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Yehuda sues Blue Nile over treatment disclosure

December 02, 2008

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New York--Yehuda Diamond Co. has filed a lawsuit on behalf of consumers who purchased emeralds from Blue Nile, claiming the Seattle-based online jewelry retailer sold treated emeralds without the full disclosure required under Federal Trade Commission (FTC) guidelines.

In the suit, filed last month in the U.S. District Court for the Southern District of New York in Manhattan, Yehuda accuses Blue Nile of "false advertising" under the Lanham Act and "unfair and deceptive business practices" under New York law. It also asks the court to force Blue Nile to offer a full refund to any of its customers who purchased emeralds or emerald jewelry.

According to the complaint, "Blue Nile uses oil filling (including filling by oil, wax, resin or other colorless substances) to enhance the appearance of the emeralds (including those in jewelry) it sells via the Web site at BlueNile.com," a claim the company says is backed up by the fact that the Gemological Institute of America has determined that Blue Nile emeralds contain "[m]oderate clarity enhancement."

Oil filling is a treatment that decreases the value of gemstones, fades over time and requires special care--information that Blue Nile did not disclose to consumers on its Web site, the lawsuit states.

"The only enhancement method disclosed by Blue Nile on its Web site, with respect to gemstones (including emeralds) is heating," the lawsuit states.

This is a violation of FTC guidelines, which call for "all information pertinent to any enhancement process done to a natural gemstone when the treatment is not permanent and its effects are lost over time; or the treatment creates special care requirements for the gemstone to retain the benefit of the treatment," the lawsuit states.

Though Yehuda acknowledges that Blue Nile has now added a section on oil-treated gemstones to its Web site, Yehuda is asking the court to force Blue Nile to offer refunds to consumers who purchased the stones before that information was posted.

In addition, Yehuda, which competes with Blue Nile in the arena of online diamond sales but does not sell emeralds, is claiming that it has lost sales and profits because of Blue Nile's deceptive business practices and false advertising, according to court documents.

In a statement given to National Jeweler on Tuesday, Blue Nile said it offers consumers only high-quality, authentic gemstones, including emeralds.

"Nearly all emeralds sold at fine jewelers, including Blue Nile, are infused with a colorless substance to enhance clarity. Yehuda's claims against Blue Nile are meritless, and their action is in response to Blue Nile's false comparative-advertising case filed against Yehuda last year," the statement said.

Yehuda President Dror Yehuda said even though his company doesn't sell emeralds, he views all pieces of jewelry as competing with each other.

"Blue Nile is competing with me on the online business of jewelry," he said.

Yehuda is demanding a jury trial in the case.

This is not the first time these two online retailing competitors have faced off in court. In a very similar case filed in February 2008, Blue Nile sued Yehuda parent company Diascience Corp. of New York claiming that advertisements on Yehuda's Web site make "false and misleading statements" in comparing its clarity-enhanced diamonds to those natural diamonds sold by Blue Nile.

A search of court documents revealed that that case, filed in U.S. District Court in Seattle, is ongoing.

Dror said a trial in that case had been scheduled for late January, but will likely be postponed until February.
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