Guides for the Jewelry, Precious Metals and Pewter Industries

FEDERAL TRADE COMMISSION

16 CFR Part 23

Guides for the Jewelry, Precious Metals and Pewter Industries

AGENCY: Federal Trade Commission.

ACTION: Proposed rule; request for public comments.

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SUMMARY: In response to a petition from the Jewelers Vigilance

Committee and the Diamond Manufacturers and Importers Association of

America, jewelry trade associations, the Federal Trade Commission

(Commission) is requesting public comments on proposed revisions to two

sections of the Guides for the Jewelry, Precious Metals and Pewter

Industries (Jewelry Guides or Guides) to provide for the disclosure to

consumers of laser-drilling of diamonds. One section addresses

disclosure of treatments to diamond jewelry products. The other section

addresses disclosure of treatments to gemstone jewelry products.

DATES: Written comments will be accepted until July 8, 1999.

ADDRESSES: Comments should be directed to: Secretary, Federal Trade

Commission, 600 Pennsylvania Avenue, NW, Room H-159, Washington, DC

20580. Comments about these proposed changes to the Guides should be

identified as ``Guides for the Jewelry, Precious Metals and Pewter

Industries--16 CFR Part 23--Comment.''

FOR FURTHER INFORMATION CONTACT: Robin Rosen Spector, Attorney, Federal

Trade Commission, Washington, DC 20580, (202) 326-3740,

[email protected]>.

SUPPLEMENTARY INFORMATION:

I. Introduction

The Guides for the Jewelry, Precious Metals and Pewter Industries,

16 CFR Part 23, address claims made about precious metals, diamonds,

gemstones and pearl products. The Guides also provide guidance as to

when certain disclosures should be made about certain products if the

failure to make such disclosure would be an unfair or deceptive trade

practice.\1\ On May 30, 1996 (61 FR 27212), the Commission announced

comprehensive revisions to the Jewelry Guides. These revisions included

new sections providing for the disclosure of certain treatments to

diamond jewelry products (Sec. 23.13) and the disclosure of certain

treatments to gemstone jewelry products (Sec. 23.22).\2\

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\1\ The Federal Trade Commission issues industry guides to

provide guidance for the public to conform with legal requirements.

Industry guides are administrative interpretations of the laws the

FTC administers. Industry guides explain how to describe products

truthfully and non-deceptively and identify practices the Commission

considers unfair or deceptive.

\2\ Diamond and gemstone jewelry products are often treated or

enhanced to improve their beauty or durability.

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On December 9, 1998, the Jewelers Vigilance Committee (JVC), a

jewelry trade association, in conjunction with the Diamond

Manufacturers and Importers Association of America (DMIA), petitioned

the Commission to revise Sec. 23.13 to provide for the additional

disclosure of a diamond treatment called laser-drilling.\3\ The Guides

currently state that it is not unfair or deceptive to fail to disclose

this treatment. The Commission solicits comment on proposed changes to

this provision of the Guides. The Commission also solicits comment on

proposed changes to Sec. 23.22 of the Guides that addresses gemstone

treatments.

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\3\ This petition is on the public record and copies are

available by contacting the Public Reference Branch, Room 130,

Federal Trade Commission, Washington, DC 20580. A copy of the

petition also has been posted on the Commission's website at

www.ftc.gov>.

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II. Proposed Changes to Sec. 23.13

The JVC petition requests an amendment to Sec. 23.13 of the Guides

to provide for disclosure of laser-drilling of diamonds. Laser-drilling

involves the use of a laser beam to improve the appearance of diamonds

having black inclusions. The laser beam is directed at the black

inclusion and then acid is forced through the tunnel made by the laser

beam to remove the inclusion or alter it so it is not visible to the

naked eye. The Commission determined, based on the record before it in

1996, that the failure to disclose laser-drilling was not unfair or

deceptive. Therefore, Sec. 23.13 of the Guides, which discusses diamond

treatments, does not provide for disclosure of laser-drilling.

The JVC petition asserts that the Guides should be amended to

provide for disclosure of laser-drilling for several reasons. Although

previously various segments of the industry held different views

regarding the appropriateness of disclosure, there is now industry

consensus in favor of disclosure. Sixteen trade associations joined the

JVC in endorsing mandatory disclosure.\4\ In addition, according to the

petition, the jewelry industry has adopted policies requiring the

disclosure of laser-drilling at all levels of the transaction up to the

point of sale to the consumer. Because of these policies, disclosure of

laser-drilling to consumers would not be costly for retailers and would

not inhibit advertising or result in additional costs passed on to

consumers. Although industry self-regulation could also address

consumer disclosure, the petition asserts that providing for disclosure

in the Guides is important because, due to industry reliance on the

guides, it would promote greater industry compliance.

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\4\ The trade associations that joined the petition are: World

Federation of Diamond courses; Diamond Manufacturers and Importers

Association of America; International Diamond Manufacturers

Association; Diamond Promotion Services; Diamond Dealers Club of New

York; Gemological Institute of America; International Society of

Appraisers; Jewelers of America; American Gemstone Society; American

Gem Society; United States Carat Club; International Confederation

of Jewelry, Silverware, Diamonds, Pearls and Stones; American

Gemstone Trade Association; Manufacturing Jewelers and Suppliers of

America; International Standards Organization; and Diamond High

Council.

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The JVC petition explains that laser-drilling technology has

improved in recent years making it increasingly difficult for consumers

to detect the process, especially when diamonds are mounted in

jewelry.\5\ In addition, according to the petition, the majority of

diamonds sold are smaller stones, from .35 to .75 carats, and laser-

drilling is especially difficult to detect in such stones. Further,

smaller stones such as these are typically sold without grading reports

that might otherwise reveal any laser drilling.

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\5\ New technology results in smaller, shorter, thinner tunnels

that are far harder to detect under a loupe, which a consumer might

use to examine a stone.

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According to the petition, consumers may suffer economic injury

from the

[[Page 30449]]

purchase of laser-drilled stones. The petition explains that laser-

drilling affects the diamond's value, and a laser-drilled stone is

worth less than a non-treated stone of the same clarity rating. The

petition explains that because laser-drilling is not being disclosed,

some consumers may falsely believe that a laser-drilled stone is as

valuable as a non-treated stone of the same clarity rating.

Finally, the petiton notes that the Guides provide for disclosure

of other permanent process because they are non-natural, artificial

procedures that affect the value of the product. For example, the

Guides provide that cultured pearls be identified as such. A cultured

pearl is created by a mollusk, but with human intervention. As a result

of this human intervention, cultured pearls are worth less than natural

pearls and the fact that the pearl is cultured must be disclosed. The

petition asserts that the Guides should recognize the same distinction

between untreated and laser-drilled diamonds.

The Commission has tentatively concluded that the petition

demonstrates, contrary to the record before the Commission in 1996,

that the failure to disclose laser-drilling is an unfair or deceptive

trade practice. The Commission therefore proposes revising Sec. 23.13

of the Jewelry Guides to provide that it is unfair or deceptive to fail

to disclose laser-drilling. The Commission also proposes adding a

phrase to Sec. 23.13 regarding the permanence of the treatments

enumerated in the section that should be disclosed. Currently,

Sec. 23.13 provides that certain treatments should be disclosed and the

fact that the treatment ``is or may not be permanent'' also should be

disclosed. The Commission therefore proposes adding the phrase ``if

such is the case'' after ``permanent'' in this section. If this phrase

is not added the Guides would provide for disclosure that laser-

drilling is not permanent, when in fact it is permanent.

III. Proposed Changes to Sec. 23.22

Section 23.22 of the Guides provides that it is unfair or deceptive

to fail to disclose that a gemstone has been treated in any manner that

is not permanent or that creates special care requirements and to fail

to disclose that the treatment is not permanent, if such is the case.

In light of the petition's evidence about laser-drilling, the

Commission is seeking public comment on whether consumers may be

injured by non-disclosure of permanent gemstone treatments that do not

create special care requirements in the same manner that they may be

injured by nondisclosure of laser-drilling. The Commission is seeking

comment on whether there are treatments that create a disparity in the

value of treated stones as compared to non-treated stones, and, whether

consumers, acting reasonably under the circumstances, can detect such

treatments.

The Commission seeks comment on whether Sec. 23.22 of the Jewelry

Guides should be revised to advise that permanent treatments that do

not require special care should be disclosed if the treatment has a

significant effect on the stone's value, and if a consumer, acting

reasonably under the circumstances, could not ascertain that the stone

has been treated.

IV. Request for Comment

The Commission seeks public comment on the proposed changes to

Secs. 23.13 and 23.22 of the Guides discussed above. The Commission

also requests comment on the following specific questions:

1. Is it a prevalent practice in the jewelry industry to require

disclosure of laser-drilling at all levels of the transaction up to the

point of sale to the consumer?

2. Would a provision in the Jewelry Guides to disclose laser-

drilling to consumers inhibit advertising or create additional costs

for retailers that could be passed on to consumers in the form of

significantly higher prices?

3. Is there a disparity in value between a laser-drilled diamond

and a non-treated diamond of the same clarity rating?

4. Should the Jewelry Guides provide guidance as to how laser-

drilling should be disclosed to consumers? If so, what guidance should

be provided?

5. Gemstone treatments that are permanent and do not create special

care requirements currently do not have to be disclosed under the

Jewelry Guides. Is there a disparity in value between a gemstone

treated in a manner that is permanent and does not require special care

and one that is not treated? How many different gemstones and gemstone

treatments fall into this category?

6. Does industry policy provide for disclosure of permanent

gemstone treatments that do not create special care requirements?

7. Would guidance in the Jewelry Guides calling for disclosure of

permanent gemstone treatments that do not require special care inhibits

advertising or create additional costs for retailers that could be

passed on to consumers in the form of significantly higher prices?

Would this guidance adversely impact competition in the jewelry

industry in any way?

List of Subject in 16 CFR Part 23

Advertising, Labeling, Trade practices, Watches and jewelry.

The Commission proposes to amend Chapter I of Title 16 of the Code

of Federal Regulations as follows:

PART 23--GUIDES FOR THE JEWELRY, PRECIOUS METALS, AND PEWTER

INDUSTRIES

1. The authority citation for part 23 continues to read as follows:

Authority: Sec. 6, 5, 38 Stat. 721, 719; 15 U.S.C. 46, 45.

2. Revise Sec. 23.13 to read as follows:

Sec. 21.13 Disclosing existence of artificial coloring, infusing, etc.

If a diamond has been treated by artificial coloring, tinting,

coating, irradiating, heating, by the use of nuclear bombardment, by

the introduciton or infusion of any foreign substance, or by laser-

drilling, it is unfair or deceptive not to disclose that the diamond

has been treated and that the treatment is not or may not be permanent,

if such is the case.

3. Revise Sec. 23.22 to read as follows:

Sec. 23.22 Deception as to gemstones.

It is unfair or deceptive to fail to disclose that a gemstone has

been treated in any manner that is not permanent or that creates

special care requirements, and to fail to disclose that the treatment

is not permanent, if such is the case. The following are examples of

treatments that should be disclosed because they are usually not

permanent or create special care requirements: coating, impregnation,

irradiating, heating, use of nuclear bombardment, application of

colored or colorless oil or epoxy-like resins, wax, plastic, or glass,

surface diffusion, or dyeing. This disclosure may be made at the point

of sale, except that disclosure should be made in any solicitation

where the product can be purchased without viewing (e.g., direct mail

catalogs, on-line services), and in the case of televised shopping

programs, on the air. If special care requirements for a gemstone arise

because the gemstone has been treated, it is recommended that the

seller disclose the special care requirements to the purchaser.

Permanent treatments that do not create special care requirements

should be disclosed if the treatment has a significant effect on the

stone's value, and if a consumer, acting reasonably under the

circumstances, could not ascertain that the stone has been treated.

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By direction of the Commission.

Benjamin I. Berman,

Acting Secretary.

[FR Doc. 99-14505 Filed 6-7-99; 8:45 am]

BILLING CODE 6750-01-M