC 20580, (202) 326-3029.

SUPPLEMENTARY INFORMATION:

I. Introduction

The Commission has determined, as part of its oversight

responsibilities, to review its rules and guides periodically to seek

information about their costs and benefits and their regulatory and

economic impact. The information obtained assists the Commission in

identifying rules and guides that warrant modification or rescission.

Where appropriate, the Commission will, as it did in this review,

combine such periodic general reviews with reviews seeking information

about the economic impact of the rule on small business firms as

required by the Regulatory Flexibility Act.

II. Background

On November 29, 1973, Congress passed the Hobby Protection Act

(Act).\1\ The Act requires manufacturers and importers of ``imitation

political items'' \2\ to mark ``plainly and permanently'' such items

with the

[[Page 36556]]

``calendar year'' such items were manufactured. The Act also requires

manufacturers and importers of ``imitation numismatic items'' \3\ to

mark ``plainly and permanently'' such items with the word ``copy.'' \4\

The Act further provides that the Commission is to promulgate

regulations for determining the ``manner and form'' imitation political

items and imitation numismatic items are to be permanently marked with

the calendar year of manufacture or the word ``copy.'' \5\

---------------------------------------------------------------------------

\1\ 15 U.S.C. 2101-2106.

\2\ An imitation political item is ``an item which purports to

be, but in fact is not, an original political item, or which is a

reproduction, copy, or counterfeit of an original political item.''

15 U.S.C. 2106(2).

\3\ An imitation numismatic item is ``an item which purports to

be, but in fact is not, an original numismatic item or which is a

reproduction, copy, or counterfeit of an original numismatic item.''

15 U.S.C. 2106(4).

\4\ 15 U.S.C. 2101(b).

\5\ 15 U.S.C. 2101(c).

---------------------------------------------------------------------------

In response to that requirement, in 1975 the Commission issued

Rules and Regulations under the Hobby Protection Act (Rule).\6\ The

Rule tracks the definitions of terms used in the Act and implements the

Act's ``plain and permanent'' marking requirements by establishing the

sizes and dimensions of the letters and numerals to be used, the

location of the marking on the item, and how to mark incusable (i.e.,

those that can be impressed with a stamp) and nonincusable items. The

Commission amended the Rule in 1988 to provide additional guidance on

the minimum size of letters for the word ``copy'' as a proportion of

the diameter of coin reproductions.\7\

---------------------------------------------------------------------------

\6\ 16 CFR Part 304.

\7\ 53 FR 38942 (1988). Prior to the amendment, if a coin were

too small to comply with the minimum letter size requirements, the

manufacturer or importer had to individually request from the

Commission a variance from those requirements. Because imitation

miniature coins were becoming more common, the Commission determined

that it was in the public interest to allow the placing of the word

``copy'' on miniature imitation coins in sizes that could be reduced

proportionately with the size of the item.

---------------------------------------------------------------------------

As discussed below, the comments received in this review appear to

reflect a high level of compliance as to the two products covered by

the Act and Rule (i.e., imitation political and numismatic items). Many

comments also proposed that the Commission expand coverage of the Act

and Rule to address problems involving the selling (passing off) as

originals of reproductions of antiques and collectibles not covered by

the Act and Rule. The Commission does not propose amending the Rule as

requested because it does not have authority under the Act to expand

coverage of the Act or Rule. In addition, existing laws and

informational material currently available address many of the concerns

raised by these comments.

III. Regulatory Review and Regulatory Flexibility Questions and

Comments

The Commission received a total of 1,145 comments in response to

its March 25, 1997 Federal Register request for comments.\8\ Of that

number, nearly 1,000 comments were form letters that advocated

expanding coverage of the Act and Rules to all antiques and

collectibles.\9\ Of the other comments, four were from national

associations,\10\ four from hobby newspapers,\11\ one from a private

mint,\12\ one from the United States Mint,\13\ and the remaining were

from individual collectors,\14\ dealers,\15\ and local

associations.\16\

---------------------------------------------------------------------------

\8\ 62 FR 14049 (1997). The comments have been filed on the

Commission's public record as Document Nos. B21938200001,

B21938200002, etc. The comments are cited in this notice by the name

of the commenter, a shortened version of the comment number, and the

relevant page(s) of the comment, e.g., Daugherty, 493, 1. All Rule

review comments are on the public record and are available for

public inspection in the Public Reference Room, Room 130, Federal

Trade Commission, 6th and Pennsylvania Ave., NW, Washington, DC,

from 8:30 a.m. to 5:00 p.m., Monday through Friday, except federal

holidays.

\9\ Seven hundred twenty-one comments were form letters cut out

or photo-copied from an Antique Week newspaper or based thereon

(e.g., Lubitz, 61, 1), 223 were form letters from collectors and

dealers of Nippon porcelain (e.g., Dersheimer, 59, 1), and 34

comments used or were based upon an Antiques Journal form letter

(e.g., Mercier, 4, 1).

\10\ American Numismatic Association (ANA), 94; American

Political Items Collectors (APIC), 515; Antique & Collectibles

Dealers Association, Inc., 495; and Appraisers Association of

America, Inc., 494 and 526.

\11\ Antique & Collectors Reproduction News, 497; Antique Week,

499 and 540; Antiques Journal, 4; and Coin World, 514.

\12\ Gallery Mint Museum (Gallery Mint), 398.

\13\ U.S. Mint, 511.

\14\ See, e.g., Barrie, 19.

\15\ See, e.g., Dilinger, 103.

\16\ See, e.g., Wayne County (PA) Antique Dealers Assoc., 517.

---------------------------------------------------------------------------

The Commission discusses the comments in two section: In section A,

the Commission analyzes the comments relating to the products covered

by the Act and Rule (``covered products''); and, in section B, the

Commission discusses the comments relating to alleged problems with

products outside the coverage of the Act and Rule.

A. Comments Relating to Covered Products

1. Support for the Rule

As noted previously, the Act and Rule's scope are limited to

imitation political and numismatic items. The comments uniformly stated

that there is a continuing need for the Rule and that is has been

successful in protecting consumers from the passing off of

reproductions of the covered items.\17\ Indeed, two comments indicated

that the Rule's protective value may have increased over the years as

technological changes that have made it easier to make high quality

reproductions of political and numismatic items have also made it

easier to deceive consumers.\18\

---------------------------------------------------------------------------

\17\ See, e.g., APIC, 7, 1; Mint, 511, 1; Prestwood, 512, 1; and

Peeling, 254, 1. For example, APIC stated that, ``We still have some

reproductions today, but the problem is not serious, thanks to the

Hobby Protection Act, and enforcement of the Act. Further, most

campaign items reproduced since the early 1970's are in compliance

with the Act, marked in accordance with the regulations.'' APIC, 7,

1. The United States Mint similarly favored continued coverage of

imitation numismatic items because, ``[t]he numismatic area is prone

to opportunism, and sanctions for objectionable behavior are hard to

impose. The Hobby Protection Act works as a preventive to counter

attempts to pass off reproductions as genuine coins.'' Mint, 511, 1.

Other comments similarly agree that the current Act protects the

political memorabilia and numismatic collecting areas and should be

continued. See, e.g., Lubitz, 61, 1.

\18\ APIC pointed out that the advent of color copying machines,

color computer technology, and digital image creation and

enhancement has increased the capability of individuals to ``create,

maintain, use, transfer, and reproduce high quality images.'' APIC,

515, 7. ANA stated that, ``[a]ny change in relevant technology would

only increase the ability to manufacture more deceiving replicas.''

ANA, 94, 3.

---------------------------------------------------------------------------

The few comments addressing the issue of what costs the Rule

imposes on purchasers indicated that the costs are slight and

outweighed by the benefits. For example, one commenter wrote that,

``[a]ssuming that the costs of affixing the word `copy' or the date is

reflected in the selling price, it would appear that the increase per

item would be an insignificant amount that any purchaser would be

willing to pay by reason of the protection afforded by the rule.'' \19\

Another commenter stated that the process of stamping the word ``copy''

on coins ``has no significant bearing on the price of any individual

piece.'' \20\ One commenter noted that the Rule saves purchasers money

because it lessens that chance of purchasing a fake.\21\

---------------------------------------------------------------------------

\19\ ANA, 94, 2.

\20\ Gallery Mint, 398, 2.

\21\ APIC, 515, 3.

---------------------------------------------------------------------------

In addition, the comments indicated that the Rule does not impose

significant burdens or costs on firms subject to its requirements. The

comments addressing this issue uniformly stated that the Rule has not

imposed significant costs on subject firms \22\ and in fact has

benefitted them. \23\ No comment suggested any changes in the Rule to

reduce costs. \24\

---------------------------------------------------------------------------

\22\ See e.g., APIC: ``The costs imposed, if any, have been de

minimis. The cost of adding a few more letters to a printing job * *

* when the job is going to be undertaken regardless is negligible.''

APIC, 515 6. See also ANA, 94, 2; Coin World, 514, 3; and Gallery

Mint, 398, 3.

\23\ APIC, 515 6; and ANA, 94, 2.

\24\ A few comments noted that the Rule technically overlaps

with certain federal counterfeiting laws (Gallery Mint, 398, 3; and

Ganz, 1, 1) and a consumer protection law in California (APIC, 515,

6). These comments, however, did not state that the Rule conflicted

with these laws or that overlaps caused additional costs or burdens

to small entities or other companies, or in any other way adversely

affected businesses or consumers. The Commission, therefore,

concludes that these minor overlaps do not warrant modification of

the Rule.

---------------------------------------------------------------------------

[[Page 36557]]

Commenters that addressed the issue of whether the Rule imposes

significant costs on small businesses indicated that the Rule imposes

only de minimis costs on small firms \25\ and several commenters stated

there is no difference in the cost of compliance for small or large

firms, \26\ and that these costs are no different than a small business

would incur under standard and prudent business practices. \27\ For

this reason, no commenters believed changes to the Rule were needed to

reduce small business costs. \28\

---------------------------------------------------------------------------

\25\ The Gallery Mint commented that while compliance with the

Rule involves more time in production or die set-up, this is ``just

the nature of the business'' and the requirements are ``very easy to

adhere to.'' Gallery Mint, 398, 4. See also APIC, 515, 7; and Coin

World, 514, 3.

\26\ See, e.g., ANA: ``The cost of affixing the word `copy' or

the date would be the same for large and small firms.'' ANA, 94, 3.

\27\ Coin World, 514, 3, and APIC, 515, 8.

\28\ See. e.g., APIC. 515, 8; ANA, 94, 3; and Coin World, 514,

3.

---------------------------------------------------------------------------

Some comments indicated that the Rule is valuable to manufacturers

and firms. One commenter stated that, ``The rules * * * have benefitted

firms which intend to be good players. The rules have provided a

standard means of denoting lawful status as a `copy' which in turn has

been recognized and accepted in the hobby and consumer

marketplace.''\29\ Similarly, another commenter noted the addition of

the word ``copy'' or the date of manufacture may avoid litigation costs

resulting from the intentional or unintentional sale of unmarked items

as originals.\30\

---------------------------------------------------------------------------

\29\ See. e.g., APIC, 515, 6.

\30\ ANA, 94, 2.

---------------------------------------------------------------------------

2. Proposed amendments regarding covered products

a. Double-sided marking of ``copy'' on numismatic items.

One comment suggested amending the Rule to require that the word

``copy'' be marked on both sides of imitation numismatic items.\31\ The

Rule currently requires that the word ``copy'' be marked on either side

of the coin (i.e., either the obverse or the reverse side of the

item).\32\ The comment argued that marking ``copy'' on only one side

does not let potential buyers know that a replica on exhibit with only

one side displayed or in an advertisement is an imitation because

``copy'' may be on the side not displayed.

---------------------------------------------------------------------------

\31\ Coin World, 514, 3.

\32\ 16 CFR 304.6(b)(2).

---------------------------------------------------------------------------

The Commission has concluded that a requirement that ``copy'' be

marked on both sides of an imitation coin is not warranted. The

comments indicate that the current requirement for marking coins on

only one side is highly successful. Regarding exhibited coins, the

potential buyer would normally have the opportunity to fully view and

physically handle the item, thus affording the opportunity to see the

``copy'' marking prior to purchase.

Regarding the concern that the word ``copy'' may not be displayed

in advertising,\33\ the Commission believes that coin depictions in

advertising are likely to be small, making any ``copy'' marking

proportionately even smaller. Double-sided marking of a coin is

therefore unlikely to result in a prominent disclosure of the word

``copy,'' and thus would not remedy the alleged problem raised in the

comment.

---------------------------------------------------------------------------

\33\ The Act and Rule do not have requirements that address the

advertising of covered products. The requirements address only the

marking of the imitation numismatic or political item. Of course,

misrepresenting a copy as an original in advertising would

constitute a ``deceptive'' practice in violation of Sec. 5 of the

FTC Act. 15 U.S.C. 45.

---------------------------------------------------------------------------

The Commission also believes that double-sided marking would not be

without costs. Although the costs of marking ``copy'' on an additional

side of the item might be slight, there would still be some cost to

manufacturers. In addition, double-sided marking might detract from the

esthetic appeal of the replica and could have adverse effects on the

market for imitation numismatic items.

b. Require that all political items be marked with year of

manufacture.

The Rule currently requires that imitation political items be

marked with the date of manufacture. One comment recommended broadening

the Rule to require that all political items, both original and

imitation, be permanently and prominently marked with the year that the

manufacturing process was completed.\34\ According to the comment,

requiring that the date of manufacture appear on all political items

would prevent the consumer confusion and deception that occurs with

certain types of political buttons. According to this comment,

manufacturers routinely print excess ``button papers'' so that if they

receive additional orders during the campaign they will not need to

print additional papers. These excess papers may not be manufactured

into finished political buttons, however, until years later. For

example, the comment described a situation in which paper sheets of

images created and printed in 1920 for the 1920 Cox-Roosevelt campaign

were not put on buttons until 1997.

---------------------------------------------------------------------------

\34\ APIC, 515, 4.

---------------------------------------------------------------------------

The Commission does not propose to expand the Rule to require the

marking of original political items. First, the Commission does not

have the authority to require such marking under the Act, which

requires the marking of only imitation items. Second, the problem

raised by the comment is already covered by the Act and Rule. The Act

and Rule define ``Original political item'' as including ``any

political button * * * produced for use in any political cause.'' \35\

Until button paper is incorporated into a political button, a political

button cannot have been ``produced'' for use in any political cause. A

subsequently produced political button therefore would not be an

``original political item'' as defined in the Act and Rule. The type of

button described by the comment would thus be an imitation political

item that, under the current Rule, must be marked with the year of

manufacture.

---------------------------------------------------------------------------

\35\ 15 U.S.C. 2106; and 16 CFR 304.1.

---------------------------------------------------------------------------

c. Replace minimum size requirements for required markings with a

performanced-based standard.

The Rule currently mandates the font style and minimum size for the

markings required by the Rule \36\ but allows the minimum marking size

for imitation numismatic items to be proportional to the size of the

item.\37\ The FRN asked whether the Commission should amend the Rule to

replace the mandated minimum sizes with a performance-based standard,

for example, with a clear and prominent disclosure requirement.\38\

---------------------------------------------------------------------------

\36\ See 16 CFR 304.5(3) and (4) (imitation political items) and

304.6(3) and (4) (imitation numismatic items).

\37\ For example, the minimum total horizontal dimension of the

word ``copy'' should be six millimeters or ``not less than one-half

of the diameter of the reproduction.'' 16 CFR 304.6(3).

\38\ 62 FR 14049.

---------------------------------------------------------------------------

Five commenters involved in the numismatic field addressed this

issue. Three of those five favored keeping the existing size standards

because they believe that the precise requirements of the current

standard provide clear guidance as to what is lawful. According to

these comments, a performance standard would introduce uncertainty that

could cause delay, additional costs, or lead to litigation.\39\ Two

comments appeared to favor a performance-based standard, although both

comments also noted the benefits of mandated size requirements.

[[Page 36558]]

Although one comment noted that in general mandated disclaimers are

often so small as to render them worthless,\40\ this comment also

stated that the current Rule, with its mandated size standard, has

materially lessened the amount of counterfeit political items in the

marketplace.\41\ This comment voiced support for modification of the

current standard to a performance-based standard coupled with a

``though not smaller than'' requirement, with the caveat that ``the

result must be at least as effective as the status quo.'' \42\ Another

comment supported adoption of a performance-based standard,

specifically a clear and prominent standard, while at the same time

expressing concern that ``there is too much room for individual

translation'' without specific size requirements.\43\

---------------------------------------------------------------------------

\39\ ANA, 94, 3; Coin World, 514, 3; and, Ganz, 1, 1.

\40\ APIC, 515, 10.

\41\ Id. at 2.

\42\ Id. at 10.

\43\ Gallery Mint, 398, 5.

---------------------------------------------------------------------------

The Commission has determined to keep the present minimum size

standard. As noted previously, the comments indicated generally that

the current standard is working well and does not impose significant

costs on small entities or others. Second, several comments indicated

that the certainty provided by the current standard allows them to plan

and anticipate costs, and that a performance-based standard would

eliminate these benefits and could cause confusion. Finally, the

current standard already addresses a concern of those suggesting that

the Commission consider a performance-based standard by allowing a

minimum size for the word ``copy'' that is proportional to the size of

the imitation numismatic item.

B. Comments Relating to Expanding Coverage of the Act and Rule to

Antiques and Collectibles in General

As previously noted, the scope of the Act and Rule is limited to

imitation political and numismatic items. This section discusses the

numerous comments that related to products not presently covered by the

Act and Rule.\44\ In essence, these comments state that reproductions

of many types of antiques and collectibles are being passed off as

originals, causing economic harm to collectors and dealers. Because of

improvements in technology, the comments alleged, even knowledgeable

persons have difficulty differentiating the reproductions from the

originals. The comments suggested two amendments to the Rules to

address these problems. First, some comments proposed that the coverage

of the Act and Rule be expanded to all reproductions of antiques and

collectibles. Second, many comments also recommended that the

Commission require permanent country-of-origin labeling for all

reproductions of antiques and collectibles.

---------------------------------------------------------------------------

\44\ As described above, the Commission received over 1,000

letters advocating that the Act or Rule be expanded to cover all

antiques and collectibles. E.g., Sprowls, 276, 1; Bucher, 244, 1;

Anderson, 58, 2; and Whitehouse, 20, 1. Many comments also described

specific examples of individual instances involving the passing off

of a reproduction as an original.

---------------------------------------------------------------------------

After carefully considering these proposals, the Commission has

determined not to amend the Rule as suggested. First, as discussed

above, the Hobby Protection Act applies only to imitation political and

numismatic items. The Act does not provide the commission with

authority to expand the Rule beyond the Congressionally mandated scope

of the Act to cover all reproductions. The Commission also notes that

existing laws and other resources address many of the problems

discussed in the comments. In particular, country-of-origin marking for

imports is under the jurisdiction of the U.S. Customs Service. Because

many comments indicated that foreign-made reproductions pose the

greatest problems, the Commission has brought the issues raised in this

proceeding to the attention of the Customs Service, which has authority

to take action where goods fail to bear a required country-of-origin

marking.

1. The Scope and Source of the Passing-Off Problem

The comments suggested that there are many categories of

collectibles subject to being passed off,\45\ and that the volume of

reproductions being offered for sale as originals may be large.\46\ The

comments provided several explanations for the passing-off problems.

First, the comments uniformly stated that the quality of reproductions

has greatly improved to the point that reproductions can be virtually

indistinguishable from the originals.\47\ Several comments noted that

even experts may not be able to distinguish originals from

reproductions.\48\

---------------------------------------------------------------------------

\45\ As one comment stated, ``Fake and Repros exist in almost

every sector of the collecting hobby.'' Donaldson, 11,1. The

comments cite the passing off of the following products, among

others: Nippon porcelain (Puckett, 45 1 and 223 form letter

comments); Cambridge glassware (Upton, 505, 1); Griswold cast iron

cookware (Smith, 498, 1); Coca Cola memorabilia and postcards

(Wildman, 40, 1; Rutledge, 43, 1); antique quilts, transferware,

majolica, and ironstone (Nickel, 18, 1); Tiffany lamps (Curry, 575,

1); calendars, calendar plates, almanacs and calendar art (Moses,

74, 1); Parrish and Nutting prints, powder horns and scrimshaw,

Shaker items, Sterling Victorian match safes and lockets, Brilliant

period cut glass patterns, Galle art glass, and perfume and scent

bottles (Donaldson, 11, 1); and confederate veteran reunion badges

and medals (Finlayson, 240, 1).

\46\ See, e.g., Berndt, 52, 1; and LaBatt, 366, 1. These

comments state that the commenter has visited many venues that

allegedly sell reproductions as originals.

\47\ See, e.g., Chervenka, 497, 2; ``Now, antique reproduction

importers are manufacturing goods that are virtually identical

copies of old originals including factory names, artist signatures

and trademarks. Many of these new pieces * * * are cast in molds

taken directly from old originals. This means new pieces do not just

loosely resemble the original, they are an exact clone of the

original.''

\48\ Thoe, 540, 2; and Skeim, 225, 1.

---------------------------------------------------------------------------

The comments appeared to agree that the quality of reproductions

has improved, but were not in agreement regarding how these

reproductions come to be passed off as originals. According to one

commenter, the problem is not with reproductions being made for

decorative purposes and sold in retail stores, where it is likely that

purchasers are aware that they are buying reproductions. The problem

begins when a reproduction subsequently enters the secondary market and

may be passed off as an original.\49\ Other commenters, however, argued

that reproductions are intentionally sold as originals.\50\

---------------------------------------------------------------------------

\49\ Billings, 22, 1.

\50\ See, e.g., Tucker, 495, 1, who states that reproductions

are made overseas, shipped to the United States with country-of-

origin labels attached which then are removed somewhere in the

distribution system and sold as originals. According to the

commenter ``[t]his is fraud and * * * [t]he manufacturers of these

items are well aware of what happens.'' Another commenter claims

that, ``[m]ost of these items [reproductions] are expressly made to

fool the general public as to authenticity.'' Porta, 572, 1.

---------------------------------------------------------------------------

The comments indicated that reproductions are made both overseas

and domestically.\51\ Although the comments do not present quantitative

data that establishes the number of foreign-made reproductions being

sold as originals in the United States, the majority of the commenters

indicated that they believe the problems lie chiefly in overseas

production.\52\

---------------------------------------------------------------------------

\51\ One comment noted that both domestic and overseas companies

have mastered techniques for making pottery, wood, metals, and glass

appear to be hundreds of years old. Thoe, 540, 1.

\52\ See, e.g., Tucker, 495, 1. The comments state that a

variety of countries are the sources of reproductions. For example,

one comment states that Brazil, France, Italy, and several Far East

countries export all types of reproductions of antiques and

collectibles while the Philippines manufactures ``antique'' oak

furniture which is imported into the United States and sold as

authentic antiques. Sprowls, 276, 1. Another comment alleges that

Galle glassware reproductions are ``being mass produced'' in

Romania, China, and Japan while Roseville pottery is being produced

in China. Chervenka, 497, 2.

Several comments also cite the domestic production of replicas

that are passed off as originals. See, e.g., Finlayson, 240, 1.

---------------------------------------------------------------------------

[[Page 36559]]

The comments present numerous anecdotes regarding the harm caused

by passing off. Although these anecdotes do not present information

sufficient to quantify or determine the amount of economic and other

harm caused, the following is a summary of the adverse effects noted in

the comments: That the individual buyer pays considerably more than the

product is worth;\53\ that owners of original antiques or collectibles

which are heavily reproduced lose the value of their investment;\54\

that the uncertainty regarding the genuineness of antiques and

collectibles dissuade persons from purchasing originals or from

becoming collectors, which also adversely affects businesses that deal

in originals.\55\

---------------------------------------------------------------------------

\53\ See, e.g., Chervenka, 497, 2, describing circumstances in

which buyers mistook new Galle glassware for old and paid $10,000

for a reproduction which cost about $500 wholesale and paid $3,500

for a different reproduction which cost $450 wholesale. Another

example mentioned was a buyer allegedly spending ``tens of

thousands'' of dollars for a Tiffany lamp at ``one of the better

known auction houses that employed in-house experts'' only to find

out later that it was not genuine and worth less. Craig, 575, 1.

\54\ Due to the glut of reproductions, ``[m]any older people who

wish to sell their antiques and collectible are not getting the full

value'' (Dillinger, 103, 1) while some collections ``will never

recover their value because of the flood of * * * reproductions.''

Nickel, 18, 1.

\55\ The comments allege that uncertainties of investment value

caused by reproductions ``scare off novices who might otherwise

collect these items [original antiques and collectibles]''

(Billings, 22, 1) and make collectors not buy ``for fear of

reproductions.'' Skeim, 225, 1. Dealers have commented that

customers' fear of buying reproductions have adversely affected

their business. Vierling, 532, 1; and Craven, 508, 1.

---------------------------------------------------------------------------

2. Proposals To Expand Coverage of the Rule to Non-Covered Products

Many comments propose that the coverage of the Act be expanded to

all antiques and collectibles.\56\ A number of comments suggest, as an

alternative to expanding the coverage of the Act or in addition to such

expansion, that both foreign and domestic reproductions be marked

permanently with the country-of-origin. The comments generally

suggested that foreign reproductions with country-of-origin labels that

are non-permanent are the primary source of the passing-off

problem.\57\ For several reasons, however, the Commission does not

propose to adopt the remedies suggested by the comments.

---------------------------------------------------------------------------

\56\ The 721 comments generated from the Antique Week form

comment stated that the Act should be expanded to all antiques and

collectibles and that the Commission recommend such expansion to

Congress. E.g., Lubitz, 61, 1. The 223 comments using or based on

the Nippon Collector's Club form letter as well as the 34 comments

using or based upon the Antiques Journal form letter urged the

extension of the regulatory powers of the Act to require permanent,

non-removable marking for collectibles other than those currently

covered. E.g., Dersheimer, 59, 1; and Mercier, 4, 1. Additionally,

numerous non-form comments suggested the expansion of coverage of

the Act to other antiques and collectibles. E.g., Gregory, 5, 1;

Ritchie, 9, 1; Nickel, 18, 1; SeGall, 26, 1; Castle, 295, 1; James,

381, 1; Reid, 415, 1; Fendelman, 494, 1; and Curry, 575, 1.

Presumably, these comments intend that all antiques and collectibles

would be marked with the word ``copy'' or the date of manufacture.

\57\ See, e.g., Brady, 47, 1. See also Reynolds, 169, 1; Barrie,

19, 2; Cotton, 21, 1; Berndt, 52, 1; and Carner, 213, 1.

---------------------------------------------------------------------------

First, the Act does not provide the Commission with legal authority

to expand the coverage of the Act to all antiques and collectibles. The

plain language of the Act encompasses only numismatic and political

items and directs the Commission to promulgate rules regarding the

marking of only these covered products. For this reason, the Commission

cannot amend the Rule to include products not itemized in the Act to

require the marking of items not covered by the Act.

Second, the Commission believes that existing federal and state

laws adequately address the key issues raised in the comments. For

example, the majority of comments cited imported reproduction as the

most significant source of passed-off goods. Well-established laws and

regulations already in existence address country-of-origin markings for

goods imported into the United States. Specifically, country-of-origin

marking for imports is under the jurisdiction of the U.S. Customs

Service, which enforces the Tariff Act.\58\ Under the Tariff Act, every

article of foreign origin must be legible, indelibly, and permanently

marked in a conspicuous place to indicate the country of origin. The

Act also allows the container of an imported good to bear the origin

marking rather than the good itself, as long as the good reaches the

ultimate purchaser in the container. Under the Tariff Act, then, a

permanent marking is a marking that will remain on the article or

container until it reaches the ultimate purchaser, although the marking

may be removed by the ultimate purchaser and need not be of a

permanence to remain affixed once in his or her possession. This

marking may not be removed prior to delivery to the ultimate purchaser,

however, and anyone who removes this marking prior to such delivery

could be subject to prosecution and criminal penalties.

---------------------------------------------------------------------------

\58\ 19 U.S.C. 1304. The Tariff Act of 1930, as amended, and

implementing regulations (19 CFR 134) are available at Customs

Website: ``www.customs.ustreas.gov''.

---------------------------------------------------------------------------

Commission staff has brought the concerns regarding foreign origin

marking raised in this proceeding to the attention of the Customs

Service because Customs regulations have an impact on several of the

problems discussed in the comments. For example, several comments

indicated their belief that country-of-origin labels are deliberately

removed.\59\ The Customs Service urges persons with information

regarding the violative removal of required country-of-origin markings

to write to: Office of Field Operations, ATTN: Commercial Enforcement

Branch, U.S. Customs Service, 1300 Pennsylvania Ave., NW, Washington,

DC 20229 or to call Customs' toll free Commercial Fraud Hotline, 1-800-

ITS-FAKE.

---------------------------------------------------------------------------

\59\ See note 50 supra.

---------------------------------------------------------------------------

In addition to the deliberate removal of country-of-origin labels,

many comments suggested that the lack of truly permanent country-of-

origin labels on reproductions results in these reproductions being

passed off as originals in the secondary market.

The Commission declines to prohibit the legal removal or loss of

country-of-origin labels and does not have authority under the Act to

require the origin marking of domestic reproductions. Other legal

remedies are available, however. For example, passing off can be

prosecuted as criminal fraud \60\ or as civil fraud in a lawsuit by the

buyer.\61\ Additionally, if the passing off involves illegal trademark

infringement, it may be actionable in a private lawsuit under the

Lanham Act.\62\ Further, a pattern or practice of significant

affirmative misrepresentations or failures to disclose material

information relating to reproductions passed off as originals may

violate Section 5 of the Federal Trade Commission Act.\63\

---------------------------------------------------------------------------

\60\ E.g., Castle, 295, Attachment 1 (describing a criminal law

enforcement inquiry regarding reproduction ``acid cutback'' lamps

and vases and bronze statues being sold as antiques).

\61\ Section 2-721 of the Uniform Commercial Code provides civil

remedies for material misrepresentation and fraud in sales

transactions;

\62\ 15 U.S.C. 1125. See also Goshe, 528, 1 (describing

collector's club successful law suit against manufacturer of

reproductions that had illegally obtained logo trademark).

\63\ Section 5 of the Federal Trade Commission Act prohibits

deceptive acts or practices in commerce. 15 U.S.C. 45. A deceptive

act or practice is one that is likely to mislead consumers acting

reasonably under the circumstances. See Cliffdale Associates, Inc.,

103 F.T.C. 110 (1984). As a matter of policy, however, the

Commission does not generally intervene in individual disputes.

Generally, the instances of passing off described in the comments

reflect specific individual transactions, rather than a pattern or

practice of passing off. Where the Commission obtains evidence of

such a pattern or practice, however, it can take action. For

example, the Commission recently sued a company that had

telemarketed purportedly rare ``error'' postage stamps to consumers

as valuable, safe, and liquid investments, at highly inflated

prices. FTC v. Equifin International, Inc., Financial Frontiers, and

F. Jerold Hildreth, No. CV-97-4526-DT (CWx) (C.D. Cal. Dec. 11,

1997).

---------------------------------------------------------------------------

[[Page 36560]]

In addition to legal remedies, the record indicates that there are

non-legal resources available to educate consumers about antiques and

collectibles and thus reduce consumers' susceptibility to the practice

of passing off. For example, several newsletters and hobby newspapers

regularly warn and advise buyers of antiques and collectibles about

reproductions of specific items and classes of items \64\ Many comments

also indicate that there are collector clubs for many categories of

collectibles that provide members with similar information. Commission

staff will explore whether there is a role for the Commission in these

efforts to increase consumer awareness.

---------------------------------------------------------------------------

\64\ See Chervenka, 497, 3 (publisher of Antique & Collectors

Reproduction News) and Antique Week, 499, attachments.

---------------------------------------------------------------------------

IV. Conclusion

The comments uniformly favor retention of the Rule and state that

there is a continuing need for the Rule with regard to currently

covered products, i.e., imitation numismatic and political items; that

the Rule provides benefits to consumers and industry; that the Rule

does not impose substantial economic burdens; and that the benefits of

the Rule outweigh the minimal costs it imposes. Although the comments

addressing the impact of the Rule on small entities were minimal, these

comments, including comments from major national associations in the

numismatic and political items trade, indicate that the Rule does not

place significant burdens on small entities. Accordingly, the

Commission certifies that the Rule has not had a significant impact on

a substantial number of small entities.

Although many comments recommended that the Act and Rule be

expanded to cover all antiques and collectibles, the Commission does

not have the authority under the Act to expand the Rule in this manner.

In addition, there are a variety of legal and non-legal resources that

address many of the issues raised by the commenters favoring expansion

of the Act's coverage. Accordingly, the Commission has determined to

retain the current Rule and is terminating this review.

List of Subjects in 16 CFR Part 304

Hobbies, Labeling, Trade practices.

Authority: The Federal Trade Commission Act, 15 U.S.C. 41-58 and

the Regulatory Flexibility Act, 5 U.S.C. 601.

By direction of the Commission.

Benjamin I. Berman,

Acting Secretary.

[FR Doc. 98-17929 Filed 7-6-98; 8:45 am]

BILLING CODE 6750-01-M