[Federal Register Volume 64, Number 109 (Tuesday, June 8, 1999)]
[Proposed Rules]
[Pages 30448-30450]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14505]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 64, No. 109 / Tuesday, June 8, 1999 / 
Proposed Rules  

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FEDERAL TRADE COMMISSION

16 CFR Part 23


Guides for the Jewelry, Precious Metals and Pewter Industries

AGENCY: Federal Trade Commission.

ACTION: Proposed rule; request for public comments.

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SUMMARY: In response to a petition from the Jewelers Vigilance 
Committee and the Diamond Manufacturers and Importers Association of 
America, jewelry trade associations, the Federal Trade Commission 
(Commission) is requesting public comments on proposed revisions to two 
sections of the Guides for the Jewelry, Precious Metals and Pewter 
Industries (Jewelry Guides or Guides) to provide for the disclosure to 
consumers of laser-drilling of diamonds. One section addresses 
disclosure of treatments to diamond jewelry products. The other section 
addresses disclosure of treatments to gemstone jewelry products.

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

ADDRESSES: Comments should be directed to: Secretary, Federal Trade 
Commission, 600 Pennsylvania Avenue, NW, Room H-159, Washington, DC 
20580. Comments about these proposed changes to the Guides should be 
identified as ``Guides for the Jewelry, Precious Metals and Pewter 
Industries--16 CFR Part 23--Comment.''

FOR FURTHER INFORMATION CONTACT: Robin Rosen Spector, Attorney, Federal 
Trade Commission, Washington, DC 20580, (202) 326-3740, 
<[email protected]>.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The Guides for the Jewelry, Precious Metals and Pewter Industries, 
16 CFR Part 23, address claims made about precious metals, diamonds, 
gemstones and pearl products. The Guides also provide guidance as to 
when certain disclosures should be made about certain products if the 
failure to make such disclosure would be an unfair or deceptive trade 
practice.\1\ On May 30, 1996 (61 FR 27212), the Commission announced 
comprehensive revisions to the Jewelry Guides. These revisions included 
new sections providing for the disclosure of certain treatments to 
diamond jewelry products (Sec. 23.13) and the disclosure of certain 
treatments to gemstone jewelry products (Sec. 23.22).\2\
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    \1\ The Federal Trade Commission issues industry guides to 
provide guidance for the public to conform with legal requirements. 
Industry guides are administrative interpretations of the laws the 
FTC administers. Industry guides explain how to describe products 
truthfully and non-deceptively and identify practices the Commission 
considers unfair or deceptive.
    \2\ Diamond and gemstone jewelry products are often treated or 
enhanced to improve their beauty or durability.
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    On December 9, 1998, the Jewelers Vigilance Committee (JVC), a 
jewelry trade association, in conjunction with the Diamond 
Manufacturers and Importers Association of America (DMIA), petitioned 
the Commission to revise Sec. 23.13 to provide for the additional 
disclosure of a diamond treatment called laser-drilling.\3\ The Guides 
currently state that it is not unfair or deceptive to fail to disclose 
this treatment. The Commission solicits comment on proposed changes to 
this provision of the Guides. The Commission also solicits comment on 
proposed changes to Sec. 23.22 of the Guides that addresses gemstone 
treatments.
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    \3\ This petition is on the public record and copies are 
available by contacting the Public Reference Branch, Room 130, 
Federal Trade Commission, Washington, DC 20580. A copy of the 
petition also has been posted on the Commission's website at 
<www.ftc.gov>.
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II. Proposed Changes to Sec. 23.13

    The JVC petition requests an amendment to Sec. 23.13 of the Guides 
to provide for disclosure of laser-drilling of diamonds. Laser-drilling 
involves the use of a laser beam to improve the appearance of diamonds 
having black inclusions. The laser beam is directed at the black 
inclusion and then acid is forced through the tunnel made by the laser 
beam to remove the inclusion or alter it so it is not visible to the 
naked eye. The Commission determined, based on the record before it in 
1996, that the failure to disclose laser-drilling was not unfair or 
deceptive. Therefore, Sec. 23.13 of the Guides, which discusses diamond 
treatments, does not provide for disclosure of laser-drilling.
    The JVC petition asserts that the Guides should be amended to 
provide for disclosure of laser-drilling for several reasons. Although 
previously various segments of the industry held different views 
regarding the appropriateness of disclosure, there is now industry 
consensus in favor of disclosure. Sixteen trade associations joined the 
JVC in endorsing mandatory disclosure.\4\ In addition, according to the 
petition, the jewelry industry has adopted policies requiring the 
disclosure of laser-drilling at all levels of the transaction up to the 
point of sale to the consumer. Because of these policies, disclosure of 
laser-drilling to consumers would not be costly for retailers and would 
not inhibit advertising or result in additional costs passed on to 
consumers. Although industry self-regulation could also address 
consumer disclosure, the petition asserts that providing for disclosure 
in the Guides is important because, due to industry reliance on the 
guides, it would promote greater industry compliance.
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    \4\ The trade associations that joined the petition are: World 
Federation of Diamond courses; Diamond Manufacturers and Importers 
Association of America; International Diamond Manufacturers 
Association; Diamond Promotion Services; Diamond Dealers Club of New 
York; Gemological Institute of America; International Society of 
Appraisers; Jewelers of America; American Gemstone Society; American 
Gem Society; United States Carat Club; International Confederation 
of Jewelry, Silverware, Diamonds, Pearls and Stones; American 
Gemstone Trade Association; Manufacturing Jewelers and Suppliers of 
America; International Standards Organization; and Diamond High 
Council.
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    The JVC petition explains that laser-drilling technology has 
improved in recent years making it increasingly difficult for consumers 
to detect the process, especially when diamonds are mounted in 
jewelry.\5\ In addition, according to the petition, the majority of 
diamonds sold are smaller stones, from .35 to .75 carats, and laser-
drilling is especially difficult to detect in such stones. Further, 
smaller stones such as these are typically sold without grading reports 
that might otherwise reveal any laser drilling.
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    \5\ New technology results in smaller, shorter, thinner tunnels 
that are far harder to detect under a loupe, which a consumer might 
use to examine a stone.
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    According to the petition, consumers may suffer economic injury 
from the

[[Page 30449]]

purchase of laser-drilled stones. The petition explains that laser-
drilling affects the diamond's value, and a laser-drilled stone is 
worth less than a non-treated stone of the same clarity rating. The 
petition explains that because laser-drilling is not being disclosed, 
some consumers may falsely believe that a laser-drilled stone is as 
valuable as a non-treated stone of the same clarity rating.
    Finally, the petiton notes that the Guides provide for disclosure 
of other permanent process because they are non-natural, artificial 
procedures that affect the value of the product. For example, the 
Guides provide that cultured pearls be identified as such. A cultured 
pearl is created by a mollusk, but with human intervention. As a result 
of this human intervention, cultured pearls are worth less than natural 
pearls and the fact that the pearl is cultured must be disclosed. The 
petition asserts that the Guides should recognize the same distinction 
between untreated and laser-drilled diamonds.
    The Commission has tentatively concluded that the petition 
demonstrates, contrary to the record before the Commission in 1996, 
that the failure to disclose laser-drilling is an unfair or deceptive 
trade practice. The Commission therefore proposes revising Sec. 23.13 
of the Jewelry Guides to provide that it is unfair or deceptive to fail 
to disclose laser-drilling. The Commission also proposes adding a 
phrase to Sec. 23.13 regarding the permanence of the treatments 
enumerated in the section that should be disclosed. Currently, 
Sec. 23.13 provides that certain treatments should be disclosed and the 
fact that the treatment ``is or may not be permanent'' also should be 
disclosed. The Commission therefore proposes adding the phrase ``if 
such is the case'' after ``permanent'' in this section. If this phrase 
is not added the Guides would provide for disclosure that laser-
drilling is not permanent, when in fact it is permanent.

III. Proposed Changes to Sec. 23.22

    Section 23.22 of the Guides provides that it is unfair or deceptive 
to fail to disclose that a gemstone has been treated in any manner that 
is not permanent or that creates special care requirements and to fail 
to disclose that the treatment is not permanent, if such is the case. 
In light of the petition's evidence about laser-drilling, the 
Commission is seeking public comment on whether consumers may be 
injured by non-disclosure of permanent gemstone treatments that do not 
create special care requirements in the same manner that they may be 
injured by nondisclosure of laser-drilling. The Commission is seeking 
comment on whether there are treatments that create a disparity in the 
value of treated stones as compared to non-treated stones, and, whether 
consumers, acting reasonably under the circumstances, can detect such 
treatments.
    The Commission seeks comment on whether Sec. 23.22 of the Jewelry 
Guides should be revised to advise that permanent treatments that do 
not require special care should be disclosed if the treatment has a 
significant effect on the stone's value, and if a consumer, acting 
reasonably under the circumstances, could not ascertain that the stone 
has been treated.

IV. Request for Comment

    The Commission seeks public comment on the proposed changes to 
Secs. 23.13 and 23.22 of the Guides discussed above. The Commission 
also requests comment on the following specific questions:
    1. Is it a prevalent practice in the jewelry industry to require 
disclosure of laser-drilling at all levels of the transaction up to the 
point of sale to the consumer?
    2. Would a provision in the Jewelry Guides to disclose laser-
drilling to consumers inhibit advertising or create additional costs 
for retailers that could be passed on to consumers in the form of 
significantly higher prices?
    3. Is there a disparity in value between a laser-drilled diamond 
and a non-treated diamond of the same clarity rating?
    4. Should the Jewelry Guides provide guidance as to how laser-
drilling should be disclosed to consumers? If so, what guidance should 
be provided?
    5. Gemstone treatments that are permanent and do not create special 
care requirements currently do not have to be disclosed under the 
Jewelry Guides. Is there a disparity in value between a gemstone 
treated in a manner that is permanent and does not require special care 
and one that is not treated? How many different gemstones and gemstone 
treatments fall into this category?
    6. Does industry policy provide for disclosure of permanent 
gemstone treatments that do not create special care requirements?
    7. Would guidance in the Jewelry Guides calling for disclosure of 
permanent gemstone treatments that do not require special care inhibits 
advertising or create additional costs for retailers that could be 
passed on to consumers in the form of significantly higher prices? 
Would this guidance adversely impact competition in the jewelry 
industry in any way?

List of Subject in 16 CFR Part 23

    Advertising, Labeling, Trade practices, Watches and jewelry.

    The Commission proposes to amend Chapter I of Title 16 of the Code 
of Federal Regulations as follows:

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

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

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

    2. Revise Sec. 23.13 to read as follows:


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

    If a diamond has been treated by artificial coloring, tinting, 
coating, irradiating, heating, by the use of nuclear bombardment, by 
the introduciton or infusion of any foreign substance, or by laser-
drilling, it is unfair or deceptive not to disclose that the diamond 
has been treated and that the treatment is not or may not be permanent, 
if such is the case.
    3. Revise Sec. 23.22 to read as follows:


Sec. 23.22  Deception as to gemstones.

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


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    By direction of the Commission.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 99-14505 Filed 6-7-99; 8:45 am]
BILLING CODE 6750-01-M