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In diamond grading, 'It's subjective' only goes so far
By Suzan R. Flamm, Esq.
January 11, 2009
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| Suzan R. Flamm, Esq., is assistant general counsel of the Jewelers Vigilance Committee (JVCLegal.org), which provides general educational resources and jeweler-specific advice. |
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A series of consumer complaints alerted the Jewelers Vigilance Committee (JVC) to a jeweler who sold customers diamonds with grading reports that were brought into question by subsequent appraisals.
Facts: Several diamond ring consumers complained to the JVC about a brick-and-mortar retailer who also sold diamonds online. They claimed their new rings came with grading reports that overstated the color and/or clarity of their diamonds.
For various reasons, each of the consumers brought their rings to independent appraisers, either within days or months of the purchase.
Each of the highly regarded appraisers deemed the color and/or clarity grades on the stones to be several grades lower than those indicated on the reports from the laboratory, a facility the JVC was unfamiliar with. Based on the retailer-provided lab report, the consumers paid bargain prices for the diamonds, but based on the appraiser's assessment, they paid the market price.
Initial steps: After reviewing the complaints and searching for prior allegations, the JVC contacted a store representative to seek an explanation, noting that there were up to three grades difference between the lab's and the appraiser's reports. The representative defended the sales and reports, asserting (incorrectly) that a three-grade tolerance for mounted stones was accepted in the industry.
Industry practice: A grading report from a reputable laboratory is a source of vital information for retailers, consumers, insurance companies and appraisers, adding value to a stone by inspiring confidence in its qualities.
It is a "blueprint" of a loose diamond that proves its identity and provides the criteria to determine its value. A report records the shape, measurements, fluorescence, proportions, cut and exact weight of the stone, as well as its color and clarity. The type and location of inclusions can also be noted.
Much of diamond grading is subjective. Color grading, for instance, is based on a visual comparison between the subject stone and a set of master diamonds graded by a source such as the Gemological Institute of America. Graders can reach different conclusions on a stone's color, depending on their training, experience and workplace lighting conditions.
Whether or not a stone has been set can also impact the grading conclusion because the color of the metal can affect perceived color and because it is harder for a gemologist to detect inclusions in a mounted stone versus a loose one.
A single-grade difference in color or clarity can result in a significant disparity in price, and the potential price disparity grows with the size of the diamond.
Recognizing the subjective nature of the diamond-grading process, the industry has traditionally allowed a one-grade tolerance for error in both loose and set stones. Larger discrepancies are considered an unacceptable threat to consumer confidence and disruptive to the entire trade.
If a retailer sells a diamond representing that its color grade is "H," than it should be "H." If it is later determined to be of "G" or "I" color, that isn't grounds to disrupt the sale, but if it turns out to be of "J" color, two grades below what was initially stated, then the diamond sale could be voided, and the retailer could face criminal charges or be sued.
Laboratories that are consistently generous with grades, with no basis in reality, are likely trying to curry favor with retailers, or have a financial interest in particular stones. Jewelers using these labs for grading reports are deceiving customers and they are doing a great disservice to the industry.
Inflated appraisals--the law: Grading tolerance has traditionally been a matter of industry self-regulation, but federal and state consumer-protection laws also address inflated grading for the purposes of deceiving consumers.
The Federal Trade Commission can bring civil actions and seek penalties against violators, and state laws similarly prohibit deceptive practices aimed at misleading consumers. In the state of New York, a retailer can face jail if the offense is proved.
Besides harming consumers, inaccurate grading reports place other retailers in the untenable position of either misleading consumers themselves to stay competitive, or giving up market share to those who do. The Federal Lanham Act provides a remedy, allowing competitors to sue those that misrepresent the quality of goods they sell and to seek reimbursement for damages suffered as a result.
In this case, the pattern of complaints indicated that the grading reports were intentionally inflated to drive sales. This practice violates federal and state law, and exposes the retailer to enforcement action and to lawsuits filed by competitors and customers.
Next steps: After the JVC presented the information to the retailer in question, the jeweler agreed to stop the practice of using inaccurate grading reports to drive online and in-store sales.
Conclusion: To comply with laws relating to marketing and grading, jewelers should maintain up-to-date information on all applicable regulations and make sure that employees are trained on relevant law.
Editor's note: Suzann Flamm's "Industry Insight" column first appeared in the August 2008 print edition of National Jeweler in the Your Store section. In an occasional series of articles, the JVC offers advice on how industry members can avoid litigation as part of an effort to benefit both the parties to a dispute and the industry. The advice is strictly the opinion of the JVC.
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