[Federal Register Volume 61, Number 105 (Thursday, May 30, 1996)]
[Rules and Regulations]
[Pages 27178-27222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13524]
[[Page 27177]]
_______________________________________________________________________
Part V
Federal Trade Commission
_______________________________________________________________________
16 CFR Parts 19 and 23
Guides for the Metallic Watch Band Industry and the Jewelry Industry,
Final Rules; and Guides for the Jewelry, Precious Metals, and Pewter
Industries, Proposed Rule
Federal Register / Vol. 61, No. 105 / Thursday, May 30, 1996 / Rules
and Regulations
[[Page 27178]]
FEDERAL TRADE COMMISSION
16 CFR Part 23
Guides for the Metallic Watch Band Industry and Guides for the
Jewelry Industry
AGENCY: Federal Trade Commission.
ACTION: Final guides.
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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\
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\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).
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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.
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\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.
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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\
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\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.
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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).
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\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.
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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.
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\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.
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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\
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\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.
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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.
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\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).
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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
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\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.
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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.
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\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.
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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
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\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).
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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
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\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'').
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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
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\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.)
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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
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\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.
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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
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\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.
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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
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\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).
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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
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\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).
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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 * * *.''
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\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).
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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
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of those who gave reasons for favoring consolidation mentioned the
Watch Band Guides rather than the Watch Guides.51
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\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.
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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
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\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).
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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
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\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.
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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
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\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).
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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
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\61\ See infra for a discussion of the inclusion of items made
from pewter.
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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.
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\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).
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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
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\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'').
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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
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\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).
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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
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\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).
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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
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\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'').
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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
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\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.
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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.
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\72\ Comment 238, p.1.
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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.
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\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.
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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
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\75\ The JVC also proposed requiring the disclosure of any
business relationship between the certifier and the seller.
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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
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\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'').
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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
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\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.
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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
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\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.
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[[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.
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\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.
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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\
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\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).
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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.
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\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.
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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.
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\87\ See The Tariff Act of 1930, as amended, 19 U.S.C. 1304, and
Customs' implementing regulations, 19 CFR 134.11.
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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\
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\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.
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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.
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\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.
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\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.
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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.
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\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
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\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).
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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.
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\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).
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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
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\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.
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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
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\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.
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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).
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\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.
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\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
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\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
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\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.
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\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/
1,000,000ths of an inch, under the layer of gold.
---------------------------------------------------------------------------
The Commission believes it is appropriate to reference a numerical
thickness in the Guides when consumers have come to expect certain
qualities from products described by the term and products below the
standard would not have such qualities. The comments indicate that
there are items sold as ``vermeil'' that have the qualities consumers
associate with ``vermeil,'' and that have a gold coating of less than
120 millionths of an inch. Furthermore, the definition of vermeil in
the Jeweler's Dictionary is consistent with Korbelak's comment (27)
that many years ago, the trade established a floor of 100 millionths of
an inch for vermeil. Therefore, the Commission has concluded that a
thickness of 100 millionths of an inch, or 2.5 microns, of fine gold is
an appropriate thickness ``floor'' for vermeil.
Because there may be items currently sold as ``vermeil'' that do
not comport with the generally accepted meaning (i.e., gold over
silver), the Commission has added a general provision stating that it
would be unfair or deceptive to describe an article as ``vermeil'' if
it misrepresents the product's true composition. The Commission has
also added a section, 23.5(b), which provides guidance on when a
product may be described as ``vermeil.'' This section states that a
product may be described as ``vermeil,'' ``if it consists of a base of
sterling silver,144 coated or plated on all significant surfaces,
with gold or gold alloy of not less than 10 karat fineness, which is of
substantial thickness and a minimum thickness throughout which is
equivalent to two and one half (2\1/2\) microns (or approximately 100/
1,000,000ths of an inch) of fine gold.'' As with other gold-plated
items (covered in Sec. 23.4 of the revised Guides), ``substantial
thickness'' is defined in a footnote which is similar to the present
footnote 1 in the current Guides.
---------------------------------------------------------------------------
\144\ The comments indicate that the sterling silver base is
part of the common understanding of the term ``vermeil.''
---------------------------------------------------------------------------
With respect to the problem of the tarnishing of the silver base,
the JVC recommended the addition of a note allowing a nickel barrier.
However, the nickel is placed over the silver base, and it is the
silver that distinguishes vermeil from other gold plated items.
Moreover, vermeil is by definition composed completely of precious
metal alloys.145 Although the note indicates that the purpose of
the ``diffusion barrier'' is to prevent premature discoloration, there
was no discussion of the effect a ``diffusion barrier'' over the silver
would have on the unique coloration of vermeil. Moreover, no
explanation was offered for limiting the thickness of the barrier to
50/1,000,000ths of an inch.146 Although there may be a need for
such a barrier, in the absence of adequate information on this issue
(including whether it changes the appearance of the product in a manner
that would be objectionable to consumers), the Commission has
determined not to add this note to the Guides. Instead, the Commission
has added a Note which states that such a product should not be
described as vermeil unless there is a disclosure that the sterling
silver is covered with a base metal, which is gold-plated.
---------------------------------------------------------------------------
\145\ See also Advisory Opinion, Impropriety of description
``14K'' for item not entirely gold, 69 F.T.C. 1212 (1966) (stating
that an earring post with a 14K gold base, electroplated with
copper, nickel and then karat gold, could not be described as 14
karat gold, because it would ``contains substantial electroplatings
of base metals'').
\146\ Franklin Mint (250) p.4 (objecting to the proposal and
stating that their own tarnish testing indicates the need for a
barrier of 150/1,000,000ths of an inch).
---------------------------------------------------------------------------
The JVC petition suggested several other qualifications of the use
of ``vermeil'' that the Commission has not included in the revised
Guides. The petition suggested that the application of the gold must be
either by mechanical bonding or electroplating. However, comments have
indicated that some new methods of application have been developed, and
no reasons were offered
[[Page 27191]]
for excluding those methods. (See infra for a discussion of these
comments.) The JVC also proposed that a vermeil industry product only
be represented by the word `Vermeil' standing alone,147 and
proposed prohibiting use of the words ``gold'' or ``silver'' to modify
``vermeil.'' However, no reasons were offered as to why the terms
``gold vermeil'' or ``silver vermeil'' would be deceptive. The use of
the terms ``gold'' and ``silver'' are covered by other sections of the
revised Guides, and the Commission believes these sections are adequate
to prevent the deceptive use of these terms in connection with vermeil.
---------------------------------------------------------------------------
\147\ Franklin (250), at p.4, objected to the exclusion of
``alternative descriptions and markings . . . such as `sterling
silver electroplated with 24 kt. gold'' and noted that ``no evidence
has been produced that such designations would mislead the public.''
The Commission believes that alternative truthful descriptions of a
vermeil product (e.g., sterling silver electroplated with 24 kt.
gold) are acceptable.
---------------------------------------------------------------------------
Finally, the JVC suggested including a requirement that when
``vermeil'' is used as a quality mark, it must be accompanied by the
name or trademark of the manufacturer or importer according to the
provisions of the National Stamping Act. The National Stamping Act
creates such a requirement for any quality mark indicating the presence
of gold or silver. Thus, the requirements of the Act may apply to a
``vermeil'' quality mark. However, there is currently a Note in the
Guides, following the section dealing with quality marks, referring to
the requirements of the National Stamping Act. Instead of creating a
second note, the Commission has added ``vermeil'' to the list of
quality marks in that Note (and in Sec. 23.9 of the revised Guides).
3. Misrepresentation as to Silver Content: Sec. 23.6
Section 23.6(a) of the current Guides cautions against
misrepresenting the silver content in any industry product. The JVC
proposed adding the abbreviation ``Ster.'' to Sec. 23.6(b) of the
Guides, which states that the use of the terms ``silver,'' ``solid
silver,'' ``Sterling,'' or ``Sterling Silver'' is deceptive unless the
product is 925/1000ths pure silver. Because consumers are likely to
believe this term stands for ``Sterling,'' the Commission has added the
abbreviation ``Ster.'' to this section.
The JVC proposed stating that abbreviating the term ``Sterling''
was not allowed when used to describe hollowware or flatware. No reason
was offered for prohibiting this practice, and the Commission has no
reason to conclude that this practice is inherently unfair or
deceptive.148 The JVC also proposed stating that ``Sterling'' or
``Ster.'' was not allowed to be applied to a silverplated article. This
proposed addition to Sec. 23.6(b) essentially restates Sec. 23.6(d) of
the current Guides, which states that it is unfair to apply the terms
``Sterling'' or ``Coin'' to any silver-plated article or the plating
thereon. In fact, the National Stamping Act states that silverplated
articles shall not ``be stamped, branded, engraved or imprinted with
the word `sterling' or the word `coin,' either alone or in conjunction
with other words or marks.'' 15 U.S.C. 297(a). However, the Commission
has determined that Sec. 23.6(d) of the current Guides may
unnecessarily inhibit the use in advertising of phrases such as
``sterling silver plated'' or ``coin silver plated.'' Thus, the
Commission has deleted Sec. 23.6(d) and has added a Note referring to
the requirements of the National Stamping Act.
---------------------------------------------------------------------------
\148\ Franklin (250) commented at p.5, that the presumption
implicit in allowing sterling to be abbreviated on other products
``is that buyers of the other products named therein for which
`ster.' is an acceptable usage understand its meaning; it defies
logic to assume that the term `ster.' is not recognized and
understood by the hollowware and flatware buying public.''
---------------------------------------------------------------------------
Section 23.6(c) states that the use of ``coin'' is deceptive unless
the product is at least 900/1000ths pure silver. The JVC proposed
adding a prohibition against abbreviating the term ``coin.'' There is
no evidence that ``coin'' is being abbreviated or, if it were, that it
would be misleading to consumers. Accordingly, the Commission has not
adopted this proposal.
a. Silverplate. Section 23.6(e) of the current Guides state that it
is an unfair trade practice to represent an industry product as plated
with silver unless all significant surfaces are coated with silver
``which is of substantial thickness.'' 149 The JVC proposed
continuing the use of the ``substantial thickness'' standard but adding
a footnote stating this means thickness sufficient to assure durable
coverage of the base metal. (The current Guides contain such a footnote
in Sec. 23.5(c)(2) with respect to gold-filled items.) The FRN
solicited comment on whether this addition should be made or whether
the thickness should be defined numerically.
---------------------------------------------------------------------------
\149\ The Watch Band Guides differ from the Jewelry Guides in
that they state that when an industry product is marked as ``silver
plate'' all significant surfaces ``shall have a plating or coating
of silver of a high degree of fineness and such plating or coating
shall be of substantial thickness.'' 16 CFR 19.2(b) (emphasis
added). The Jewelry Guides simply state that such a product should
contain a ``plating or coating of silver which is of substantial
thickness.'' The Jewelry Guides state that ``silver'' means sterling
silver (i.e., unless qualified by the word ``coin''). Thus, the
Jewelry Guides appear to limit the use of ``silver plate'' to
sterling silver plate, whereas the Watch Band Guides appear to allow
coin silver to be used on an item marked ``silver plate.'' Because
no one objected to the current provision in the Jewelry Guides, the
Commission has retained the provision as it appears in the Jewelry
Guides for both jewelry and detachable watch bands.
---------------------------------------------------------------------------
All but one of the 16 pertinent comments indicated that giving a
numerical value to ``substantial thickness'' would be
desirable.150 However, four of these suggested that additional
data were needed.151 Moreover, only a few made specific
recommendations. Sheaffer noted that it was ``not aware of any problems
resulting from the current definition of `substantial thickness''' but
nevertheless proposed a coating five microns (200 millionths of an
inch) thick. Mr. Korbelak suggested 500 millionths of an inch where it
is functionally necessary.152
---------------------------------------------------------------------------
\150\ Gold Institute (13); Korbelak (27); G&B (30); Handy (62);
Newhouse (76); ArtCarved (155); Bales (156); Phillips (204); Canada
(209); Bruce (218); MJSA (226); Sheaffer (249); and Leach (257). The
one dissenter was the JCWA (216), which stated at p.3 that ``there
is insufficient data to determine an `acceptable' thickness of
silver plating, and because related ISO standards have not been
established, it is difficult to determine the durability of specific
levels of silver plating. Therefore, it is not practical to define
`durability' in numerical terms. The existing definition is
appropriate.''
\151\ G&B (30); Handy (62); Canada (209); and MJSA (226).
\152\ Sheaffer (249) p.4; Korbelak (27) p.4.
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The Gold Institute made detailed recommendations, but only for
silver plated flatware and hollowware.153 However, without more
evidence of the need for, and desirability of, these particular
standards, the Commission does not believe it is appropriate to adopt
specific standards for flatware and hollowware. Moreover, the amount of
wear received by jewelry is different from the amount of wear received
by flatware and hollowware. Therefore, the proposed standards for
flatware may not be appropriate for jewelry. Indeed, the amount of wear
received by different kinds of jewelry varies greatly (e.g., earrings
as compared to bracelets) and manufacturers may need flexibility in any
silver plate standard for jewelry.
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\153\ Comment 13, pp.2-3.
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Based on the comments, the Commission does not believe that there
is currently a consensus in the industry as to what would constitute an
appropriate minimum numerical thickness for the purpose of identifying
a safe harbor for the term silverplate.154 However, the Commission
has added a note to Sec. 23.6(e) to provide some guidance to the
industry regarding ``substantial thickness'' in connection
[[Page 27192]]
with the use of the term silverplate. This note is similar to footnote
1 in the current Guides, which annotates the use of the phrase
``substantial thickness'' in connection with ``gold plate.''
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\154\ There is no ISO standard for silverplate.
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Finally, the JVC recommended adding a section to the Guides that
would allow items with an inner core of base metal to be referred to as
sterling or coin (instead of silverplate) as long as the item as a
whole contained 925 or 900 parts silver per thousand. A literal reading
of the sections of the current Guides pertaining to sterling and coin
[Secs. 23.6 (b) and (c)] indicates that this practice is not currently
perceived as misleading. However, the actual practice in most of the
industry is only to label an item sterling if it is a uniform mixture
throughout of 92.5% silver and a base metal (or, for coin, 90% silver
and the rest base metal). Without more information as to consumer
beliefs, the Commission is not adopting this specific provision at this
time.
b. Diffusion barrier on sterling silver. The JVC recommended adding
a note to the Guides that states that a diffusion barrier (typically of
nickel) may be electrolytically applied, in a thickness of no more than
50/1,000,000ths of an inch, under a layer of rhodium, to deter
premature tarnishing on sterling silver products.\155\
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\155\ Rhodium, a member of the platinum group metals, is very
hard.
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Although this note refers to ``sterling silver products,'' it
follows the section on silver plate, and it is unclear whether this
note is meant to apply to sterling silver products or silver plated
products or both. In either event, the described product would have no
silver on the surface, and thus, strictly speaking, it would not fall
within the definitions in the Guides of either sterling silver or
silver plate. John Lutley, Executive Director of the Silver Institute
and President of the Gold Institute, stated, ``[s]ome jewelry
manufacturers plate pure silver over a nickel flash on sterling silver
to achieve a mirror finish and reduce the rate of tarnishing.'' \156\
This may be the practice the note was designed to address. However, in
the absence of adequate information on this issue (e.g., how such
products are described to consumers), the Commission has not included
this Note in the revised Guides.
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\156\ Comment 13, p.2.
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c. Quality marks. The JVC proposed adding three subsections dealing
with quality marks. Two subsections [23.6 Section I(g) and I(h) in the
JVC petition] reiterate the general provisions concerning the use of
the terms ``Sterling,'' ``Ster,'' ``Sterling Silver,'' ``Silver,'' or
``Solid Silver'' and ``Coin'' or ``Coin Silver,'' set out in
subsections (a), (b), and (c) of the silver section. Therefore, the
Commission is not restating these provisions in another section.
The third proposed section dealing with quality marks [section 23.6
Section I (i) of the JVC petition] states that no quality marks shall
be used ``other than those herein specified.'' The Franklin Mint
commented that this ``inexplicably prohibits use of such universally
recognized numerical terms as `.925' in conjunction with other
applicable quality marks such as `ster.' or `sterling.' '' \157\ The
Commission does not believe that a marking such as ``.925 ster.'' is
inherently deceptive, and is not including this proposal in the Guides.
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\157\ Comment 250, p.5.
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d. Tolerances and exemptions for testing purposes. Footnote 2 of
the current Guides notes that the tolerances of the National Stamping
Act are applicable to claims made with respect to silver content. The
JVC suggested reorganizing this information, and the Commission
believes that this change will be helpful to industry members who are
using the Guides. Footnote 2 of the current Guides also refers to the
exemptions recognized in an assay for quality (to determine the amount
of fine silver in the item which is assayed), which are taken from
Commercial Standard CS 118-44 [Marking of Jewelry and Novelties of
Silver] and Commercial Standard CS 51-35 [Marking Articles Made of
Silver in Combination with Gold]. The JVC suggested identifying these
exemptions in an additional subsection. Because the exemptions apply to
both silver and gold, and because the lists of exemptions distract from
the main points of the text of the Guides, the Commission has included
this information as an appendix to the Guides. A Note following the
silver section refers to the Appendix.
4. Marking of Articles Made of Silver in Combination With Gold
The current Guides do not contain a separate section addressing how
products which are a combination of silver and gold can be
nondeceptively described. The JVC proposed including in the Guides most
of the text of Voluntary Product Standard PS 68-76, ``Marking of
Articles Made of Silver in Combination with Gold.'' \158\ The proposed
section defines the covered products as sterling silver in combination
with gold.\159\
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\158\ Footnote 2 in the current Guides references former
Commercial Standard CS 51-35 (``Marking of Articles Made of Silver
in Combination with Gold'') but only to note that it sets out
exemptions from an assay in quality. See discussion, infra,
regarding Commercial Standards generally.
\159\ The VPS provides that articles where the gold and silver
are visually indistinguishable (e.g., where the gold covers the
entire article, or where white gold is combined with silver) may be
marked, e.g., ``Sterling and \1/5\ 10 K,'' where the fraction
represents the proportion of the weight of the alloyed gold to the
weight of the entire metal in the article. It also provides that the
karat mark can only be used if the gold alloy is \1/20\ of the
weight of the entire metal in the article. For articles where the
gold and silver are visually distinguishable, the karat mark must
always follow the Sterling mark, e.g., ``Sterling and 10 K,'' and
there is no requirement that the proportion of the weight of the
alloyed gold to the weight of the entire metal in the article be
disclosed. The JVC also proposed that articles so marked must not
contain any metal other than Sterling silver and 10 karat or better
gold.
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The JVC's proposals, at least in the case of products with
distinguishable components, result in markings that the Commission has
already identified as deceptive.\160\ However, claims as to silver
content are covered by the silver section and claims as to gold content
are covered by the gold section. Furthermore, the marking of articles
which are a combination of silver and gold is adequately addressed by
Sec. 23.8(a) of the current Guides. That section provides that it is
unfair to place a quality mark on a product when the mark would deceive
purchasers as to the metallic composition of the product or any part
thereof. Moreover, subsection (a)(2) notes that, when a quality mark
applies to one part of a product but not another part of a similar
appearance, it should be accompanied by an identification of the part
to which it applies. The JVC offered no evidence regarding why
additional guidance on these issues was needed or that any combination
gold and silver products
[[Page 27193]]
were being marketed in a manner that deceived consumers as to their
metallic content.\161\
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\160\ In an advisory opinion, Marking of jewelry produced from a
14 karat gold sheet laminated upon sterling, 89 F.T.C. 651 (1977),
the Commission stated that the mark ``Sterling and 14K'' was
deceptive as applied to an article in which a 14K gold sheet was
laminated on sterling, and the gold constituted at least 5% of the
weight of the article. The Commission noted that the different
metals were visually distinguishable ``but casual inspection cannot
determine the relative thickness of the gold layer and the silver.''
Id. at 651. The Commission stated that the suggested markings
``could suggest to consumers that the amount of gold and silver. . .
are approximately equal or, at least, would suggest more than five
percent 14K gold.'' Id.
In an advisory opinion involving two visually indistinguishable
metals, Marking of 18 karat white gold ring with platinum baguette
prongs, 74 F.T.C. 1686 (1968), the Commission stated that a white
gold ring with platinum baguettes could not be marked ``18K--10%
Plat.'' The Commission reasoned that ``the consumer might conclude
that all of the prongs, including those for the center stone, are of
platinum composition. Under these circumstances, it is not enough to
merely say that the ring contains 10% platinum and 90% gold without
disclosing the true composition of the various parts of the ring.''
Id. The Commission suggested that the ring could be marked ``18K-
baguette prongs Plat.''
\161\ The Franklin Mint (250) stated at p.4, that there is no
evidence that a gold karat mark is misleading on a gold and silver
item when the gold constitutes less than \1/20\ of the total metal
weight. Moreover, it also noted that the JVC did not propose any
such prohibition for vermeil products, ``which are but another form
of gold and silver item. . . .''
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Finally, the JVC's proposal to permit quality marks only for
sterling and gold items is unduly restrictive. For example, an article
made of coin silver combined with gold could not contain a quality mark
under the JVC proposal, nor could an article which contains any metal
other than sterling silver or gold. For all these reasons, the
Commission has not included in the Guides, the proposed provisions
relating to articles made of silver in combination with gold.
5. Platinum: Sec. 23.7
Section 23.7 of the current Guides states that it is an unfair
trade practice to use the words ``platinum,'' ``iridium,''
``palladium,'' ``ruthenium,'' ``rhodium,'' or ``osmium,'' or any
abbreviations thereof, in a way likely to deceive purchasers as to the
true composition of the product. The JVC and a number of commenters
proposed changes to this section. However, the Commission recently
received a request for an advisory opinion from the JVC and Platinum
Guild International for markings of platinum products. This request
indicated that members of the platinum industry are interested in
simplifying current Commission guidance regarding platinum descriptions
and bringing this guidance into closer accord with international
standards. The comments submitted in response to the FRN do not address
some of these issues. Therefore, the Commission has decided that it
would be beneficial to solicit additional comment from the entire
industry on markings and descriptions of platinum products before
making any changes in this section. A request for comment on these
issues will be published in a separate Federal Register notice.
6. Pewter
The current Guides do not pertain to products made from pewter. The
JVC recommended including a section on pewter and the FRN solicited
comment on whether the guides should include a provision, and whether
the standard of any alloy consisting of at least 900 parts per thousand
Grade A Tin is appropriate.
Thirty comments addressed this issue, and most thought pewter
should be included in the Guides and that the proposed standard was
appropriate. Four opposed the change, stating that the Guides should
only address precious metals.162 One comment stated that there was
no apparent need for regulation of pewter but another stated that there
are ``many companies that are abusing the representation of pewter
products.'' 163
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\162\ Nowlin (109); LaPrad (181); Sheaffer (249); and Leach
(258).
\163\ NACSM (219) p.7; Bales (156) p.9.
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It appears that pewter has been increasingly utilized in costume or
fashion jewelry. Nellie Fischer of the American Pewter Guild advised
staff in a telephone interview that over the past five years her
company's sales of pewter jewelry to the trade have increased by 40
percent.164 Pewter jewelry and other pewter products are sold by
at least some of the same entities that sell other products covered by
the current Guides. The Commission has concluded that inclusion of a
provision for pewter may prevent misrepresentations.
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\164\ Christopher R. Mellott, counsel for the Pewter Guild,
compiles voluntary statistical reports from samplings of pewter
manufacturers and, over the period from 1983 to 1990, found a six-
fold increase in the value at wholesale of pewter jewelry sales.
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With respect to the proposed standard, Salisbury Pewter stated that
``a 90% tin requirement is justified by the metallurgical restraints
for strength and hardness.'' 165 The American Pewter Guild, a
trade association, attached a list of historical references to pewter
which indicate that pewter has virtually always had a tin content of at
least 90%.166 Ten pewter producers also supported the proposed
standard.167
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\165\ Comment 86, p.1.
\166\ Comment 89 (also stating that pewter has been defined as
containing 90% tin in the Guild's By-Laws since their adoption in
1976).
\167\ Stieff (25); Empire (44); Woodbury (64); Lance (84); Web
(85); Salisbury (86); Fischer (87); Seagull (111 and 120); Universal
(178); and Heritage (215). Other comments favoring the proposed
standard for pewter are: Fasnacht (4); Estate (23); G&B (30); Jabel
(47); Bales (156); Canada (209); Bruce (218); MJSA (226); and
Preston (229).
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Because pewter has historically contained at least 90% tin,
consumers presumably expect pewter to have the qualities that are
associated with an alloy containing at least 90% tin. Thus, the
Commission has included a section on pewter in the Guides. Section
23.8(a) states that it is unfair and deceptive to describe a product as
``pewter'' if the description misrepresents the product's true
composition. Section 23.8(b) states that a product may be described as
``pewter'' if it contains at least 90% tin, with the remainder composed
of metals appropriate for use in pewter.
7. Additional Guidance Relating to Quality Marks: Sec. 23.8
The JVC proposed several changes in Sec. 23.8 of the current
Guides. The introductory paragraph of this section defines ``quality
mark'' and gives specific examples of words (e.g., ``gold,'' ``karat,''
``silver,'' etc.) that are considered to be quality marks. (As noted
previously, the Commission has added the word ``vermeil'' to this list
of words that constitute quality marks.) 168
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\168\ The Watch Band Guides differ from the Jewelry Guides with
respect to quality marks in that they list the words duragold,
diragold, noblegold, and goldine as quality marks in Sec. 19.2(g).
However, the Jewelry Guides, in a Note following Sec. 23.8 on
quality marks, reach the same practices by stating that quality
marks ``include those in which the words or terms `gold,' `karat,'
`silver,' `platinum,' (or platinum related metals), or their
abbreviations, are included, either separately or as suffixes,
prefixes, or syllables.'' The Commission has added this sentence of
this Note to the introductory paragraph of this section in the
revised Guides (Sec. 23.9). The Commission does not believe it is
necessary to add the words duragold, diragold, noblegold, and
goldine to the examples of quality marks listed in current
Sec. 23.8.
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Part (a) of this section addresses the use of quality marks on
articles that are made from more than one metal. The JVC suggested that
the title be changed from ``Deception as to applicability of marks'' to
``Deception as to application of marks'' and that a definition of
application be added. The definition of application suggested by the
JVC includes bills, invoices, orders, statements, letters, and
advertisements. However, this definition is inappropriate in the
context of part (a) of this section, which is limited to deception in
the use of quality marks, which do not encompass bills, invoices, etc.
The term ``quality mark'' is defined as a mark ``which has been
stamped, embossed, inscribed, or otherwise placed, on any industry
product and which indicates or suggests that such product is composed
throughout of any precious metal or any alloy thereof or has a surface
or surfaces on which there has been plated or deposited any precious
metal or any alloy thereof.'' 169 Section 23.8 contains specific
guidance for marks on the products themselves
[[Page 27194]]
(or attached thereto). Other sections of the Guides apply to claims
made in bills, invoices, orders, statements, letters, and
advertisements. Thus, the Commission has not included the proposed
definition of application in the Guides.
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\169\ This is consistent with the references to such marks in
the National Stamping Act, which applies to articles ``having
stamped, branded, engraved, or printed thereon, or upon any tag,
card, or label attached thereto, or upon any box, package, cover, or
wrapper in which said article is incased or inclosed, any mark or
word indicating or designed or intended to indicate'' the degree of
fineness of the gold or silver in the article. 15 U.S.C. 294. A
quality mark does not have to be placed on a product, but, if it is,
it must be accurate within the tolerances prescribed by the National
Stamping Act. 15 U.S.C. 294-296. The National Stamping Act goes
beyond embossing quality marks on products to things surrounding the
product (e.g., labels, wrappers), but not as far as bills,
advertisements, etc., as the JVC proposes for the Guides.
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Part (b) of this section addresses deception by reason of the
difference in the size of letters or words in quality marks (e.g., GOLD
electroplate). A Note following this section, entitled ``Legibility of
markings,'' recommends that quality marks be of sufficient size to be
legible and be so placed as to be likely to be observed. The JVC has
not suggested any changes to this section, or to the Note following it.
The Commission agrees that the portion of the Note pertaining to
legibility should remain unchanged.170 However, the second
sentence of the Note implies that quality marks should normally be
engraved on products and that tag or labels can only be used when
``such marking cannot be achieved without injury to the appearance of
the product.'' The National Stamping Act indicates that quality marks
can be applied by means of tags or labels, regardless of whether
engraving would damage the product. The Commission has therefore
modified this Note to clarify the fact that if a quality mark is used,
it may be either engraved on the product or placed on a tag or label.
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\170\ There is no requirement that there be a quality mark;
however, it may be deceptive to place an illegible mark on a
product, because consumers might interpret such a mark to mean the
product is of higher quality than it actually is.
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The second Note following this section currently states that it is
the consensus of the members of the industry that quality marks on such
items should be accompanied by identification of the manufacturer,
processor, or distributor. The Commission has changed this Note to
reference the requirements for identification contained in the National
Stamping Act.171
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\171\ The Watch Band Guides differ from the Jewelry Guides in
their treatment of quality marks in two respects (in addition to
that discussed in note , supra). Section 19.2(g)(3) of the Watch
Band Guides, dealing with the marking of watch bands composed of two
metals of similar appearance, is adequately addressed by
Sec. 23.8(a) of the current Jewelry Guides, discussed above. Section
19.2(g)(1) of the Watch Band Guides provides that if a quality mark
is concealed by packaging, it should appear on the outside of the
packaging if the failure to so display it would deceive consumers.
The Jewelry Guides do not require that products contain quality
marks and, thus, do not require that a quality mark be visible in
spite of packaging. The Commission believes it is neither unfair nor
deceptive to fail to include a quality mark; hence, it is neither
unfair nor deceptive to allow packaging to conceal a quality mark.
Thus, the Commission has not included this provision in the revised
Guides.
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8. Exemptions From Assay
Some functional parts of gold alloy, gold-filled, silver and
platinum items may need to be made of other sturdier metals to function
properly, and thus, are exempt from any assay for quality. (An assay is
a test made to determine the quantity of precious metal in a product
compared to the weight of the whole product.) The current Guides
include the exemptions for these parts that are set out in the various
Voluntary Product Standards. Since trade practice for many years has
been to make such parts of base metals, it is unlikely that consumers
would expect them to be made of precious metal; hence, a claim that an
item was silver would not be deceptive because the screws and rivets
were made of base metal.
The current Guides list the exemptions for gold and gold-filled
items in section 23.5(e) and (f) and for silver and for silver in
combination with gold, in footnote 2.172 However, the Commission
believes that detailed listings of the exemptions need not appear in
the body of the Guides and has included the list of exemptions for all
covered metal products in an Appendix.173
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\172\ The Guides contain no exemptions for products which are
never assayed. This includes products made of gold or silver
electroplate. (Such articles are not sold with the representation
that they contain a specific percent by weight of precious metal.)
\173\ The current Guides use the Appendix to list and classify
the Guides. The JVC proposed placing this material first as a Table
of Contents. The Commission believes that the existing list of
section numbers and titles in the table of contents is sufficient
and has omitted this classification from the revised Guides.
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The list includes all exemptions from the current Guides and, based
on the comments, includes some additions.174 Tru-Kay stated that
there is a significant inconsistency in the Guides between the
exemptions recognized in the manufacture of gold-filled jewelry and
those which are exempted in the manufacture of silver jewelry. Tru-Kay
stated that ``industry trade practice over many years has been to apply
the exemptions as listed for gold-filled to both gold-filled and
sterling silver,'' because the same reasons that certain parts are
exempt in gold-filled jewelry are also applicable in silver
jewelry.175 Tru-Kay explained that when the exemptions were first
written, ``many articles that were being produced in gold-filled, were
not at that time being produced in sterling silver.'' 176 Since
this is no longer the case, Tru-Kay urged that ``these exemptions be
standardized in a consistent manner.'' 177 The Commission agrees
with this proposal and has expanded the list of exemptions for silver
items to include all exemptions listed for gold-filled items.178
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\174\ In addition, because the revised Guides cover items other
than jewelry, the exemptions are stated as applying to industry
products, not to jewelry industry products.
The JVC proposed exemptions from assay for optical products,
which are based on the VPS, with some additions. There were no
comments opposing this proposal, and the Commission has included
this list of exemptions for optical products in the Guides.
\175\ Comment 196, p.2.
\176\ Id.
\177\ Id.
\178\ Silver is relatively soft. Hence, it is logical for the
exemptions for gold-filled items to apply also to silver items.
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General Findings, which makes small functional components of
jewelry, suggested that there should be two additions to the gold
exemptions.179 First, it suggested the exemptions for karat gold
jewelry include ``metallic parts completely encased in nonmetallic
covering.'' This would include base-metal pegs used in gluing pearls or
stones to the findings. (According to General Findings, ``the pegs are
completely encased within the stone or pearl.'') The current Guides
exempt ``metallic parts completely encased in nonmetallic covering''
when they are included in articles made of silver in combination with
gold.180 On the basis of the comment, the Commission has
determined that such parts should be added to the list of exemptions
for gold alloy jewelry (and to the list of exemptions for silver items,
under the rationale advanced by Tru-Kay). The second suggestion was
that ``bracelet and necklace snap tongues, i.e., clasps'' (sometimes
referred to as springs) should be added to the exemptions for rolled
gold plate jewelry. Bracelet and necklace snap tongues are already an
exemption for articles made of platinum, and the Commission has added
this to the list of exemptions for rolled gold plate jewelry (and to
the list of exemptions for silver items).
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\179\ Comment 88, p.1.
\180\ Footnote 2 to current Guides.
---------------------------------------------------------------------------
Donald Bruce also suggested that the mechanical parts of lockets be
added to the lists of exemptions for silver and gold alloy jewelry.
These are already in the list of exemptions for gold-filled jewelry
(which exempt ``field pieces and bezels for lockets''), and Bruce
stated that ``the trade practice has interpreted this for Silver and
Gold as well'' because a base metal hinged frame ``offers stability and
strength to the moving parts.'' 181 Adding these to the list of
exemptions for silver is logical because silver is relatively soft.
Gold
[[Page 27195]]
alloy, however, is relatively hard.182 Nevertheless, because trade
practice has interpreted this exemption as applying to gold lockets for
some time, it is unlikely that consumers would believe that the field
pieces and bezels of a locket advertised as 14 karat gold were 14 karat
gold. Therefore, the Commission has added these exemptions to the list
of exemptions of silver and gold alloy products.183
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\181\ Comment 218, p.3.
\182\ As a result, the list of exemptions in the current Guides
is much shorter for gold items than for silver items.
\183\ The following were added to each list of exemptions: (1)
karat gold: metallic parts completely and permanently encased in a
nonmetallic covering, and field pieces and bezels for lockets; (2)
gold-filled: bracelet and necklace snap tongues; (3) silver: field
pieces and bezels for lockets; bracelet and necklace snap tongues;
any other joints, catches, or screws; metallic parts completely and
permanently encased in a nonmetallic covering. There were no
additions to the exemptions for silver in combination with gold or
for platinum.
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9. Misuse of ``Corrosion Proof,'' ``Noncorrosive,'' etc.
The Watch Band Guides, 16 CFR 19.3, contain a section regarding the
use of the terms ``corrosion proof,'' ``noncorrosive,'' ``corrosion
resistant,'' ``rust proof,'' ``rust resistant,'' or any word or term of
equivalent import. The JVC did not recommend any changes in this
section. Thus, the Commission has included this provision, unchanged,
in the revised Guides as the last section pertaining to metals
(Sec. 23.10).
D. Diamonds (Category III): Secs. 23.9-23.14
The current Guides address diamonds in the definition section,
Sec. 23.0, and in Secs. 23.9-23.14. Section 23.9 describes practices
which are unfair uses of the word ``diamond.'' Sections 23.10-23.14
deal with misuse of the terms ``perfect,'' ``blue white,'' ``properly
cut,'' ``brilliant,'' ``full cut,'' and ``clean.'' In addition,
artificial coloring, imitation and synthetic diamonds, and the words
``reproduction,'' ``replica,'' ``gem,'' ``real,'' ``genuine,'' and
``natural'' are addressed in Secs. 23.18-23.21.
1. Definition
The Commission has moved the definition of ``diamond'' from
Sec. 23.0 to the beginning of the substantive sections that deal with
diamonds (Sec. 23.11, which is renamed ``Definition and misuse of the
word `diamond' ''). The JVC proposed adding the following sentence to
the definition of the word diamond: ``It is the hardest natural
substance and in 1818 was arbitrarily given 10 on the Mohs relative
scratch hardness scale.'' The JVC also proposed adding, after the
definition of diamond, a ``Note'' regarding the Mohs scale and the
standards for determining mineral ``hardness.''
A definition of diamond is helpful to the extent that it makes
clear what can nondeceptively be represented to be a diamond. However,
there is no indication that the current definition of diamond has ever
failed to serve its purpose, and some comments indicated the current
definition is better.184 The Commission, therefore, is not
adopting this proposal.
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\184\ AGTA (49) p.15 (commenting that either information should
be added to the proposed JVC definition or the last sentence of that
definition and the following Note should ``be struck,'' adding that
``AGTA prefers that both be struck from the guides''); NACSM (219)
pp.25-26 (stating that the proposed addition to the definition is
``not an improvement on the clarity of the mandates of the law'').
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The Postal Service stated that mail order jewelry promoters sell
``tiny, unattractive, industrial grade diamonds'' as jewelry which ``no
one would buy if they saw them.'' It suggested that the Guides be
modified to prohibit ``advertisers from representing expressly or
impliedly, that industrial or other non-jewelry quality diamonds are of
jewelry quality.'' 185 The Commission agrees that such a practice
is unfair and deceptive, and has included a Note that states the
practice of advertising industrial grade diamonds as jewelry is unfair
and deceptive. The provision advising against misrepresenting products
visually, in Sec. 23.2, also would apply to this practice.
---------------------------------------------------------------------------
\185\ Comment 244, p.2.
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2. Misuse of the Word ``Diamond''
Section 23.9 of the current Guides deals with misuse of the word
``diamond.'' Neither the JVC nor any of the commenters proposed a
change in this section, and there is no other information indicating a
need for changing this section.
3. Misuse of the Words ``Perfect'' and ``Flawless''
Section 23.10 of the current Guides, and the accompanying Note,
deal with the use of the words ``perfect'' and ``flawless'' to describe
a diamond. The JVC proposed revising this section to focus on the use
of the term ``flawless,'' with a subsection stating that it is unfair
to use the word ``perfect'' with respect to any diamond which is not
flawless, or which is of inferior color or make. The organization of
the current section is convoluted and difficult to understand. The
Commission has determined that the proposed change will improve the
clarity of the Guides, and has revised this section accordingly.
To determine whether there was evidence that the term ``perfect''
has been used to mislead consumers, the FRN sought comment on whether
the Guides should advise against use of the term ``perfect.'' Thirty-
two comments addressed this issue.
Seven comments indicated that the term ``perfect'' is acceptable as
defined in the current Guides.186 Twenty-eight commenters stated
that the term ``perfect'' should be prohibited, and one stated it
should be allowed only as a synonym for flawless.187 However, the
current Guides allow diamonds to be called ``perfect'' if they are
flawless and not of inferior color or make, and there is no evidence
that large numbers of consumers have been deceived by the use of the
word ``perfect.'' 188 The Commission has determined that the
scheme in the current Guides adequately explains the type of diamond
that nondeceptively may be described as ``perfect'' and that guidance
that in effect totally bars the use of the word ``perfect'' would be an
unwarranted infringement on free speech.189
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\186\ King (11); Estate (23); Lannyte (65); GIA (81); Bales
(156); NACSM (219); and Best (225).
\187\ JMC (1); Fasnacht (4); Sibbing (5); Thorpe (7); Honora
(14) and (15) p.1 (stating that if diamonds can be called perfect,
``it would open vast opportunities for deceptive advertising and
many consumers would be hurt''); Argo (17); AGS (18) p.3 (favoring
the prohibition because ``[t]he potential for misuse is too
great''); Capital (19); Estate (23); G&B (30); Jabel (47); Schwartz
(52); Skalet (61); Eisen (91); Nowlin (109); McGee (112); ArtCarved
(155); Bridge (163) p.2 (stating that ``perfect'' should not be
allowed because relatively few diamonds ``meet all these very high
standards''); LaPrad (181); IJA (192); Phillips (204); Bedford
(210); Matthey (213); Bruce (218); MJSA (226); Preston (229); Limon
(235); Leach (258); and Solid Gold (261).
\188\ Indeed, many consumers may regard the word as ``mere
puffing.'' One comment noted, ```Perfect' pertaining to anything is
a dumb word and should arouse suspicion.'' Jabel (47) p.2.
\189\ One comment stated that limiting the use of the term
``perfect'' as a synonym for ``flawless'' to those situations in
which the diamond described is not ``of inferior color or make'' is
meaningless because ``inferior color or make'' cannot be defined.
Limon (235) p.2. The Commission agrees that the definition is not
precise, but nevertheless believes that the word can be used in a
non-deceptive manner.
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The JVC also proposed changing current Sec. 23.10 to state that it
is unfair to use the word ``flawless'' to describe a diamond ``which
discloses blemishes, inclusions, lasering, prominent reflective whitish
or colored grain lines, or clarity faults of any sort when examined
under a corrected magnifier at 10-power, with adequate illumination, by
a person skilled in diamond grading.'' With the exception of the
addition of ``lasering,'' the changes appear to be simply a change in
terminology. No reasons for the changes
[[Page 27196]]
in terminology are apparent (e.g., changing the terms ``flaws, cracks,
carbon spots, clouds or other blemishes or imperfections'' to
``blemishes, inclusions, lasering, prominent reflective whitish or
colored grain lines, or clarity faults''). Thus, the Commission has not
adopted these changes. However, the numerous comments which addressed
lasering of diamonds in the context of a related JVC proposal,
discussed below, indicate that lasering leaves channels or surface
openings in a diamond that are similar to grains or other clarity
faults. The Commission believes that it would be deceptive to describe
a diamond that discloses internal lasering under the conditions
specified in that section as ``flawless,'' and therefore has revised
this section.190
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\190\ Preston (229) stated, at p.10, that the word ``internal''
should precede the word ``lasering'' in this section, apparently to
clarify that ``lasering'' in this section is not meant to include
the use of lasers to cut diamonds but rather the use of lasers to
remove blemishes. The Commission agrees with this comment and has
included this clarification in the revised Guides.
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The Commission also has included the JVC's descriptions of when the
flaws are visible--i.e., ``when examined under a corrected magnifier at
10-power, with adequate illumination, by a person skilled in diamond
grading.'' This is an updating of the current Guides (which refer to an
examination ``in normal daylight, or its equivalent, by a trained eye
under a ten-power, corrected diamond eye loupe or equal magnifier'') to
reflect changes in available equipment.191
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\191\ ICT (189) also suggested, at p.2, a modification of
Sec. 23.10, i.e., that the word ``flawless'' should always be
accompanied by the magnification level at which no flaws are visible
[for example, ``flawless under 15X loupe'']. However, there is no
evidence that such detailed information is material to consumers.
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In the current Guides, the Note following Sec. 23.10(a) also states
that the use of a phrase such as ``commercially perfect'' for a diamond
that has flaws is ``regarded as misleading and in violation of this
section.'' The JVC proposed expanding this portion of the Note to also
cover the phrase ``commercially flawless.'' 192 The Commission
believes that the provision in the revised Guides, which applies to use
of the words ``perfect,'' ``flawless,'' or ``any representation of
similar meaning,'' is sufficient to prevent deception. The current Note
is superfluous, and the Commission has deleted it.193
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\192\ Eisen (91) stated, at p.1, that ``commercially flawless''
should not be allowed but did not offer any reasons.
\193\ The JVC also proposed adding a Note that states that the
term ``internally flawless'' may be used to describe a diamond
``which meets the requirements set forth . . . but possesses only
minor surface blemishes such as grain lines, polish or burn marks,
scratches, nicks, or small naturals.'' No reasons were offered for
this change. However, Lannyte (65) p. 5, stated ``Do not play games
with the word `internally.' Any surface blemish has to exist on or
in the surface to exist at all.'' Based on this comment, and the
lack of other explanation for this provision, the Commission has not
included this Note in the Guides.
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Section 23.10(b) states that it is unfair to describe a ring or
other article of jewelry with a ``perfect'' center stone and side
stones which are not ``perfect,'' as ``perfect,'' without disclosing
that the description applies only to the center stone. The JVC proposed
modifying this to apply to representations that stones are
``flawless,'' and also proposed changing the reference to ``center
stone or stones'' to ``principal diamond or diamonds.'' Such a change
appropriately includes jewelry in which the principal stone is not the
center stone.
4. Disclosure of Treatments
Section 23.18 of the current Guides, entitled ``Deception as to
precious and semi-precious stones,'' contains a Note which states that
any artificial coloring or tinting of a diamond or precious or semi-
precious stone by ``coating, irradiating, or heating, or by use of
nuclear bombardment, or by any other means'' should be disclosed and
the fact that the coloring is not permanent, if such is the fact.
The JVC proposed moving the portion of this section that applies to
diamonds into the diamond category, modifying it to apply to any
diamond that has been treated (rather than colored) by certain methods,
and adding the following treatments to this list of those that should
be disclosed: the internal use of a laser beam, the introduction or the
infusion of any foreign substance, or treatment ``by any other means,
without disclosure of the fact that the inherent quality and/or
appearance of such diamond has been enhanced, and the result of this
enhancement is not or may not be permanent, if such is the case.''
194
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\194\ ISA (237A) proposed, at p.53, changing ``internal use of
laser beam'' to ``the penetration of a laser drilling technique and/
or acid bath(s) which is customarily used by the trade to change the
color of `black' inclusions to `white.''' It also suggested that
``infusion of any foreign substance'' should be followed by the
words ``fracture filled.'' However, the Commission believes that the
words used in the JVC proposal adequately identify the processes
that are being addressed.
---------------------------------------------------------------------------
Internal laser treatment and the infusion of a foreign substance
are treatments that did not exist in 1959 when the Guides were last
substantively revised. A laser treatment involves the use of a laser
beam to improve the appearance of diamonds having black inclusions by
directing the laser beam at the black inclusion and then forcing acid
through the tunnel made by the laser beam to remove the inclusion or to
alter it so that the inclusion is not visible to the naked eye.
``Infusion'' treatment, also known as ``fracture-filling,'' conceals
cracks in diamonds by filling them with a foreign substance.
Thirteen comments opposed the disclosure of laser treatment stating
that it is ``a common practice'' and ``an extension of cutting, since
soaking out surface black leaves no evidence of soaking. The channel
left by the laser is often just one of several or numerous `natural'
cracks, inclusions, or grain.'' 195 Verstandig stated that the
other treatments which the JVC proposed should be disclosed ``are
hardly-if at all-noticeable under a 10X magnification'' but that
lasering is obvious under such magnification. It also noted that while
lasering produces a small surface opening, the majority of diamonds
sold in the U.S. have similar surface imperfections, and disclosure of
these is not required.196
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\195\ Green (6) p.1; see also London Star (20); DMIA (26);
Roisen (31); Werdiger (48); Verstandig (154); David (194); H.R.
Diamonds (195); ADS (197); Weitz (200); Kwiat (203); NACSM (219);
and Service (222).
\196\ Comment 154, p.2.
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DMIA noted that lasering is ``irreversible, does not add a foreign
substance, is readily detectable with a ten power loupe, and does not
require disclosure any more than * * * cutting an additional facet to
improve the purity of a diamond.'' It also noted that GIA, which it
described as a world-renowned diamond grading lab, refuses to grade
diamonds infused with a foreign substance but does grade lasered
diamonds, indicating on the grading report ``inclusions, naturals,
extra facets, as well as lasering.'' 197 In addition, it noted
that resolutions have been adopted on ``a world-wide basis requiring
full disclosure of any ``treatment'' of diamonds such as irradiation
which changes the color and atomic structure or the infusion of a
foreign substance which produces a product no longer a pure diamond,
but a ``composite'' material.'' It stated that ``[l]asering, on the
other hand, is not a ``treatment'' * * * .'' 198
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\197\ Comment 26, pp.1-2.
\198\ Comment 26, p.1. Roisen (31), David (194), H.R. Diamonds
(195), ADS (197), and Weitz (200), all referred to the fact that the
rules of the World Federation of Diamond Bourses require strict
punishment of a member who fails to disclose treatment of a diamond,
such as irradiation or infusion of a foreign substance. See the text
of the joint resolution of the World Federation of Diamond Bourses
and the International Diamond Manufacturers Association, as
described in the Rapaport Diamond Report, July 17, 1992, p.5
(attached to Rapaport (233)).
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[[Page 27197]]
On the other hand, one comment contained an attachment that argued
that internal lasering should be disclosed because it adversely affects
the value of the diamond.199 The attachment stated that lasered
stones are inferior because they ``are worth less than normal non-
lasered stones of the same grade.'' It further stated that a diamond
purchaser who is unaware of the lasering, will be upset ``when the
appraisal indicates laser treatment, or upon resale when the buyer
offers a lower price due to lasering.'' 200
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\199\ Rapaport Diamond Report, July 17, 1992, p.6, attached to
Rapaport (233); see also Preston (229) p.3; ISA (237A) p.51.
\200\ Rapaport Diamond Report, July 17, 1992, p.6, attached to
Rapaport (233).
---------------------------------------------------------------------------
However, the comments (including eleven comments from diamond
dealers and a diamond trade association) indicated that lasering is a
common practice and not an extraordinary process that would be
deceptive to conceal from the consumer. Moreover, a consumer acting
reasonably under the circumstances would be on notice of laser
treatment before sale. A grading report would indicate that the diamond
had been laser-cleaned, and, if the buyer chose to examine the diamond
under standard ten-power magnification, the laser tunnels would be
obvious to the buyer. Thus, the Commission has determined not to
include lasering among the treatments that always should be disclosed
to avoid misleading consumers.
By contrast, twelve of the thirteen comments that opposed
disclosure of lasering stated that the fracture-filling process is a
treatment of a diamond that should be disclosed to the
consumer.201 As previously noted, several of these comments stated
that the rules of the World Federation of Diamond Bourses require
disclosure of fracture-filling. Because fracture-filling is not the
norm or what consumers acting reasonably under the circumstances would
expect, it would be deceptive to fail to disclose fracture-filling.
Consumers will not likely expect, in the absence of disclosure, that
the stone was so treated. Thus, the absence of disclosure is also
unfair in that it is likely to cause injury to consumers by
affirmatively misleading their informed choice and so causing
substantial, unavoidable injury that is not outweighed by any
countervailing benefits.202 Accordingly, the revised Guides advise
sellers to disclose this treatment.
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\201\ Green (6); London Star (20); DMIA (26); Roisen (31);
Werdiger (48); Verstandig (154); David (194); H.R. Diamonds (195);
ADS (197); Weitz (200); Kwiat (203); and NACSM (219). Service (222)
opposed all disclosure of diamond treatments, and did not
specifically discuss fracture-filling. Best (225) opposed all the
changes proposed by the JVC, but stated that fracture-filling ``may
justify some future study and potential regulation by the FTC.''
\202\ International Harvester Co., 104 F.T.C. 949, 1051 (1984).
NACSM (219), at p. 26, pointed out that the process can sometimes be
reversed by heat. For example, it is not uncommon for a diamond to
be remounted and the heat from that process may partly melt out the
foreign material used to fill the fracture. This adversely affects
the appearance of the diamond and it may not be possible to remove
the remainder of the fracture-filling material. See S. Lynn Diamond,
``Filled Diamonds in the Spotlight,'' National Jeweler, Dec. 1,
1994, at 36, 42 & 43.
---------------------------------------------------------------------------
The JVC also proposed that this section require the disclosure of
treatment of a diamond ``by any other means.'' However, the Commission
believes that phrase is sufficiently vague to imply, for example, that
removal of blemishes by lasering always should be disclosed, and thus,
has not included this phrase in the section.
5. ``Blue White'': Sec. 23.11
Section 23.11 of the current Guides prohibits the use of ``blue
white'' to describe a diamond ``which under normal, north daylight or
its equivalent, shows any color or any trace of color other than blue
or bluish.'' The JVC proposed prohibiting the use of this term.
The term ``blue white'' has apparently been misused in the past to
describe poorer quality or ``off color'' diamonds.203 The use of
blue white appears to have diminished because most of the industry now
uses formal diamond grading systems. One comment suggested that ``blue
white'' be restricted to ``a diamond that has strong blue fluorescence
and is of the D-G color range [in the GIA grading system].'' 204
However, the current Guides describe a proper use of blue-white and
discourage its misuse. The Commission therefore has retained this
section of the Guides.205
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\203\ The definition of blue white in the Jewelers' Dictionary
states: ``Term, often abused, to describe the color of a diamond. As
frequently abused, it includes anything from a Jager to a Silver
Cape. . . . [n.b., Jager refers to a fine white diamond; Silver Cape
is a yellow one.] Better Business Bureaus recommend avoidance of the
term and the American Gem Society prohibits its use.'' ``Jewelers'
Dictionary'' 28 (3d ed. 1976). However, the proprietor of Solid Gold
(261) stated, at p.2, that he has seen ``many diamonds which are
accurately described as having a bluish-white color.''
\204\ Rapaport (233) p. 2 (stating that the ``guides should not
outlaw any terminology used by the trade'' but instead should define
it ``so that it is not misleading'').
\205\ ISA (237A) recommended, at p.53, the addition of a
definition of ``normal north daylight'' and an addition which would
limit the use of the term blue white to ``a diamond which is totally
natural and free from any man induced treatments which exhibits a
partially white body color and a partially blue body color. . . .
The term blue body color is not to be blue caused by visible
fluorescence . . . '' However, no evidence was provided that either
of these additions were necessary, and the Commission has not
included them in the Guides.
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6. Cuts of Diamonds and ``Clean Diamonds'': Secs. 23.12- 23.14
Section 23.12 of the current Guides states that it is unfair to
describe a diamond as ``properly cut,'' ``well made,'' or ``modern
cut'' or words of similar meaning, if it is ``lopsided, or so thick or
so thin in depth as materially to detract from the brilliance of the
stone.'' Section 23.13 restricts the use of the terms ``brilliant,''
``brilliant cut'' or ``full cut'' to a round diamond having at least 56
facets.206
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\206\ This section does allow certain other cuts (emerald,
pear-shaped, heart-shaped, oval-shaped, and marquise) meeting the
above-stated facet requirements to be described as ``brilliant cut''
or ``full cut'' if ``disclosure is made of the fact that the diamond
is of such form.''
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The JVC did not propose any changes to these sections, but several
comments did propose revisions. Two comments proposed certain numerical
standards for describing ``properly cut'' diamonds.207 AGL
proposed that the Guides state that it is unfair for ``a diamond
quality assessment report to itemize a series of percentages and non-
integrated cutting details without reference to a meaningful and
comprehensive evaluation of cutting in order to facilitate a consumer's
understanding of these critical value components.'' 208 However,
AGL also indicated that such reports do not usually contain such an
evaluation of cutting.209 No other comments addressed this issue.
Because there is insufficient information in the record to evaluate the
proposals, the Commission has not changed these sections.
---------------------------------------------------------------------------
\207\ ISA (237A) pp.54-56; Rapaport (233) p.3 (proposing a
definition for a range of `Properly Cut' round diamonds and
numerical standards (which differ from ISA's proposed numerical
standards)).
\208\ Comment 230, p.5. AGL also suggested that the Guides
state that it is unfair for any diamond or colored stone quality
assessment reports or appraisals to fail to contain adequate
tolerance information for each element that impacts on the value.
Id. at 4. However, the Commission believes such a proposal, which
would involve providing guidance on the manner in which appraisers
and graders prepare reports, is beyond the scope of these Guides.
\209\ Comment 230, p.5. Preston (229) stated, at p.6, that
``AGS attempts to train its members to specify cutting grades rather
precisely. GIA, on the other hand, does not specify a cutting grade
at this time.''
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Section 23.14 states that it is unfair to use the terms ``clean,''
``eye clean,'' ``commercially clean,'' ``commercially white,'' or
similar terms to mislead or deceive consumers. The JVC did not propose
any changes to this section. Unlike other provisions of the Guides,
this section does not provide guidance regarding the use of these
terms, other
[[Page 27198]]
than to state that they should not be used to deceive purchasers.
Although one comment indicated that these terms are still in
use,210 the Commission has concluded that the admonition in
Sec. 23.1 not to misrepresent material characteristics of a product
adequately encompasses misrepresentations regarding these terms.
Therefore, the Commission has deleted this provision from the Guides.
---------------------------------------------------------------------------
\210\ Rapaport (233) stated, at pp.2-3, that the terms
``clean,'' ``eye clean,'' and ``commercial white'' are ``regularly
used by the diamond trade to describe diamonds,'' noting
specifically that the term ``eye clean'' is ``commonly used to
describe diamonds that do not have inclusions that are visible to
the naked eye.''
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7. Proposals Relating to Diamond Weight
a. Misrepresentation of weight. Section 23.16 of the JVC petition
deals with misrepresentations of diamond weights, an issue which is not
specifically addressed in the current Guides. The JVC's proposed
preamble to this section states that the standard unit of weight for
diamonds is the carat, defines the terms carat and point, and states
that the abbreviation for carat is ct. The Commission has not included
this preamble in the revised Guides. As discussed below, the Commission
has included a provision relating to the use of ``points'' in the
revised Guides, and that provision contains an explanation of the
meaning of ``carat'' and ``point.''
The JVC suggested adding a section stating that it is unfair to
misrepresent the weight of a diamond. Section 23.1 of the current
Guides provides that it is unfair to misrepresent various material
characteristics of industry products, including weight. However, the
Commission has included this admonition against misrepresenting the
weight of diamonds in section 23.17 of the revised Guides, and has
provided additional guidance for diamond weight representations in that
section, as discussed in detail below.
b. Use of ``points''. The JVC, in section 23.16(a), proposed that a
section be added to the Guides stating that the use of the term
``points'' 211 to represent the weight of a diamond is unfair
except ``in direct conversations.'' In some instances, according to the
comments, consumers perceive a representation that a diamond is ``.25
pt.'' to mean ``.25 ct.'' 212 The latter is \1/4\th carat; the
former (.25 pt.) is 1/400th carat. To obtain more information about
this issue, the FRN asked whether the use of ``points'' to describe
diamond weights should be limited to oral representations.
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\211\ The term ``point'' is used to express one-hundredths of a
carat (e.g., .25 ct = 25 points).
\212\ Limon (235) p.3 (stating that the proposal ``was inspired
by a nationally published advertisement for an item containing a
diamond weighing `.25 pt.'[which was] universally misread as `.25
ct.'''); Skalet (61) p.4 (stating that ``considerable deception has
been leveled at the consuming public to make a `point .25 carat' or
`.25 point' gemstone appear to be describing a \1/4\ carat
gemstone''); Bedford (210) p.2 (stating ``I have had some people
come in thinking they were going to win a .25ct. diamond and they
were actually getting a .025 point diamond''); Bruce (218) p.10
(noting that ``we have seen advertisements where people confuse
points with carats (pt. with ct.)'').
---------------------------------------------------------------------------
Thirty-five comments addressed this issue. Four comments, including
ones from the Postal Service and NACAA, supported eliminating use of
the term ``points'' in either oral or written representations.213
Twenty-two comments supported limiting the use of the term ``points''
to oral representations.214 Nine comments stated that the use of
the term should be permitted in written as well as oral
representations, contending that the term can be used in writing in a
manner that is not unfair or deceptive.215
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\213\ Honora (15); Lannyte (65); NACAA (90); and Postal Service
(244).
\214\ Fasnacht (4); Sibbing (5); Thorpe (7); Argo (17); AGS
(18); Capital (19); Estate (23); Jabel (47); Schwartz (52); Skalet
(61); GIA (81); Nowlin (109); McGee (112); Bridge (163); IJA (192);
Phillips (204); Bedford (210); Matthey (213); Bruce (218); MJSA
(226); Preston (229); and Limon (235).
\215\ G&B (30); ArtCarved (155); Bales (156); LaPrad (181);
NACSM (219); Service (222); Diamonique (224); Best (225); and Leach
(256). Diamonique (224) stated, at p.1, that prohibition of
``point'' or ``pt.'' would ``result in the use of fractional
definitions of diamond weights as used in the past.'' However, other
comments (discussed below), stated that fractions are currently in
wide use, and are not deceptive.
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One comment noted that ``points'' is ``a term that the layman is
not familiar with.'' 216 The Postal Service favored a prohibition,
stating that, in many situations, consumers do not actually see the
jewelry before purchasing it, and the term point (i.e., .25 pt.) is
used to misrepresent the value of a diamond.217
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\216\ Bruce (218) p.10.
\217\ Comment 244, pp.1-2.
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The comments clearly believe that the term ``pt.'' is being used to
deceive the public, particularly in mail order transactions.218
The deception described in the comments appears to arise primarily when
the abbreviation for point (``pt.'') appears in writing.219
---------------------------------------------------------------------------
\218\ Thorpe (7) p.2 (stating that the ``consumer sees a
jewelry term they are `familiar' with and read it as 0.25 ct.'').
\219\ However, one comment noted that problems also occur in
television advertising. Sibbing (5) p.1 (stating ``No more `quarter
point diamonds' as can be found on TV advertisements'').
---------------------------------------------------------------------------
Nevertheless, the term ``point,'' with adequate disclosure, could
be used in a non-deceptive manner. Therefore, the Commission has added
a provision to the Guides which states that if the term ``point'' is
used in advertising (including television) or in point of sale
materials to describe the weight of a diamond, the weight should also
be given in decimal parts of a carat (e.g., .25 pt. is .0025 ct.). The
admonition to include the carat weight in decimals should deter sellers
from attempting to mislead consumers. Furthermore, Sec. 23.2 of the
Guides addresses the use of misleading visual representations of
diamonds.
c. Disclosure of minimum total weight. The JVC also proposed adding
provisions to the Guides stating that it is unfair to fail to mark new
industry products containing one or more diamonds with the minimum
weight of the diamonds in the product and that it is unfair to refer to
the weight of a diamond or diamonds in advertising for new industry
products without disclosing the minimum total weight.220 The FRN
solicited comment on this proposal.
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\220\ Apparently the proposal was limited to new products
because, as one comment noted, ``it is impossible to get exact
measurements of a diamond weight when measuring diamonds when
mounted.'' Bedford (210) p.2.
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Thirty-nine comments addressed this issue. Thirty-one comments
approved marking jewelry, or tags or invoices attached to it, with the
minimum weight of the diamonds set in it.221 Eight comments
opposed the proposal.222
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\221\ JMC (1); Fasnacht (4); Sibbing (5); Thorpe (7); Honora
(15); AGS (18); Capital (19); Estate (23); G&B (30); Jabel (47);
Schwartz (52); Skalet (61); Lannyte (65); GIA (81); NACAA (90);
Nowlin (109); McGee (112); ArtCarved (155); Bales (156); Bridge
(163); LaPrad (181); IJA (192); Phillips (204); Bedford (210); JVC
(212); Matthey (213); Bruce (218); MJSA (226); Preston (229); Limon
(235); and Leach (258). Two of these stated that diamonds under .10
carat should be exempt [Skalet (61) and ArtCarved (155)], and one
stated that the minimum weight information should only be required
on the invoice [Honora (15)].
\222\ Argo (17); Schaeffer (211); NACSM (219); Service (222);
Best (225); Sheaffer (249); and Franklin (250). (Solid Gold (261)
also opposed this provision, but apparently did not understand that
it would only apply to new jewelry.) Several of these comments
stated that this requirement would increase costs.
---------------------------------------------------------------------------
Generally, the comments indicated a belief that marking new jewelry
with the minimum diamond weight would prevent misrepresentation of
weight by the manufacturer or other sellers farther down in the line of
commerce. GIA stated that there was a tendency for ``multistone rings
and other jewelry sold as a given weight to weigh less than the
indicated weight,'' especially where the ring is not stamped with the
minimum weight.223 GIA further stated that ``[i]n our experience,
if the total weight is stamped on the jewelry, the manufacturer usually
makes sure that
[[Page 27199]]
the weight is accurate,'' and believed that ``requiring stamping of a
minimum weight on the jewelry (particularly in combination with
trademark stamping) would provide a strong deterrent against
underweighting diamond content.'' 224
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\223\ Comment 81, p.2.
\224\ Comment 81, p.2. AGS (18) p.2 (stating, ``The market place
is replete with purveyors of diamond jewelry who overstate the total
carat weight of multi-diamond items'').
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NACAA commented that its members received complaints about
exaggeration of the weights of stones (not limited to diamonds) and
stated that it would be ``helpful to consumers'' for the Guides to
require marking of minimum total weight on new items.225 However,
the Guides already state that it is unfair to misrepresent the weight
of a diamond (or any other jewelry). Moreover, none of the comments
explained why it would be unfair or deceptive to fail to mark new
jewelry containing diamonds with the minimum total weight of the
diamonds, nor is there any obvious reason why a failure to so mark the
jewelry, or to include this in advertising, would be unfair or
deceptive.226 Therefore, the Commission has not included this
provision in the revised Guides.
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\225\ Comment 90, pp.1-2.
\226\ Indeed, if this practice is unfair or deceptive for
``new'' jewelry, logically it is also unfair or deceptive for
``old'' jewelry and for jewelry containing gemstones other than
diamonds. LaPrad (181) p.2, and Limon (235) p.4, each suggested that
the weight marking requirement should apply to colored stones as
well as diamonds.
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d. Weight tolerance. The JVC also proposed adding provisions to the
Guides setting forth specific tolerances for diamond weight
representations. The JVC proposed in sections 23.16(c)-(e) of its
petition, a tolerance of .005 carat for weight representations for
individual diamonds, whether mounted or unmounted, and a tolerance of
.01 carat for weight representations pertaining to ``two or more
diamonds in a single product.'' This proposal generated 84
comments.227 Three comments specifically supported the JVC's
proposed tolerance.228 Eighty-one commenters opposed the proposed
tolerances.229
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\227\ This figure is exclusive of comments that simply favored
all the changes suggested by the JVC.
\228\ Bruce (218); Limon (235); and Schwartz (52).
\229\ NACSM (219); Service (222); Diamonique (224); Best (225);
MJSA (226); Rapaport (233); and NRF (238) submitted individual
comments. The other 74 were form letters. In the interest of
brevity, the 74 commenters are listed here by their comment number
only: 28; 32; 33; 35; 36; 37; 39; 40; 41; 43; 45; 46; 50; 51; 53;
54; 55; 56; 57; 58; 59; 60; 63; 67; 68; 69; 70; 71; 72; 73; 74; 75;
77; 78; 79; 80; 93; 94; 95; 96; 97; 99; 100; 101; 102; 104; 105;
107; 108; 110; 114; 115; 117; 119; 121; 122; 157; 158; 160; 164;
179; 180; 190; 191; 201; 211; 214; 220; 241; 243; 260; 263; and 264.
---------------------------------------------------------------------------
One comment stated that the proposed tolerance was too small
because few diamond scales are so finely calibrated, and that the
tolerance should be .01 ct.--one hundredth of a carat.230 However,
Commission staff telephoned several companies, and determined that most
have scales that can weigh diamonds to .005 carats.231
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\230\ Rapaport (233) p.4. Diamonique (224) pp.1-2 (stating that
current measuring devices are not adequate and the present tolerance
is .01 carat). But see Fasnacht (4) p.2 (stating that weighing is
fast and accurate with today's electronic scales).
\231\ Commission staff interviewed 5 jewelers (Boone and Sons
Jewelers, Fleisher Jewelers, Kings Jewelry, Loubons, and Jewelry by
Design) in the Washington area about what kind of scales they use.
No store utilized a scale that was not accurate enough to meet the
proposed .005 carat tolerance. Staff also interviewed Ben Fine, who
sells Melter Scales; Gaston Lopez, a sales representative of
Gemological Institute of America, which sells several different
makes of scales; and a representative from Dendritic Scales. All
confirmed that they sell scales that are accurate to within \1/2\
point.
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Numerous other comments opposed the tolerances because they would
increase the cost of sorting diamonds, raise the price of diamonds for
high-volume manufacturers, and increase prices for consumers. MJSA
explained that high-volume manufacturers sieve rather than weigh
individual stones, and that the proposed tolerance would require
manufacturers to ``weigh, tag, and flute the stones to be incorporated
in a piece of jewelry.'' 232 MJSA stated that ``the added costs of
this procedure would be reflected in the price of the finished article
and be passed on to the consumer.'' 233
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\232\ Comment 226, p.8.
\233\ Comment 226, p.8. NACSM (219) pp.20-21 (explaining that
rough diamonds ``are purchased most often from DeBeers * * * [and]
sold to manufacturers * * * in parcels containing certain grade and
quantities such as `one fifths,' `quarters,' `one thirds,' `halves,'
`carats,' etc. The fractions refer to the approximate sizes of the
diamonds contained in the parcels''); Goldman (60) p.3 (stating that
the international market ``sells as a fifth of a carat, goods
(diamonds) from 18 to 23 points'').
---------------------------------------------------------------------------
Although Bruce supported the proposed tolerance and opposed the use
of fractions to describe diamond weights, it noted that ``fractional
diamond sizes are a convenience for the industry, in the trading of
loose stones,'' and that ``keeping track of diamond sizes for tagging
purposes would require a little more care and planning, but it can be
done.'' 234
---------------------------------------------------------------------------
\234\ Comment 218, pp.2-3 (also stating that ``if people in the
trade buy a single stone they will pay for it by its exact
weight'').
---------------------------------------------------------------------------
Many commenters stated that the current industry practice is to use
fractions to designate weights of less than a carat, and that there is
a standard tolerance for such fractional representations. Service
explained that chain retailers use fractions to advertise diamonds so
that specific prices can be given for specific weights. Service
explained that the proposed tolerance would be costly because it
``would narrowly and unreasonably limit the range of weights available
for particular fractions of a carat.'' 235 For example, a fifth
represents 20 points and under the JVC's proposed tolerances, only
diamonds that weigh at least 19.5 points could be described as a fifth.
Several commenters stated that they used the standards contained in the
GIA publication, ``Diamonds 3.'' 236 This 1986 GIA booklet,
states, at p.19, that ``approximate weights are often stated in
fractions,'' and it sets out a chart stating the average weight range
associated with the various fractions (i.e., \1/5\ carat refers to .18
through .22 carat).237
---------------------------------------------------------------------------
\235\ Comment 222, p.3. Numerous comments also indicated that
there would be high demand for stones close enough to the fractions
to be designated as fractions, and other stones could not be used by
mass retailers. ``If retailers were no longer allowed to sell 18
points as a fifth, then what would happen to all the 18 and 19
pointers * * *?'' Goldman (60) p.2. London Star stated, ``This
standard would considerably lessen the availability of stones within
each size and therefore drastically increase the price to the
consumer.'' Comment 20, p.2. Of course, diamond weights can be, and
often are, expressed in the decimal system. However, the mass
marketers, for the reasons described above, state that it is more
efficient for them to describe diamond weights as fractions.
\236\ Attachment B to NACSM (219). Best (225) pp.4-5 (stating
that these standards ``have been widely used and accepted for many
years and have effectively become the national and international
industry standard''); NACSM (219) p.11 (stating that these GIA
ranges ``merely recognize industry standards which have resulted
from longstanding accepted custom and usage'').
\237\ Attachment B to NACSM (219). The booklet notes that the
ranges ``may vary slightly from one firm or organization to
another.'' Id. This is borne out by the comments.
---------------------------------------------------------------------------
Best noted that under the GIA tolerances, a diamond can be sold as
half a carat if it weighs between .47 and .56 carats, but that the
proposed tolerances would require it to weigh at least .495 carats.
Best stated that under the JVC proposal it would be forced to either
select stones that fall within the tolerances, so that prices for the
size could be advertised, or to treat each stone individually, and not
provide price information regarding the stones in advertising. It
explained that because there is a limited supply of stones that fall
within the JVC's proposed tolerances, demand will escalate for these
stones and the cost of the stones will increase. Therefore,
``[j]ewelers like Best would no longer be able to offer a consistently
lower price alternative to the traditional high margin jewelers.''
Instead, Best would be forced to ``price, mark and sell each item
individually,'' which is the philosophy of a boutique
[[Page 27200]]
jeweler, and ``contrary to the way a mass merchandiser operates.''
238
---------------------------------------------------------------------------
\238\ Comment 255, p.8.
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Several comments suggested alternatives to the JVC proposal. MJSA
suggested ``a broader minus tolerance which is expressed in
proportional terms rather than as an absolute quantitative
measurement.'' 239 Ross-Simons suggested a tolerance of 5% or .05
carat for a piece with multiple diamonds, whichever is smaller.240
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\239\ Comment 226, p.8.
\240\ Ross-Simons (67) stated, at p.1, that for catalog
advertisers ``a tolerance of just .01 ct on a piece of jewelry with
multiple diamonds is too restrictive . . . [because] we show a piece
of diamond jewelry in our catalog and order backup items after the
catalog is mailed.'' Ross-Simons further stated that for pieces
containing several carats of diamonds, with multiple stones, a .01
ct. deviation is unrealistic, and would require it to either
``understate the weight to be safe or overcharge the consumer.''
Comment 67, p.1.
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The Commission agrees with the comments that state that the
proposed tolerance may be too restrictive and may result in an
increased cost to the consumer. However, consumers may not interpret a
claim that a diamond is half a carat as meaning that it falls within
the range set out in the GIA booklet. In fact, the GIA booklet states:
``Customers also think in terms of fractions, but they tend to expect a
half-carat stone to weigh exactly 0.50 carat.'' 241 Furthermore,
diamonds are so expensive that receiving a diamond that is even a few
points less than what was represented can be a significant loss to the
consumer. In this respect it appears that at least for some industry
members, current practice may be contrary to consumers' expectations
and may not adequately apprise consumers of the terms of the seller's
offer (i.e., that jewelry advertised with \1/5\ carat diamonds is
actually offered as jewelry with \1/5\ carat weight, plus or minus some
tolerance the seller is using).
---------------------------------------------------------------------------
\241\ GIA booklet, p.19, attached as Exh. B to NACSM (219).
---------------------------------------------------------------------------
However, the Commission believes that a fractional representation
of carat weight may be qualified so that it is neither unfair or
deceptive. For example, if a claim such as ``\1/2\ carat'' is
accompanied by a disclosure of the weight range that is used, it does
not imply precision to the level of 0.005 carat. A decimal
representation of carat weight, such as ``0.47 carat,'' does imply
accuracy to the level of the second decimal place--i.e., .005 carat.
Therefore, the level of tolerance applicable to a diamond weight claim
depends on the type of claim that has been made.
Thus, the revised Guides clarify that representations of diamond
weight should indicate the weight tolerance that is being used. If
diamond weight is stated as decimal parts of a carat, the stated figure
should be accurate to the last decimal place. If a fractional
representation is used to describe the weight of a diamond, the fact
that the diamond weight is not exact should be conspicuously disclosed
in close proximity to the fractional representation, and the range of
weight for each fraction should also be disclosed. A Note following
this section (23.17) explicitly states that, for claims made in
catalogs, the disclosure should appear on every page where the claim is
made, but that the disclosure may refer to a chart or other detailed
explanation of the actual ranges used. (For example, ``Diamond weights
are not exact; see chart on p.X for ranges.'') 242 These
provisions also provide guidance for making weight representations for
items with multiple stones.
---------------------------------------------------------------------------
\242\ Some mass retailers stated that they already provide the
weight ranges in their catalogs and/or at the point of purchase.
Best (225) p.5 and Service (222) p.3.
---------------------------------------------------------------------------
e. Misrepresentation of weight of diamonds combined with other
gemstones. Finally, one comment suggested that a provision be added to
the Guides stating that it is unfair to represent the combined weight
of two or more gemstones of different gemological varieties in any new
single product as ``total gemstone weight'' or words of similar import,
without disclosing with equal conspicuity the combined weight of the
gemstone of each gemological variety in the products.243
---------------------------------------------------------------------------
\243\ Limon (235) p.4.
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However, the phrase ``total gemstone weight'' does provide notice
that the weight given applies to all gemstones in the item, not just
the most expensive. Thus, the Commission does not believe that a
representation of ``total gemstone weight'' would inherently be unfair
or deceptive. Consumers interested in a breakdown by gemstone category
would be put on notice by the statement ``total gemstone weight'' that
further inquiry is needed.
E. Pearls (Category IV): Secs. 23.15-23.17
The current Guides address pearls in the definition section,
Sec. 23.0, and in Secs. 23.15-23.17. Section 23.15 describes practices
which are unfair uses of the word ``pearl.'' Section 23.16 describes
unfair uses of other terms, such as ``cultured pearl,'' ``Oriental
pearl,'' and ``natura.'' Section 23.17 describes unfair practices
involving false, misleading, or deceptive statements about cultured
pearls, including the manner in which they are produced and the
thickness of the nacre coating. In addition, provisions in Secs. 23.20
and 23.21, pertaining to the misuse of certain words (real, genuine,
natural, gem, reproduction, replica, and synthetic) apply to pearls.
The changes proposed by the JVC and by certain commenters are discussed
below.
1. Definitions
a. Modifications of existing definitions. The Commission has moved
the definitions relating to pearls from Sec. 23.0 to the beginning of
the substantive sections that deal with pearls (Sec. 23.18). The JVC
proposed changes (in section 23.17 of its petition) in the three
definitions pertaining to pearls (``pearl,'' ``cultured pearl,'' and
``imitation pearl'') that currently appear in the Guides. No reasons
were offered for changing the current definitions, and there was no
allegation that they were inaccurate or caused any problems.
Four comments addressed the proposed changes in the definitions.
The National Retail Federation stated that cogent definitions for the
three basic types of pearls ``are lacking'' in the JVC
petition.244 Three comments suggested changes in the JVC's
proposed definitions, but did not explain why it is necessary to change
the definitions in the current Guides, nor state that any
misconceptions have occurred.245
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\244\ Comment 238, p.2.
\245\ A&Z Pearls (29) p.1 (suggesting that the JVC's definition
of ``cultured pearl'' be revised to include a better definition of
the word ``nacre'' because it would ``eliminate misinterpretations
of the term therefore clearing any misconceptions of `nacre' being
formed by a human agency''); AGTA (49) p.15 (suggesting editing the
JVC's proposed definition of ``pearl''); CPAA (193) p.3 (suggesting
editing the JVC's proposed definition of ``pearl'' and ``imitation
pearl'').
---------------------------------------------------------------------------
Definitions are helpful to the extent that they make clear what
can nondeceptively be represented to be a pearl, a cultured pearl, or
an imitation pearl. There is no indication that the definitions of the
three types of pearls in the current Guides have ever failed to serve
this purpose. Consequently, the Commission has not changed these
definitions.
b. Additional proposed definitions. The JVC proposed adding eleven
new definitions of types of pearls to the Guides. The JVC offered no
reason for adding definitions of these terms to the Guides, nor did it
allege that these terms had been used to deceive consumers. The
National Retail Federation noted that there are three basic types of
pearls (natural, cultured, and simulated) and that the definition
section proposed by the JVC ``is unnecessarily detailed and
confusing.'' 246 The Commission has
[[Page 27201]]
determined to include additional definitions in the Guides, as
discussed below, only where there are specific reasons for doing so.
---------------------------------------------------------------------------
\246\ Comment 238, p.1; NACSM (219) p.27 (stating that the
definitions ``seem unnecessary'').
---------------------------------------------------------------------------
i. Definitions proposed by the JVC. The only apparent purpose for
five of the proposed definitions appears to be to emphasize the fact
that a cultured pearl (or whatever specific type of cultured pearl)
must be described as a cultured pearl. The JVC proposed definitions,
with accompanying sections regarding the use of the term ``cultured,''
for the following pearls: Mabe cultured pearl, black pearl and black
cultured pearl, natural color, fresh water pearl 247 and sweet
water pearl. However, Sec. 23.15 of the current Guides already states
that it is unfair to use the unqualified word ``pearl'' to describe
anything other than a natural pearl and that it is unfair to use the
word ``pearl'' to describe a cultured pearl ``unless it is immediately
preceded, with equal conspicuity, by the word `cultured' or
`cultivated,' or by some other word or phrase of like meaning and
connotation, so as to indicate definitely and clearly that the product
is not a pearl.'' Because there is no information indicating a problem
with these terms, or the adequacy of the existing provision, the
Commission is not including these definitions in the Guides.
---------------------------------------------------------------------------
\247\ Finlay implied that retailers may be describing fresh
water cultured pearls as simply ``fresh water pearls'' and objected
to requiring advertisers to use ``cultured'' for fresh water pearls,
stating, ``consumers have come to associate the term `cultured
pearls' with round pearls and that to use the term `cultured' in
conjunction with irregularly shapen [sic] fresh water pearls would
create confusion.'' Comment 253, p.2.
---------------------------------------------------------------------------
South Sea pearls: The JVC suggested the following definitions for
South Sea pearls: ``A natural pearl found in the salt water mollusks of
the Pacific Ocean South Sea Islands, Australia and Burma.'' It
suggested that a South Sea cultured pearl be defined as a cultured
pearl ``found in the salt water mollusks of the Pacific Ocean South Sea
Islands, Australia and Burma.'' There was comment suggesting that there
is a market for South Sea cultured pearls, and that such pearls are
quite valuable. An article attached to the Rapaport comment stated that
South Sea cultured pearls ``have come to challenge the supremacy of the
Japanese akoya [cultured pearls] in quality * * *. The South Sea pearls
have a strong market because of one particular feature that makes them
attractive: size.'' 248 The CPAA stated that it frequently
receives complaints that imitation pearl companies are using foreign
names to confuse consumers.249
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\248\ Rapaport Diamond Report, July 17, 1992, p.24, attached to
Comment 233 (noting that the South Sea pearls are the product of a
different oyster than Japanese pearls).
\249\ Comment 193, pp.13-14.
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The Commission therefore has revised the Guides to state that it is
unfair or deceptive to represent a pearl or a cultured pearl as being a
South Sea pearl when such is not the case. This statement, which
includes a definition of the term, is included in section 23.20(g) of
the revised Guides.250
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\250\ The CPAA suggested revising the JVC's proposed definition
of South Sea pearl: ``The word `Burma' should be replaced with the
words `Southeast Asia.' Not only is Burma now officially called
Myanmar, but there are other countries such as Malaysia, Indonesia,
and Thailand in that region which are producing similar pearls.''
Comment 193, p.4. The Commission has made this change.
---------------------------------------------------------------------------
Oriental pearl: The meaning of the term ``Oriental pearl'' is clear
in the current Guides. There is no evidence that the lack of a separate
definition has caused any confusion or resulted in any misuse of the
term. There was no comment pertaining specifically to this proposed
definition. Thus, the Commission has not included a separate definition
in the Guides.
Blister pearls: The JVC suggested definitions for ``blister pearl''
and ``cultured blister pearl'' and proposed a section stating that it
is unfair to use the term blister pearl unless it is a pearl which
meets the definition (i.e., a pearl ``often hollow and irregular in
form'').
There is no evidence that blister pearls are more valuable than
other pearls or that the term ``blister pearl'' is being used to
deceive consumers. Moreover, misrepresentations of the word ``pearl''
are adequately covered in the Guides. The Commission therefore is not
including the definitions relating to blister pearls in the Guides.
Seed pearl: Section 23.16(b) of the Guides states that it is unfair
to use the term ``seed pearl'' or any similar term to describe any
cultured or imitation pearl. The JVC proposed defining seed pearl as:
``A small, natural pearl which measures approximately two millimeters
or less.'' In a related portion of its petition, the JVC proposed a
section that states that it is unfair to describe a cultured or
simulated pearl as a seed pearl without using a qualifying term such as
``cultured,'' ``simulated,'' ``artificial,'' or ``imitation.''
The proposed definition and related section would indicate it is
not deceptive to describe cultured and artificial pearls as seed
pearls, if qualified appropriately, whereas the current Guides appear
to inhibit this. The Commission has concluded that this is a useful
change because it allows products that consumers might wish to purchase
(i.e., cultured or artificial seed pearls) to be accurately described.
ii. Definitions suggested by other commenters. Keshi pearls: A & Z
Pearls, CPAA, and AGTA proposed that a definition of ``Keshi'' pearls
be added to the Guides.251 A & Z Pearls and CPAA also proposed
adding two more definitions relating to ``Keshi'' pearls (Keshi pearl,
Sweet Water or Freshwater Keshi pearl, and South Sea Keshi pearl.) CPAA
stated the word ``Keshi'' has been used in recent years ``as a product
name for seed pearls derived by accident as a by-product of the pearl
cultivation process.'' CPAA proposed adding the term to the Guides ``to
further define what is and what is not a cultured pearl.'' 252 A &
Z Pearls stated, ``There is a lot of debate in the trade as to whether
``Keshi'' pearls should be considered natural pearls. Like natural
pearls, they grow accidentally, but they form in mollusks that are
cultivated by man.'' 253
---------------------------------------------------------------------------
\251\ AGTA (49) pp.15-16 (defining ``Keshi pearls'' as:
``Pearls that grow accidentally in the soft tissue or the adductor
muscle of cultured pearl-bearing mollusks. These tiny non-nucleated
pearls are by-products of cultured pearls. The term `Keshi' also
refers to the bigger pearls without nuclei that are spontaneously
formed in mollusks which bear South Sea cultured pearls and
freshwater cultured pearls'').
\252\ Comment 193, p.8 (defining ``Keshi pearl'' as: ``A non-
nucleated pearl, usually less than 2 millimeters in size, that may
be formed by an oyster in addition to the cultured product during
the process of cultivation'').
\253\ Comment 29, p.2 (defining ``Keshi pearl'' as: ``A
formation of some nucleated baroque shape pearls that grow
`accidentally.' The invasion of a foreign body (such as a nucleus
shell or mantle tissue) stimulates the mollusk and induces abnormal
production of nacre that forms to create `keshi' pearls'').
---------------------------------------------------------------------------
The Commission believes that the JVC proposal--i.e., allowing the
term ``cultured seed pearl'' to be used to describe very small pearls
that grow in mollusks cultivated by man--is an appropriate solution to
this issue. However, there is no reason that the term ``Keshi'' could
not also be used to refer to these pearls as long as it is not used to
deceive consumers. There is no evidence that the term ``Keshi'' is
being used to deceive consumers, and thus, the Commission has not
included the term in the Guides at this time.
Organic pearl: Majorica suggested adding a definition for ``organic
pearl.'' \254\ This definition would permit Majorica pearls to be
called ``organic'' rather than ``imitation.'' An article attached to
Majorica's comment noted that ``to the untrained eye, Majorica
imitation pearls look very much like
[[Page 27202]]
saltwater cultured pearls.'' \255\ The article, authored by employees
of the Gemological Institute of America, also implies that some other
brands of imitation pearls, like Majorica pearls, are made from guanine
crystals, although there may be other differences in the manufacturing
process that make Majorica imitation pearls superior to most other
imitation pearls.\256\
---------------------------------------------------------------------------
\254\ Comment 240, p.6 (``A pearl produced by means of
manufacture characterized by a formation of layers obtained from
guanine crystals, an organic substance from the scales of ocean fish
around a nucleus.'').
\255\ ``Majorica Imitation Pearls,'' Gems and Gemology 185 (Fall
1990), attached to Comment 240.
\256\ The article notes that ``pearl essence'' (i.e., guanine
crystals) was discovered in the late 17th century. Id. at 181. It
states that ``the process used to produce most other imitation
pearls involves dipping or painting the beads with a resin; thus,
these imitations lack the iridescence of the Majorica product and
its cultured counterpart.'' Id.
---------------------------------------------------------------------------
Majorica states that the current system of classification (i.e.,
pearl, cultured, and imitation) ``has narrowed the market for MAJORICA
pearls as a real alternative to so-called cultured pearls'' and ``gives
an unfair advantage to the cultured pearl industry.'' \257\ One
commenter noted that most cultured pearls today have only a small
percentage of nacre (the iridescent coating), unlike pearls from 40-50
years ago. Thus, cultured pearls today may not look very different from
imitation pearls.\258\
---------------------------------------------------------------------------
\257\ Comment 240, p.5.
\258\ Russell (217) pp.1, 2, and 4.
---------------------------------------------------------------------------
Majorica's suggestion, however, involves renaming items that the
public has for many years known as imitation pearls. This seems likely
to provide more rather than less opportunity for deceiving consumers.
NACAA noted, for example, that ``consumers may be particularly confused
by the many varieties of natural, cultured, and imitation pearls.''
\259\ Moreover, two commenters noted that consumers currently confuse
Majorica pearls with real or cultured pearls.\260\ Accordingly, the
Commission is not including a definition of ``organic pearls'' in the
Guides.\261\
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\259\ Comment 90, p.3.
\260\ Lange (183) and CPAA (193) p.14.
\261\ See below for a discussion of other proposals regarding
the term ``organic.''
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2. Misuse of the Word ``Pearl''
Section 23.15 of the current Guides deals with misuse of the word
pearl. Section 23.15 (a) states that it is unfair to use the
unqualified word ``pearl'' to describe anything other than a natural
pearl, and Sec. 23.15(b) states that it is unfair to use the word
``pearl'' to describe a cultured pearl unless it is qualified by the
word ``cultured'' or ``cultivated,'' or a word of similar import, to
indicate that the product is not a pearl. The JVC did not propose any
changes in these two sections.
Section 23.15(c) states that it is unfair to use the word ``pearl''
to describe an imitation pearl unless it is immediately preceded, with
equal conspicuity, by the word ``imitation'' or ``simulated,'' or by
some other similar word or phrase. The JVC proposed adding the word
``artificial'' to this section. NACAA stated that the Guides should
``require artificial pearls to be clearly labeled using one standard
term.'' It preferred the terms ``imitation'' or ``artificial,'' instead
of ``simulated,'' because ``consumers are more likely to understand
what those words mean.'' \262\ The word ``artificial'' clearly
indicates that a product is not a natural pearl. Thus, the Commission
is including this term in the Guides as another example of a term
(along with simulated) that can be used to describe imitation pearls.
---------------------------------------------------------------------------
\262\ Comment 90, p.3.
---------------------------------------------------------------------------
CPAA suggested that the Guides include a section that states that
it is unfair ``to use the terms `faux pearl,' `fashion pearl,' `Mother
of Pearl' or any other proper name or noun term alone when describing
or qualifying an imitation pearl product without including the words
`imitation', `simulated' or any other term of similar connotation
within the same product description and with equal conspicuousness.''
CPAA stated that the use of these terms ``has been the number one
marketing and advertising tool in the sale of imitation pearl products
across the U.S.'' CPAA explained that ``many customers can not tell the
difference between the products by sight alone,'' and that ``[w]ithout
proper product designations such as natural, cultured and imitation,
customers are often misled as to the true nature of the product that
they are buying.'' \263\ With respect to ``faux'' generally, NACAA
stated that ``we do not believe that most consumers know what it
means'' and the Postal Service stated that ``the term `faux' has been
used to confuse unsophisticated consumers and enhance the apparent
value of their costume jewelry.'' \264\
---------------------------------------------------------------------------
\263\ Comment 193, p.9.
\264\ Comment 90, p.3 and comment 244, p.3.
---------------------------------------------------------------------------
As noted, the Guides currently state that it is unfair to describe
an imitation pearl as a pearl without a qualifier such as
``imitation.'' Although the Guides permit sellers to use terms other
than imitation as long as they ``indicate definitely and clearly that
the product is not a pearl,'' based on information from CPAA, the
Postal Service, and NACAA, it appears that the terms faux pearl,
fashion pearl, and Mother of Pearl are inadequate to convey to a
substantial group of unsophisticated consumers that the items are
imitation pearls. Accordingly, the Commission has revised the Guides to
state that it is unfair or deceptive ``to use the terms `faux pearl,'
`fashion pearl,' `Mother of Pearl,' or any other such term to describe
or qualify an imitation pearl product unless it is immediately
preceded, with equal conspicuousness, by the word `artificial,'
`imitation,' or `simulated,' or by some other word or phrase of like
meaning, so as to indicate definitely and clearly that the product is
not a pearl.'' 265
---------------------------------------------------------------------------
\265\ The comments discussing the use of the word ``faux'' are
discussed in more detail infra.
---------------------------------------------------------------------------
The JVC also proposed adding a new subsection (d) which states that
it is unfair to use the word `pearl' with an asterisk which references
to a footnote explaining that the product is an imitation or cultured
pearl. This proposal is similar to a Note currently in section 23.15 of
the Guides. However, section 23.15(c) states that the word ``pearl''
should be ``immediately preceded'' by a qualifying word such as
``imitation'' or ``cultured,'' if the item is not a natural pearl. The
Commission believes that this language advises sellers about how to
avoid a deceptive use of the term ``pearl.'' The current Note is
superfluous and the Commission has deleted it.
3. Misuse of Other Terms
a. Proposed changes to existing subsections. Section 23.16 of the
current Guides consists of six subsections describing several terms
that can only be used to describe specific types of pearls. The JVC did
not suggest any changes in these sections.266
---------------------------------------------------------------------------
\266\ The JVC did suggest that subsection (b), which relates to
the term ``seed pearl,'' be modified to allow the use of the term
``cultured seed pearl'' or the terms ``simulated,'' ``artificial,''
or ``imitation seed pearl.'' As noted above, the Commission has
concluded that this change is useful and has included it in the
revised Guides.
---------------------------------------------------------------------------
The only comment on these sections referred to Sec. 23.16(e), which
states that it is unfair to use the word ``natura'' or any similar word
to describe a cultured or imitation pearl. CPAA suggested the words
``natural,'' ``nature's,'' and ``organic'' be ``added to the list of
words that cannot be used to describe an imitation pearl product.''
267 CPAA explained that these words have been used to describe
imitation pearls, and argued that they ``only serve to confuse the
consumer and retail buyer as to the proper origin and intrinsic value
of an imitation product.'' 268
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\267\ Comment 193, p.6.
\268\ Id.
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[[Page 27203]]
On the other hand, Majorica requested that the Guides be revised to
add a section stating that pearls made from guanine crystals can be
described as ``organic'' pearls. It stated that elimination of the word
``organic'' would eliminate ``the only real competition which cultured
pearls have in this country.'' 269 However, for the reasons stated
above, the Commission has concluded that describing pearls made from
guanine crystals as ``organic'' pearls is likely to mislead consumers.
Nevertheless, there is a difference between the words ``natural'' and
``nature's''--neither of which can inherently be used in a nondeceptive
manner with respect to imitation pearls--and the word ``organic.'' The
Commission believes that the word ``organic'' could be used, with
adequate qualification, to describe Majorica pearls in a truthful
manner. For example, in its ads, Majorica describes its pearls as
``organic man-made pearls'' that consist of a translucent nucleus
``coated with layers of pearlized essence, an organic material
extracted from marine species.'' 270 Thus, the Commission has
revised Sec. 23.16(e) of the current Guides to indicate that it is
unfair or deceptive to use the term ``natural'' and ``nature's'' to
refer to an imitation pearl. The Commission also has added a sentence
to this section stating that it is unfair or deceptive to use the term
``organic'' to refer to an imitation pearl unless the term is qualified
in such a way as to make clear that the product is not a natural pearl.
---------------------------------------------------------------------------
\269\ Comment 240, pp.6 and 11. The section requested by
Majorica would limit the use of ``organic'' to any pearl other than
an imitation pearl made from guanine crystals. Id. at 7.
\270\ Attachment to comment 49.
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The JVC suggested adding the word ``cultura'' to Sec. 23.16(f) of
the current Guides, which states that it is unfair to use the word
``kultured'' or any similar word to describe an imitation pearl.
However, the section as currently written prohibits the use of ``any
other word, term, or phrase of like meaning * * * .'' The word
``cultura'' is very similar to ``kultured.'' Thus, Sec. 23.16(f)
already provides adequate guidance on how to avoid deceptive
representations. However, CPAA stated that terms such as ``semi-
cultured pearl,'' ``cultured-like,'' ``part-cultured,'' and ``pre-
mature cultured pearl,'' have been used to describe imitation pearls,
and argued that they ``only serve to confuse the consumer and retail
buyer as to the proper origin of an imitation product.'' 271 The
Commission has determined that these terms are deceptive when applied
to imitation products and has included them in Sec. 23.16(f) of the
current Guides.
---------------------------------------------------------------------------
\271\ Comment 193, p.6.
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b. Additional proposed provisions relating to cultured pearls. The
JVC proposed the addition of six new subsections relating to the
failure to describe a cultured pearl as a cultured pearl. These
proposed subsections relate to fresh water cultured pearls, Biwa
cultured pearls, South Sea cultured pearls, black cultured pearls, and
Mabe cultured pearls.
All of these have been discussed previously, in connection with the
section on definitions, except Biwa pearls (which were not included in
the definition section proposed by the JVC.) As noted, the Commission
has concluded that Sec. 23.15(b) of the current Guides, which states
that it is unfair to use the word ``pearl'' to describe a cultured
pearl unless the word ``pearl'' is ``immediately preceded, with equal
conspicuity,'' by the word ``cultured'' or a word of similar import, is
sufficient to admonish sellers that they should adequately disclose
that a cultured pearl--of whatever type--is cultured. Thus, the
Commission has not included any of these proposed subsections except
the ones dealing with South Sea pearls (discussed supra) and Biwa
pearls.
The subsection proposed by the JVC for Biwa pearls states that it
is unfair to use the term ``Biwa pearl'' without the qualifying term
``cultured.'' The Commission has concluded that this portion of the
proposed subsection is unnecessary. However, the proposed subsection
also provides that ``the term `Biwa cultured pearl' must only be used
when describing those formations which have the distinctive appearance
of a fresh water cultured pearl taken from the fresh water mollusks
inhabiting Lake Biwa within the island of Honshu, Japan.''
CPAA commented that the term should be limited to ``those
formations which are grown in fresh water mollusks in the lakes and
rivers of Japan.'' CPAA stated that the words ``distinctive
appearance'' might allow imitation pearls and pearls from other
countries to use the regional description. CPAA explained that ``Biwa''
represents all Japanese freshwater pearls because ``first, many people
currently refer to all Japanese origin freshwater cultured pearls as
`Biwa'' and second, because freshwater pearl production in Japan is
nearing extinction ``Biwa pearls'' are appreciating in value.272
CPAA stated that many U.S. importers use the term ``Biwa pearl'' ``to
describe freshwater pearls that have a similar appearance to Biwa
pearls but come from other countries such as China'' and artificially
inflate the prices of them, which ``cost as little as 30 times less
than the Biwas.'' 273
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\272\ Comment 193, p.7.
\273\ Comment 193, p.7.
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Because of the evidence of deceptive use of this term, the
Commission has included a provision in the Guides stating that the term
``Biwa'' should only be applied to pearls ``which are grown in fresh
water mollusks in the lakes and rivers of Japan.''
c. Other proposed provisions. The JVC proposed that eight other
subsections be added to the section dealing with misuse of specific
terms (in addition to the proposed subsections described above.) The
first such proposed subsection is general: ``It is an unfair trade
practice to use the term `pearl,' `oriental pearl,' `cultured pearl,'
`cultivated pearl' * * * to describe * * * any such pearl product whose
outer surface does not consist wholly of naturally occurring concentric
layers of nacre secreted by that mollusk.'' This section duplicates
other subparts of Sec. 23.16 of the current Guides, and therefore, the
Commission has not included it in the Guides.
Another JVC proposal prohibits the use of the term ``non-nucleated
pearl,'' because ``cultured pearls of this type are formed by the
introduction of mantle tissue within the body of the mollusk'' and thus
are nucleated. However, both the CPAA and AGTA used the expression
``non-nucleated pearl'' in their comments in referring to Keshi
pearls.274 Moreover, whether or not the term ``non-nucleated'' is
correct, no evidence has been offered to show that it is being used to
deceive consumers as to a material fact. Thus, the Commission has not
included this section.
---------------------------------------------------------------------------
\274\ Comment 193, p.8; comment 49, p.15.
---------------------------------------------------------------------------
Two of the additional proposed sections relate solely to imitation
pearls. One states that it is unfair ``to use the term `man-made' or
`man-created' without using the term `simulated' or similar term, to
qualify the product as in `man-made simulated pearls.''' CPAA commented
that this section should state that it is unfair to use these terms
``without also using the term `simulated,' `imitation' or any other
term that has the same connotation and meaning when qualifying or
describing an imitation pearl product.'' 275 The only other
comment relating to this provision was from Majorica, which requested
the FTC ``to withhold any further restrictions on the words `organic,'
[[Page 27204]]
`man-made,' `synthetic,' and `created' while considering the creation
of a new category of pearl to which the word `organic' could properly
and accurately be applied.'' 276 CPAA may be arguing that the
phrase ``man-made'' could be understood to mean cultured pearls, since
such pearls are ``started'' by man. However, there is no evidence that
consumers are interpreting the phrase ``man-made'' or similar phrases
in this manner, and without such evidence, the Commission has decided
not to include the section, as proposed by CPAA, in the revised Guides.
---------------------------------------------------------------------------
\275\ Comment 193, p.6.
\276\ Comment 240, p.6 (emphasis added).
---------------------------------------------------------------------------
Four of the remaining five proposed subsections relate to the
misuse of certain words, which are described in Secs. 23.20 and 23.21
of the current Guides. Section 23.20 of the current Guides provides
that it is unfair to use the words ``real,'' ``genuine,'' ``natural,''
or ``similar terms as descriptive of any article or articles which are
manufactured or produced synthetically or artificially, or artificially
cultured or cultivated * * *.'' Although this section deals primarily
with precious and semi-precious stones, it also applies to cultured or
imitation pearls.
The subsection proposed by the JVC states that it is unfair to use
these words or the word ``precious'' or similar terms to describe
imitation or cultured pearls.
The Commission has reorganized the Guides so that this statement
appears in the pearl section, making it more likely that industry
members searching for guidance as to pearl advertising will see it. As
noted above, the Commission already has included the term ``natural''
in the subsection dealing with the term ``natura,'' Sec. 23.20(e) of
the revised Guides. Thus, the Commission has added a new subsection,
23.20(i), that states that it is unfair or deceptive to use the terms
``real,'' ``genuine,'' or ``precious'' as descriptive of an imitation
pearl.277
---------------------------------------------------------------------------
\277\ Although there was no comment on the inclusion of
``precious'' in this subsection, the Commission has determined that
it is deceptive as applied to imitation pearls because ``precious''
in the jewelry industry implies rarity. Although imitation pearls
can be of high quality, they are not likely to be rare.
---------------------------------------------------------------------------
This subsection does not state that the terms ``real'' or
``genuine'' are unfair or deceptive if used to describe cultured
pearls. The Commission has determined that it is possible to truthfully
describe ``real'' or ``genuine'' cultured pearls without implying that
they are not cultured. In addition, there may be instances when
cultured pearls could be truthfully described as ``precious.''
Therefore, Sec. 23.20(i) is limited to imitation pearls.
Section 23.21(a) in the current Guides states that it is unfair to
use the term ``gem'' or a similar term to describe ``a pearl, cultured
pearl, diamond, ruby, * * * which does not possess the beauty,
symmetry, rarity, and value necessary for qualification as a gem.'' The
JVC proposed a section recommending that the word ``gem'' not be used
as a quality designation or description of natural pearls, ``since
there is no existing criteria for these terms, and their use to
describe, imply, or represent quality could be misleading.''
AGTA commented that this provision should only apply to sales to a
consumer, stating, ``The term `gem' is traditionally used within the
trade to describe particularly fine qualities of any given gemstone
species, including pearls. To prohibit its use within the trade is
restrictive of traditional practice and is unnecessary as it is clearly
understood.'' 278 There is no evidence that consumers would be
deceived by this term as applied to pearls that ``possess the beauty,
symmetry, rarity, and value necessary for qualification as a gem.''
Therefore, the Commission has retained current Sec. 23.21(a) and has
moved the portion relating to pearls to the pearls section of the
Guides (revised Sec. 23.20(j)). The Commission has included a Note
after this section (which currently follows Sec. 23.21(b) in the
current Guides) which states that the use of ``gem'' with respect to
cultured pearls should be avoided since few cultured pearls possess the
necessary qualities and that imitation pearls should not be described
as `gems.'
---------------------------------------------------------------------------
\278\ Comment 49, p.16 (noting that there is not a similar
prohibition of the use of the term `gem' in the section on
diamonds).
---------------------------------------------------------------------------
Section 23.21(c) of the current Guides states that it is unfair to
use the words ``reproduction,'' ``replica,'' or similar terms to
describe a cultured or imitation pearl (or imitation precious or semi-
precious stones.) The JVC proposed including this statement, as it
pertains to pearls, in the pearls section. However, if the nature of
the material used in a reproduction or replica is adequately disclosed,
as advised by other sections of the Guides, it is not clear that the
use of these terms would be deceptive or unfair. Thus, the Commission
has not added this section to the Guides.279
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\279\ The Commission has deleted Sec. 23.21(c) of the Guides, as
discussed below, in the section pertaining to gemstones.
---------------------------------------------------------------------------
Section 23.21(d) of the current Guides states that the use of the
term ``synthetic'' to describe cultured or imitation pearls is unfair.
The term may be used for precious and semi-precious synthetic stones if
they have ``essentially the same optical, physical, and chemical
properties as the stone named.'' The JVC proposed moving the portion of
Sec. 23.21(d) that pertains to pearls to the pearls section and adding
that it is unfair to use the word ``created'' to describe cultured or
imitation pearls. AGTA and CPAA both supported the proposal, and
Majorica opposed it.280 No evidence was offered to explain why the
use of the term ``created'' is unfair or deceptive as applied to
cultured or imitation pearls. The Commission therefore has not included
the proposed section regarding the term ``created'' in the Guides.
---------------------------------------------------------------------------
\280\ AGTA (49) p.16; CPAA (193) p.7 (suggesting that the
provision be modified to apply to ``cultured, simulated, or
imitation pearls'' rather than to ``cultured or imitation pearls'');
Majorica (240) p.6 (requesting no ``further restrictions'' be placed
on the use of ``created'' or ``synthetic'').
---------------------------------------------------------------------------
However, the term ``synthetic'' has been used with respect to
gemstones to refer to a man-made substance that has all the physical,
chemical and optical properties of the natural stone. Since cultured
pearls do not have the same physical and optical properties as natural
pearls, the use of this term may be deceptive. Furthermore, the use of
the term ``synthetic'' to describe an imitation pearl might convince
some consumers that the pearls were cultured rather than imitation.
Thus, the Commission has included a new subsection, 23.20(k), which
states that it is unfair or deceptive to use the word ``synthetic'' to
describe cultured or imitation pearls.
Finally, the JVC proposed a subsection stating that it is unfair to
use the term ``semi-precious'' to describe any pearl, cultured pearl,
``or man-made industry product.'' No evidence was offered to show that
this use of ``semi-precious'' would be unfair or deceptive, and there
was no comment on this proposal. In the absence of such evidence, the
Commission has decided not to add this provision to the Guides at this
time.
d. Additional provisions proposed by commenters. CPAA proposed that
several additional subsections be added to the section pertaining to
``Misuse of terms.'' First, CPAA suggested a subsection stating that it
is unfair to use the term ``orient'' to describe the properties of an
imitation pearl.281 CPAA stated that ``the term `orient' was first
used in a gemological sense by the Gemological Institute of America in
[[Page 27205]]
order to explain and clarify quality points of natural and cultured
pearls * * * many retailers and gemologists alike hold their [GIA]
definitions to be the authoritative standard within the industry.''
282 However, an article from the GIA quarterly journal Gems &
Gemology was attached to Majorica's comment; the authors are all
employees of GIA. The article states, ``An iridescence resembling the
orient seen on some cultured pearls may also be observed on Majoricas
[an imitation pearl].'' Thus, it appears that at least some imitation
pearls can possess ``orient.'' Therefore, the Commission has not
included this provision in the revised Guides.
---------------------------------------------------------------------------
\281\ Comment 193, p.8 (``Orient is gemologically defined as a
subdued iridescence, occurring when white light is divided into its
separate and distinct spectral colors as it passes through and is
refracted back from the nacre secreted by mollusks whether
surrounding a nucleus or not.'').
\282\ Comment 193, p.9.
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CPAA also proposed a new provision, stating that it is unfair to
use the terms ``Japanese Pearls,'' ``Mallorca Pearls,'' ``Chinese
Pearls,'' or any other regional designation to describe cultured or
imitation pearls without including the words ``cultured, imitation or
simulated.'' 283 CPAA explained that imitation pearl companies
recently have used regional terms to describe their products, and that
this misleads consumers about the true nature of the product.284
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\283\ Id.
\284\ CPAA (193) p.9 (explaining, for example, that the ``use of
the term `Misaki Japanese Pearls' in several cases has led consumers
to believe that they were purchasing Japanese cultured pearls
instead of imitation pearl products'').
---------------------------------------------------------------------------
Majorica made a similar suggestion, stating that there is continued
abuse of terms such as ``Mallorca Pearl,'' ``Majorca Pearl,'' and
``Mayorca Pearl'' and that they ``have numerous examples of customers
and distributors who have been deceived into purchasing pearls under
the label of `Majorca' or `Mallorca' pearls believing them to have
special qualities related to the Island of Majorca or, for that matter,
that they are MAJORICA pearls.'' 285
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\285\ Comment 240, pp.8-10. Unlike the CPAA proposal, Majorica
proposed to prohibit the use of the term ``Mallorca'' or any similar
expression connoting the name of the Island of Mallorca, Spain in
combination with the word pearl. (The CPAA proposal would allow an
imitation pearl to be described as a ``Mallorca imitation pearl.'')
Majorica stated that it has sued distributors of pearls and has
obtained relief which requires such distributors to ``to reduce the
emphasis on [Mallorca] in their advertising and distribution.''
Majorica asserts that it is unfair to require it to go to the
expense of litigation every time such an abuse occurs. Id. However,
Majorica's specific complaint regarding the ``passing off'' of one
manufacturer's product for another is already adequately addressed
by caselaw under Section 5.
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The Commission has concluded that there is some evidence that
regional descriptions are being used to mislead consumers. The
Commission therefore has included a provision in the revised Guides
that states that the regional description of a pearl should be
accompanied by a description of whether the item is a cultured or
imitation pearl.
4. Misrepresentation as to Cultured Pearls
The JVC recommended no substantive changes in Sec. 23.17 of the
current Guides. As noted above, this section describes unfair practices
involving false, misleading, or deceptive statements about cultured
pearls, including the manner in which they are produced and the
thickness of the nacre coating.
One commenter, Kenneth Russell, recommended that the Commission
establish grades for cultured pearls based on the thickness of the
nacre deposited by the mollusk, following the introduction by man of a
mother-of-pearl bead. He noted that the thickness of the nacre ``mainly
determines their wearable value'' and that this ``indexing''
information should accompany this product ``just as karatage serves to
rank gold jewelry.'' 286 He stated that most cultured pearls
consist of 90 to 95% nucleus and very little nacre.287
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\286\ Comment 217, p.1 (suggesting that cultured pearls with a
\1/4\ to \1/2\ mm. coating of nacre should be marked ``Service
Grade'' and those with more than \1/2\ mm. marked ``Heirloom
Grade'').
\287\ Id. at p.2.
---------------------------------------------------------------------------
The article attached to the Majorica comment stated that the
thickness of the nacre in a cultured pearl ``will vary depending on the
amount of time the nucleated mollusk was allowed to grow before
harvest.'' 288 The article attached to the Rapaport comment quoted
a pearl industry source as saying that some of the lowest-quality
Chinese pearls should not be on the market because ``the nacre peels
off the nucleus within a year.'' 289 The article notes that pearl
grading is ``a non-standardized process that gives dealers a lot of
room for opinion.'' It also notes that GIA has a grading system which
``uses numerical grades to show differences in appearance, durability
and value of pearl strands'' and that some companies use their own
methods.290
---------------------------------------------------------------------------
\288\ ``Majorica Imitation Pearls,'' Gems and Gemology 187
(Fall 1990), attached to Comment 240.
\289\ ``Rapaport Diamond Report'' 26 (July 17, 1992) attached to
Comment 233.
\290\ Id.
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The literature indicates that the nacre on some cultured pearls
might be so thin that they do not meet the expectations consumers have
when an item is described as a cultured pearl. Section 23.17 in the
current Guides admonishes against misrepresentations about the
thickness of the nacre on cultured pearls or the quality of pearls.
However, it is not unfair or deceptive to fail to grade cultured pearls
that contain a coating of nacre that is thick enough to meet minimal
consumer expectations.
F. Precious and Semi-precious Stones (Category V): Secs. 23.18-23.21
Guides in this part apply primarily to colored gemstones, precious
(rubies, sapphires, emeralds) and semi-precious (amethyst, topaz, etc.)
stones. The Guides refer to three types of gemstones: natural (i.e.,
mined from the ground); synthetic stones, which are laboratory-created
and which Sec. 23.21(d) describes as having ``essentially the same
optical, physical, and chemical properties'' as natural stones; and
imitation stones, which resemble natural stones but do not have the
same properties.
1. Deception Generally: Sec. 23.18
Section 23.18 states that any material misrepresentation with
respect to precious or semi-precious gemstones is unfair. The JVC
proposal omitted this section. Section 23.18 merely repeats the general
admonition in Sec. 23.1 against material misrepresentations of any
industry product. Thus, the Commission has deleted this provision from
the revised Guides.
a. Disclosure of Treatment
A Note following Sec. 23.18 states that any artificial coloring or
tinting of a diamond or precious or semi-precious stone by ``coating,
irradiating, or heating, or by use of nuclear bombardment, or by any
other means'' should be disclosed and the fact that the coloring is not
permanent, if such is the fact. The JVC proposed, in section 23.20(c)
of its petition, a section in lieu of the Note which requires the
disclosure of any enhancement ``by coating, application of colorless or
colored oil, irradiation, surface diffusion, dyeing, heating or by use
of nuclear bombardment, or by any other means.'' 291 This proposal
would expand the recommended disclosure about enhancements relating to
color to all enhancements (e.g., those related to concealing cracks).
In addition, it explicitly covers enhancement by applications of
colored or colorless oil, surface diffusion, or dyeing.