Selling Treated and Synthetic Gems: What's Unfair and Deceptive?
State laws give consumers the right to sue retailers for a range of
selling practices. Learn your legal obligations. And don't believe simply
conforming to FTC guidelines protects you. It doesn't.
By William H. Donahue Jr.
Today it's gemstone treatments and synthetics; tomorrow it will be something
else. Regardless of the issue, jewelers need to understand the legal concepts
Jewelers deal every day in a product that is particularly hard for consumers
to buy. Unlike many retailers who sell products with standard, regulated
features, jewelry store products such as gemstones are often unique, non-standard,
ever-changing substances. Consumers would need gemology degrees to keep
up with the various treatments, synthetics, mine discoveries and other factors
that affect their purchases. As a result, they rely to a high degree on
the jeweler's expertise. That's good for well- educated jewelers, but a
legal minefield for anyone else.
Let's look at some typical statements made every day in jewelry stores.
Jeweler to customer: "This gemstone is not
treated."Is he sure?
Jeweler to customer: "This ruby is deep red
and exceptionally beautiful."Is that all? Is it treated
in some way?
Now let's look at a statement that, unfortunately, could become more common
Consumer to judge:"I wouldn't have bought
this gem if I'd known it was treated."
Back up the first two statements with gemological knowledge and an understanding
of your legal obliga-tions. If you do this scrupulously, you may never come
close enough to a courtroom to hear the third. What follows is a closer
look at these three statements and your obligations under most state consumer
Giving False Information
"This gemstone is not treated."
Under all state statutes, knowingly giving false information that is
relevant to the consumer's decision to buy is illegal. That's probably the
easiest problem to avoid. You don't say a gem is untreated when it is. You
don't call a synthetic a natural gem.
Be careful, however. In most states, it doesn't matter whether you're
unaware the information is false. Under most laws, the consumers don't have
to prove you intended to defraud them. For example, New Jersey law clearly
holds merchants liable for giving incorrect information even when they have
acted in good faith.
For this reason, it's critical that you and all members of your sales
staff know what you're selling. A training course for employees and choosing
more reliable suppliers can be a lot less expensive in the long run than
consumer fraud litigation. If it's reported in the news media, that can
be more ruinous than a lawsuit. The best way to prevent consumer fraud problems
is to be honest and knowledgeable.
"This ruby is deep red and exceptionally
The knowing omission of material facts, commonly known as "failure
to disclose" is a violation of the law. The two critical terms here
are "knowing"and "material." Unlike with affirmative
representations (see "Giving False Information" above), where
you are liable even if you don't know the information you're giving is wrong,
most states don't hold merchants liable for failing to reveal information
they don't know. This will likely not work as a defense, however, if a customer
can establish you should have had the information or easily could have had
it. And it certainly won't work as a defense if it's information you have,
but fail to disseminate to your sales staff.
Once again, your best defense is a careful study of gem treatments and
synthetics and rigorous on-going training on these topics for every member
of your staff who talks with the public is your best defense.
"I wouldn't have bought this gem if I'd
known it was treated."
Even if you have knowingly failed to disclose a fact about your product,
that fact has to be material to the decision to buy. As with so much else
in the law, the definition of materiality varies from state to state, but
a good rule of thumb is that if the information withheld could reasonably
influence the consumer's decision to buy, it is material.
In many cases, simply the statement "I wouldn't have bought it if
I had known" will be enough to get a consumer a hearing in front of
a judge or jury. This is where many jewelers get into trouble. A jeweler
may view a permanent gemstone treatment such as lasering as immaterial and,
thus, not disclose it. In this example, the FTC Guides for the Jewelry Industry
back him up, saying that because lasering is permanent, it need not be disclosed.
But the FTC Guides aren't always the place to look for guidance where
state consumer protection laws are concerned, or even as guidance for handling
customers outside of court. A jeweler in Philadelphia learned this when
his angry customer went to a TV consumer reporter and vented his rage at
not knowing his diamond had been lasered (not filled, just lasered). In
some cases, the court of public opinion can be as threatening as a court
The FTC Guides say it's unfair and deceptive to fail to disclose any
treatment that isn't permanent or that creates special care requirements,
assuming consumers wouldn't care. But a consumer who says his fascination
with gems rests on the fact they are wonders of nature not wonders
of technology could sway a court to his way of thinking regardless
of the FTC Guides.
The FTC Guides
Despite these facts, the FTC Guides for the Jewelry Industry should still
be reviewed and understood by everyone selling jewelry to the public (Jewelers
of America distributes an excellent layman's guide to the FTC Guides. Call
JA at 800-223-0673).
So far we've discussed examples of jewelers who are sued even when they
comply with FTC Guides. There's also the matter of how the FTC Guides are
used in court when jewelers violate them.
If you are sued under such circumstances, the guides are admissible in
court to establish you violated state law (even though they are federal
guides only). State attorneys general can use them in actions brought to
stop illegal trade practices. In many states, a violation of these guides
is an automatic violation of the state law.
The Bottom Line
Learn the FTC Guides, but be even more vigilant than they are concerning
controversial industry treatments such as lasering. Inform consumers about
them positively. Lasering may be common trade practice and acceptable to
the FTC, but to the consumer who feels betrayed, it doesn't matter. Especially
Consumer Protection: The Law of the
Every state in the country has some version of a law that prohibits what
is known as UDAP, or unfair and deceptive acts and practices.
These laws are modeled after federal consumer laws enforced by the FTC,
but they are different from the federal law in at least one way that is
important for retailers.
While federal and state consumer laws allow the government to go to court
and seek an injunction to stop illegal trade practices (plus assess damages
and fines), the state laws also give consumers a private right of action.
In other words, they give your customers a right to sue you for a wide range
of selling practices.
What's worse, if the consumer wins in court, he or she may be able to
collect far more than the purchase price of the item in question. Many state
consumer laws allow triple damages, punitive damages and attorney's fees.
How do these laws work?
First and foremost, you have to remember why they were enacted. These statutes
came into being to stop
sales practices the FTC and state legislatures saw as unfair to consumers.
The wording of these laws varies from state to state, but their intent is
fairly consistent. They use terms such as "unfair, fraudulent, deceptive,
misleading, abusive and unconscionable" to define the kinds of practices
that are prohibited. They are referred to by names such as "consumer
sales acts, consumer fraud acts, unfair trade practices acts and consumer
protection acts." New Jersey's statute, for example, is called "The
Consumer Fraud Act" and its language is very broad:
"The act, use or employment of an unconscionable commercial practice,
deception, fraud, false pretense, false promise, misrepresentation, or the
knowing concealment, suppression, or omission of any material fact with
intent that others rely on such, in connection with the sale or advertisement
of any merchandise ... whether or not any person has in fact been misled,
deceived or damaged thereby, is declared to be an unlawful practice."
New Jersey courts have said about the act: "The Consumer Fraud Act
is to be liberally construed in favor of consumers." Similar laws around
the country have been interpreted in much the same way by a wide variety
William H. Donahue Jr. is an attorney practicing in New Jersey.
Copyright © 1998 by Bond Communications.