According to the Jeweler’s Vigilance Committee (JVC), FTC guidelines now require accurate and truthful representation about the Grading System (GIA, EGL, etc) used to determine the quality of a diamond.
Diamond grading has been much in the news lately, with varying views expressed as to grading standards and their meaning. This matter is central to the integrity of the jewelry and diamond industry, and to its ability to maintain confidence in the diamonds sold by jewelers. JVC sent an update on December 10, 2014 to its members, and this article is a summary of that update. IGS continues to be inspired by the meaningful and critical work JVC does to insure fair and high standards in the jewelry and diamond trade.
In short, there are some basic legal principles relevant to grading reports and the representations about diamond grades contained in these reports.
Jewelers need to bee careful about the grading reports they use in connection with a sale. If they are aware that there are claims made about the grade or quality of a diamond that cannot be supported, or if the grading system is not disclosed, the jeweler could be held liable. As with all representations made about industry products (and as further explained below), if the grades assigned are not truthful and accurate in compliance with Federal Trade Commission guidance, or the grading system is not disclosed, there is a risk of engaging in a deceptive trade practice.
The Federal Trade Commission rules, along with several others that govern claims about diamond grades, are discussed here.
FTC Guides require that if a representation is made about grade, then the identity of the grading system must be disclosed.
According to the FTC Guides, a representation that a stone is a specific grade is deceptive if the identity of the grading system used is not disclosed. (FTC Jewelry Guides, Section 23.1, note). This rule ensures that buyers know the basis upon which a grade is assigned, thereby allowing them to make an informed comparison of various qualities of diamonds as disclosed on grading reports. Obviously, the rule is completely and thoroughly undercut if a lab discloses a particular grading system, but uses the grades in a manner that is out of line with industry norms for that grading system.
A reasonable buyer could conclude that grades have standard meanings
The FTC analyzes product claims from the perspective of a reasonable buyer. A reasonable buyer of diamonds often views a variety of grading reports issued by a variety of labs to compare diamonds. Like any product claim, representations of diamond grades made via grading reports are reviewed in their entirety, including text and visuals on the report itself. Reports from many labs typically include grading scales that describe the range of designations for color and clarity, often using similar letter grades (D-Z for color and Flawless – I3 for clarity.)
Because labs often use this same range of letters and terms, it would be reasonable for a buyer to conclude that these designations are used uniformly (subject to human error – see #3 below) by the grading labs whose reports employ that system. A reasonable buyer could also conclude from these commonly-used designations that graders employ uniform methodologies in assigning those grades, especially when nothing additional about how the grading system is implemented by a particular lab is disclosed on the report. Thus, a reasonable buyer would be justified in reaching the conclusion that grading is based on the application of uniform standards.
Some grading reports contain references to conformity and standardization bodies, such as ISO and IQNet, with no additional information explaining those references. Such references, without any further explanation, could further lead a reader of the report to believe that grading designations are standardized (even though neither ISO nor IQNet issue diamond grading standards).
It is unfair and deceptive to misrepresent the grade of a diamond.
There is a subjective element to grading, and for that reason industry custom and practice is to allow a one-grade tolerance. This acknowledges that there are accepted norms in the industry, and that a one grade deviation from that norm can happen even with competent staff and widely-available equipment. A court of law reviewing a false claim related to diamond grading is likely to rely on these industry norms.
Labs that routinely produce reports that exceed the accepted tolerance, particularly when the deviation is always on the high side, are likely engaging in a pattern and practice of deception. This exposes the lab (and the sellers who use these lab reports) to government enforcement action as well as class actions brought by consumers, or Lanham Act lawsuits brought by competitors. It exposes the entire buying public to a crisis in confidence. A pattern and practice of inflating diamond grades (or using reports that do so in a sale) constitutes a deceptive trade practice in violation of the FTC Guides. False claims about diamond grades, with no basis in industry norms, cannot be corrected with poorly explained disclosures.
On the other hand, there may be circumstances regarding diamond grades in which clear and conspicuous disclosure will prevent deception. If a lab report uses a grading method that deviates in some respect from the industry norm, and if the method often results in different grades, this should be disclosed on the report so that the reasonable buyer is able to make an informed purchase. For example, the face-down (table-down) view of a diamond is of primary importance in assigning a diamond color grade. This method is accepted as the industry norm. If a lab instead grades color face-up (table-up), and this frequently results in different color grades than the industry norm, this must be very clearly, understandably, and conspicuously disclosed. The disclosure should include a description of the practice used (e.g., face-up analysis) as well as the fact that the practice frequently results in different color grades than standard methods.
Therefore, to avoid deception, if a particular lab uses standard grades, but implements those grades in a manner different from the routine practice, this should be clearly and conspicuously disclosed on the report in understandable language. This will inform the reader of what is meant by the assignment of a particular grade for color or clarity.
Grading reports should not be called certificates.
They are not certified.“Certification” typically refers to the confirmation of certain characteristics by an external review. Since most diamond grading reports are not externally reviewed or otherwise certified by an independent body, they are not usually correctly identified as “certificates ”. These documents should be referred to as “grading reports” .
The FTC guides and the laws that enforce them seek to prevent deception. A grossly inflated diamond grade is not mere “puffery” (an accepted advertising practice) – it is deceptive. By adhering to all relevant laws, graders and sellers protect themselves from liability, and foster a level playing field for everyone in the industry. This maintains confidence in Jeweler’s products.
Please contact JVC with questions regarding diamond grading, or visit their website, at www.jvclegal.org, for more information about legal compliance.