FTC Issues Warning to Lab-Grown Diamond Companies

With laboratory grown synthetic diamond production increasing, prices for the material falling, and more sellers getting into the fray, it was predictable that the ‘race to the bottom’ would involve unethical marketing. Already the government has had to step in to protect consumers from deceptive trade practices.

On April 2, 2019 the Federal Trade Commission (FTC) announced it had sent letters to eight different companies warning them of consequences should they continue current practices designed to blur the lines between natural mined diamonds and their synthetic product grown in the laboratory. The FTC declined to identify the offending companies but Reuters is reporting that Diamond Foundry, who bill themselves as “America’s #1 Diamond Producer”, is among them.

The letter indicated that the FTC investigators had found instances in which the eight companies had advertised diamond jewelry “without clearly and conspicuously disclosing that the diamonds are laboratory-created”.

In addition, lab grown diamond producers and sellers have been falsely touting synthetics as the ‘socially responsible’ alternative to mined diamonds. Their published materials demonize the natural diamond industry over isolated abuses while ignoring the benefits to millions of people around the globe who benefit from the natural resource, some of whom have no other means to earn a living or access health care and education for their children. Meanwhile, lab produced diamonds benefit only a small number of highly educated scientists and entrepreneurs.

The FTC also warned the companies against using labels like “eco-friendly” in marketing their product saying that “it is highly unlikely that they can substantiate all reasonable interpretations of these claims”. Laboratory growing facilities have extremely high energy requirements and a large carbon footprint per carat of diamond produced.

The Diamond Producers Association (DPA), which represents mining companies like De Beers, Rio Tinto and Alrosa, welcomed the FTC initiative to compel the companies to properly distinguish between diamonds that are mined and those that are made in laboratories. “The DPA has for several months expressed serious concerns about misleading marketing communication and unsubstantiated eco claims coming from many laboratory grown diamond marketers,” said DPA Chief Executive Jean-Marc Lieberherr.

De Beers, a unit of Anglo American, said it was pleased by the FTC move, stating that the two kinds of diamonds are “distinct product categories.” De Beers has responded to the arrival of lab grown diamonds into the market by rescinding its former policy of only selling natural diamonds and beginning to market their own synthetic diamonds set in jewelry. Debeers subsidiary, Element Six, has long produced synthetic diamonds for research and for the abrasives and tech markets. It now sells the lab-made diamonds in jewelry for much less than rivals to emphasize the difference between what it sees as fun, fashion jewelry and natural diamonds created in the earth and with a high re-sale value.

In a blog post, the FTC gives the following specific advice to lab-grown diamond and diamond simulant companies:

• The Jewelry Guides apply in social media advertising
• Clarify your use of diamond. “According to FTC staff, some ads showed pictures that appear to be diamond jewelry or use the word diamond without disclosing close to the product depiction or name, or in the product description, that it was a lab-created or simulated stone,” said the post. “That’s why advertisers who sell lab-created or simulated products should exercise caution about using #diamonds or domain names that include the word diamond.”
• Don’t assume that consumers will understand your marketing terminology. “Some of the warning letters went to companies that described their lab-created or simulated stones with proprietary phrases that FTC staff thought could be deceptive to consumers without more explanation,” it said.
• Keep your descriptions consistent. In one Instagram ad cited in a warning letter, the company described some of its diamonds as “cultured” and others as “lab grown.”
• Keep disclosures close to the terms they explain. “Some advertisers reveal the true nature of their products behind vague hyperlinks, in an FAQ section, or on an education page,” said the post. “That won’t do. Consumers could easily overlook the information because it’s not close to the product description.”
• Be careful to substantiate environmental claims.

The FTC letters warned the companies that “failure to follow the Guides…may result in enforcement actions if the FTC determines the companies engaged in unfair or deceptive acts or practices. Such actions could result in civil penalties if the company engaged in practices knowing that the Commission has already deemed them deceptive in earlier litigation.” The companies were asked to advise the FTC within 10 days of receipt of the letter of the steps they plan to take to revise their marketing so that it follows the Jewelry Guides.