97-15820. Request for Comments Concerning Guides for the Watch Industry

[Federal Register Volume 62, Number 117 (Wednesday, June 18, 1997)]
[Proposed Rules]
[Pages 33316-33334]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15820]

[[Page 33315]]

_______________________________________________________________________

Part IV

Federal Trade Commission

_______________________________________________________________________

16 CFR Part 245

Request for Comments Concerning Guides for the Watch Industry; Proposed
Rule

Federal Register / Vol. 62, No. 117 / Wednesday, June 18, 1997 /
Proposed Rules

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FEDERAL TRADE COMMISSION

16 CFR Part 245

Request for Comments Concerning Guides for the Watch Industry

AGENCY: Federal Trade Commission.

ACTION: Request for public comments.

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SUMMARY: The Federal Trade Commission (the ``Commission'') is
requesting public comments on proposed revisions to the Guides for the
Watch Industry (``the Watch Guides'' or ``the Guides''). The Commission
also is soliciting comment about whether there is a continuing need for
the Watch Guides. All interested persons are hereby given notice of the
opportunity to submit written data, views and arguments concerning this
proposal. This information will assist the Commission in determining
whether the Guides should be revised and retained, or whether the
Guides should be rescinded.

DATES: Written comments will be accepted until September 2, 1997.
ADDRESSES: Comments should be directed to: Secretary, Federal Trade
Commission, Room H-159, Sixth and Pennsylvania Ave., N.W., Washington,
D.C. 20580. Comments about these proposed changes to the Watch Guides
should be identified as ``Watch Guides--16 CFR Part 245--Comment.''

FOR FURTHER INFORMATION CONTACT: Constance M. Vecellio or Laura J.
DeMartino, Attorneys, Federal Trade Commission, Washington, D.C. 20580,
(202) 326-2966 or (202) 326-3030.

SUPPLEMENTARY INFORMATION:

I. Introduction

The Guides for the Watch Industry, 16 CFR Part 245, address claims
made about watches, watchcases, watch accessories and watch bands that
are permanently attached to watchcases. The Commission published a
Federal Register Notice (``FRN'') soliciting public comment on
amendments to the Watch Guides, in response to a petition from the
Jewelers Vigilance Committee, Inc. (``JVC'').\1\
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\1\ 57 FR 24996 (June 12, 1992). The FRN also solicited comment
on the JVC petition's proposed changes to the Guides for the Jewelry
Industry (``Jewelry Guides''), 16 CFR Part 23, and the Guides for
the Metallic Watch Band Industry (``Watch Band Guides''), 16 CFR
Part 19. The Commission described the changes to the Jewelry Guides
and the Watch Band Guides in a previously published FRN, 61 FR
27178-27228 (May 30, 1996).
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While there was extensive comment in response to the FRN (263
comments were received), most comments focused on the Jewelry Guides
rather than on the Watch Guides.² Approximately ten comments
focused primarily on the Watch Guides.³ The Commission has
tentatively decided to make numerous changes that were not suggested in
the JVC petition or mentioned in the FRN. Therefore, the Commission
solicits further comment on the Watch Guides and the proposed changes.
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\2\ In the remainder of this notice, the comments are cited to
by an abbreviation of the commenter's name and the document number
assigned to the comment on the public record. A list of the
commenters, including the abbreviations and document numbers used to
identify each commenter is attached as an Appendix.
\3\ Benrus (22); Newhouse (76); AWI (116); USWC (118); JCWA
(216); Citizen (228); Swiss Federation (232); AWA (236); Timex
(239); and NAW (251). Other comments are also discussed below to the
extent they address specific aspects of the Watch Guides or related
issues.
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The Commission also is soliciting comment about whether there is a
continuing need for the Watch Guides. In particular, the Commission is
requesting comment about the overall costs and benefits of the Guides.
The Commission also is interested in determining whether international
standards provide sufficient guidance to the watch industry. Further,
the Commission is requesting comment regarding whether industry self-
regulation and ``market mechanisms,'' such as manufacturer reputation
or manufacturer warranties, are sufficient to protect consumers from
misrepresentations about watches. This information will assist the
Commission in determining whether the Guides should be revised and
retained, or whether the Guides should be rescinded.

II. Analysis of Comments

A. Revisions to the Legal Language of the Guides

The legal language in the Guides has been revised to conform to the
Commission's view on deception and unfairness, as expressed in its
Policy Statements on Deception and Unfairness.⁴
Specifically, instead of stating ``industry members should not
misrepresent directly or indirectly * * *,'' the Guides have been
revised to state ``it is unfair or deceptive to * * *.''⁵
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\4\ Statement on Deception, appendix to Cliffdale Assoc., Inc.,
103 F.T.C. 110, 1734-84 (1984) and Statement on Unfairness, appendix
to International Harvester Co., 104 F.T.C. 949, 1072 (1984).
\5\ The FRN stated that, if the Commission determined to retain
the Guides, the legal discussion would be updated to reflect the
Commission's current practice. 57 FR 24999 and n.4.
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B. Proposal to Consolidate the Jewelry, Watch Band, and Watch Guides
and to Delete Permanently Attached Watchbands From the Provisions of
the Watch Guides

At the time of the JVC petition, detachable metallic watch bands
were the subject of the Watch Band Guides and metallic watch bands that
were permanently attached to the watch were included in the Watch
Guides. The JVC proposed combining the Watch and Watch Band Guides with
the Jewelry Guides and the FRN solicited comment on this proposal.
Thirty comments addressed this issue, and 22 believed the Guides should
be consolidated.⁶ Most of those who gave reasons for
favoring consolidation mentioned the Watch Band Guides rather than the
Watch Guides. In a notice published on May 30, 1996, the Commission
stated that it was rescinding the Watch Band Guides and consolidating
certain of their provisions with the Guides for the Jewelry Industry
(renamed Guides for the Jewelry, Precious metals and Pewter
Industries). 61 FR 27222 (May 30, 1996).
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\6\ JMC (1); Fasnacht (4); Gold Institute (13); Benrus (22);
Estate (23); G&B (30); Jabel (47); Skalet (61); Lannyte (65);
Newhouse (76); Nowlin (109); McGee (112); ArtCarved (155); Bales
(156); Bedford (210); Bridge (163); IJA (192); Canada (209); Matthey
(213); Bedford (210); MJSA (226); and Leach (257).
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The Commission also announced that it had determined not to combine
the Guides for the Watch Industry with either of the other two guides.
61 FR 27181 (May 30, 1996). Six of the eight comments opposing
consolidating all three Guides were from watch manufacturers or trade
associations.⁷ (Only Benrus favored consolidation.) The
reasons given for opposition were primarily related to the
consolidation of the Watch Guides, not the Watch Band Guides. AWA
stated that the current Guides reflect the fact that watches and
jewelry are very different products ``by imposing substantially
different definitions and standards for watches and jewelry.''
⁸ For example, the minimum thickness in the Watch Guides for
gold electroplated watches is about 100 times thicker than the

[[Page 33317]]

minimum thickness for gold electroplated jewelry that was contained in
the Jewelry Guides or for detachable watch bands in the Watch Band
Guides.⁹ The differences in the provisions were based on the
assumption that watches are worn more often than other plated jewelry
and should, therefore, have thicker minimum plate standards.
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\7\ USWC (118); JCWA (216); NACSM (219); Best (225); Citizen
(228); Swiss Federation (232); AWA (236); and Timex (239). Although
AWI (116) p.1, did not specifically address this issue, it proposed
certain changes in the Watch Guides and then noted that the
remainder of the Watch Guides should be retained ``as they now
exist.''
\8\ Comment 236, p.1. See also Swiss Federation (232) pp. 1, 38
(stating that the industries are separate, with separate trade
associations, and that consolidating the Guides would make dealer
and consumer use of the Guides difficult); Citizen (228) p.5
(watches and jewelry are dissimilar and should not be combined);
JCWA (216) p. 4 (favoring separate Guides because the application of
materials and quality demands differ for watches and jewelry).
\9\ Standards for plated watch bands that are permanently
attached to watches are the same as for watches.
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Moreover, the Commission notes that watches are essentially
machines that perform a function; many sections of the Watch Guides
address the proper functioning of watches or protective features of
watches. Those sections are irrelevant to jewelry or detachable watch
bands. The Commission has thus determined to retain the Watch Guides as
separate Guides.

C. Definitions: Section 245.1

The Watch Guides set forth definitions in section 245.1. The JVC
proposed a change in the definition of ``watchcase'' or ``case'' that
would result in deleting permanently attached watchbands from the items
covered by the Watch Guides. Section 245.1(b) defines ``watchcase'' or
``case'' as ``any metal case, covering, or housing * * * for a watch *
* * including a watch band which has been permanently affixed thereto *
* *.'' The JVC proposed including all watch bands, whether permanently
attached or detachable, in the same category of its proposed
guides.¹⁰
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\10\ See JVC Petition, Sec. 23.25(c) ``Note.''
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However, the Commission has tentatively determined not to delete
permanently attached watch bands from the items covered by the Watch
Guides. The two watch industry commenters that specifically addressed
this issue supported retaining permanently attached watchbands under
the Watch Guides.¹¹ The Commission agrees that whatever
guidelines apply to watches plated with precious metals should also
apply to permanently attached watchbands.¹²
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\11\ Swiss Federation (232) pp.27, 38-39 (stating that a watch,
case, and permanently attached band are sold as one unit whereas
detachable bands primarily are sold separately in an aftermarket);
Timex (239) p.8 (stating that compliance may be more burdensome if a
permanently attached band is treated as a detachable band and
therefore must bear separate country of origin and metallic content
markings, regardless of whether it differed from the markings on the
case).
\12\ Detachable bands are in essence bracelets that can be
replaced if the precious metal plating wears thin.
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The JVC also proposed adding ``watch chains'' to the examples of
accessories defined in section 245.1(c).¹³ No comments
addressed this proposal. Section 245.1(c) defines ``accessories'' as
``products, other than watch bands, which are affixed to and sold in
combination with watchcases or watches, such as, for example,
bracelets, pins, pendants, brooches, or ornaments.'' Currently, as
noted, detachable watch bands are excluded from the Watch Guides;
logically, all detachable accessories should be excluded. Accessories
are not covered by 245.3, which governs misrepresentation of metallic
composition; that section covers only ``watchcases,'' which are defined
as including permanently affixed watch bands. The only provision of the
Watch Guides that specifically mentions accessories is 245.7,
``Misrepresentation of Accessories,'' which prohibits misrepresentation
of various types and refers the reader to the Jewelry Guides for
details. The Commission proposes to delete the definition of
``accessories'' from the Guides and expand the definition of
``watchcase'' or ``case'' to include any permanently attached
accessory, so that only permanently attached accessories are included
in the Watch Guides. Therefore, such accessories would be covered by
section 245.3 (i.e., Misrepresentation of Metallic
Composition).¹⁴
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\13\ JVC Petition, Sec. 23.25, Section I (b).
\14\ The Watch Guides also cover accessories as ``industry
products,'' defined in Sec. 245.1(g), and addressed in other
sections of the Guides. However, these sections are either
inapplicable to accessories or are very general in nature.
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The JVC also proposed adding the explanation ``at all levels of
consumption'' to the end of the definition of ``industry member'' as
``a person, firm, corporation, or organization engaged in the
importation, manufacture, sale or distribution of any industry
product,'' in section 245.1(h) of the current Guides. The current
definition states that it applies to entities engaged in the
``importation, manufacture, sale, or distribution of any industry
product.'' (Emphasis added). Thus, a distributor who sells watches to a
retailer is covered by the admonitions of the Guides.
However, one comment stated that the Guides need to clarify that
purchasers at all levels of the industry are protected by the Guides,
since it is commonly assumed by courts that merchants are experts who
should know better than to rely on suppliers' representations as being
accurate.¹⁵ The Commission agrees that it would be useful to
clarify that retailers, as well as consumers, are meant to be protected
from deceptive practices addressed by the Guides. Thus, the Commission
proposes adding a new section to the Guides, ``245.0 Scope,
application, and purpose,'' which states that the Guides ``apply to
persons, partnerships or corporations, at every level of the trade
(including but not limited to manufacturers, suppliers, and retailers)
engaged in the business of offering for sale, selling, distributing or
importing industry products.'' This section also provides that the
Watch Guides cover representations asserted by any means, including
computerized images.
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\15\ ISA (237) p.12.
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Some of the commenters proposed other changes to section 245.1. The
Swiss Federation proposed adding certain definitions (for ``movement,''
``mechanical movement,'' and ``quartz movement'') because ``today's
development of more complex watches and watch components require more
precise identification of these terms.'' ¹⁶ The JVC also
proposed that the Watch Guides prohibit deceptive use of the term
``quartz watch,'' and included a proposed definition of quartz
watch.¹⁷
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\16\ Comment 232, p.28.
\17\ See JVC Petition Sec. 23.29 and discussion of section
245.6, ``Deception as to Movements,'' infra.
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Although quartz watches are not addressed by the current Guides,
they constitute the bulk of watches sold today. The Commission proposes
adding a definition of quartz watches, and addressing, in section
245.6, misrepresentations specifically related to quartz watches, as
the JVC suggested. The Commission also proposes including in section
245.1 the following simplified version of the technical definitions of
movement proposed by the Swiss Federation:
The term ``movement'' means that part of a watch which produces and
maintains a recurring phenomenon and is capable of counting time. The
movement is connected to a means of displaying time by either a dial
and hands (analog) or a digital display, and is mounted in a case.
(1) ``Mechanical movement'' means a movement which divides time
into equal parts using a balance wheel or any other mechanical means of
determining intervals of time that uses power generated by a mainspring
which may be wound by hand or automatically.
(2) ``Quartz movement'' means a movement which divides time into
equal parts using a synthetic quartz crystal that vibrates using power
generated by electrical energy.
The Swiss Federation also proposed adding a definition of
chronometer contained in Standard 3159 (Timekeeping instruments--Wrist-

[[Page 33318]]

chronometers with spring balance oscillator) established by the
International Organization for Standardization (ISO). This definition
states that a watch is not a ``chronometer'' unless ``certified by a
neutral, official authority, which checks the watch, or if necessary
the movement, and issues an official certificate of compliance.''
¹⁸
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\18\ Comment 232, p.29 and exhibit 10 thereto. ISO is, according
to the ``foreword'' sections in several ISO standards attached to
the Swiss Federation's comment (232), ``a worldwide federation of
national standards bodies. The work of preparing International
Standards is normally carried out through ISO technical
committees.''
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The Swiss Federation contended that the Trade Agreements Act of
1979 supports adopting ISO standards. The Act states that ``No Federal
agency may engage in any standards-related activity that creates
unnecessary obstacles to the foreign commerce of the United States * *
*.'' and that federal agencies must, in developing standards, ``take
into consideration international standards and shall, if appropriate,
base the standards on international standards.'' 19 U.S.C. 2532 (1980).
The Commission agrees that, in developing standards within the meaning
of the Trade Agreements Act, it should consider whether international
standards exist and are appropriate for use in the United
States.¹⁹
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\19\ Certain provisions of the Watch Guides qualify as standards
under the Trade Agreements Act, which defines a standard as ``a
document approved by a recognized body that provides, for common and
repeated use, rules, guidelines, or characteristics for products or
related processes and production methods, with which compliance is
not mandatory.'' 19 U.S.C. 2571(13) (Supp. 1995).
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Although the Guides do not define chronometer, section 245.4
cautions industry members not to falsely designate or describe a watch
as a chronometer. However, the definition in the ISO standard would
require industry members to test and obtain a certificate before
describing a watch that keeps time with precision as a chronometer. No
evidence has been brought to the Commission's attention indicating that
consumers believe use of the word ``chronometer'' alone, without any
reference to testing and certification, means that the device has been
tested and certified.²⁰ In the absence of such evidence, the
Commission does not intend to adopt the definition of chronometer
contained in ISO Standard 3159.
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\20\ The dictionary definition of ``chronometer'' is ``an
exceptionally precise clock, watch, or other timepiece.''
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However, the Commission is aware that companies marketing
chronometers in the United States that have been tested and certified
in accordance with the ISO standard may want assurance that the level
of precision required to meet the ISO standard is also sufficient
within the meaning section 245.4 of the Guides. Therefore, the
Commission proposes to include a Note to section 245.4 stating that
conformity to the ISO definition constitutes a ``safe harbor'' for a
claim that a watch is a chronometer. The Commission seeks comment on
this modification.
Timex proposed limiting the definition of ``watch'' to a device
``with the primary function of timekeeping for measuring or indicating
time which is worn on or about the person.'' ²¹ It noted
that wrist instruments may serve a variety of purposes other than
timekeeping, such as wrist paging devices that also keep time, and
concluded that such technical advances make it ``appropriate'' to limit
the definition of ``watch.'' ²² However, it is not evident
why the Watch Guides would be less needed with respect to devices that
perform a watch's function (i.e., timekeeping), but in a secondary
role. Thus, the Commission has determined not to adopt Timex's
proposal.
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\21\ Comment 239, p.8.
\22\ Id.
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Finally, the Commission is deleting the definitions of ``plate'' or
``plated'' and of ``electroplate'' or ``electroplated'' from section
245.1. These terms are used in section 245.3, which deals with
misrepresentation of metallic composition, and their meaning is clear
in the context of that section.

D. Misrepresentation of Metallic Composition of Watchcases: Section
245.3

The Commission believes that section 245.3 is more regulatory in
tone than appropriate for guides, and thus has redrafted it to describe
unfair or deceptive acts and to establish ``safe harbors'' (i.e.,
examples of ways of avoiding misrepresentations). In the proposed
Guides, section 245.3(b) identifies specific practices that may be
misleading and section 245.3(c) lists markings and descriptions that
are consistent with the principles described in the section. The latter
provisions are ``safe harbors.'' As discussed in more detail below, the
Commission proposes deleting several subsections. Also discussed below
are some additional issues raised by the JVC's petition and the
comments.
1. Requirement That Metallic Composition be Marked
The preamble to section 245.3 advises industry members not to
misrepresent the metallic composition of a watchcase in advertising,
labeling, brand or trade name, or otherwise. However, it provides that
for ``cases having an exposed surface or surfaces which are or have the
appearance of being metal, the metallic composition of the cases should
be clearly and conspicuously disclosed in accordance with the methods
and terminology set forth below.'' The requirement that metallic
composition be marked is also contained in subsections (c)-(j), each of
which states that watches of a certain metallic composition ``should be
marked'' in a certain way.
The requirement that metallic composition be disclosed is most
important for watches made of base metals, since the sellers of such
watches might otherwise choose to say nothing about their metallic
composition. However, it seems likely that a reasonable consumer would
assume that a seller would want to tout the precious metal content of a
watch, and therefore the consumer would assume that an unmarked watch
was made of base metal. Subsection (j) requires that watchcases or
parts that do not meet the minimum requirements for marking as precious
metals be marked as ``Base Metal'' or with the specific base metal(s)
of which they are composed, such as ``Chromium Plated Steel.'' Timex
proposed exempting from this requirement watches that sell at retail
for less than $100 and make no claim of precious metal content. Timex
pointed out that few, if any, watches selling below $100 contain cases
or parts that qualify as precious metal under the Guides, and, for such
watches, the base metal ``markings are of no meaning or value to the
consumer and only an administrative and financial burden to
manufacturers of low priced watches.'' ²³
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\23\ Comment 239, p. 5.
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The Commission believes that it is unlikely to be unfair or
deceptive to fail to mark a watch as to metallic composition and
proposes deleting the requirement. However, some comments generally
supported the marking requirements, pointing out that the disclosure
lessens the chance that consumers will be misinformed. Apparently, the
general theory is that the existence of the indelible ``Base Metal''
marking can deter misrepresentations of precious metal content by
making them less likely to succeed; an absence of marking reinforces
the incentives of unscrupulous watch sellers to make
misrepresentations. The Commission is aware that the Watch Guides have

[[Page 33319]]

provided for base metal disclosures for decades and the watch industry
has followed this practice for many years. Therefore, the Commission
solicits comment on whether or not the requirement should be deleted.
2. Gold and Gold Alloy Coatings: Subsections (b)-(g) ²⁴
Subsection (b) of section 245.3 restricts the use of ``gold'' to 24
karat gold, and (c) states that ``gold,'' when applied to alloys of
gold, should be immediately preceded with a correct designation of the
karat fineness. There were no comments on these subsections, and the
Commission only proposes changing the language to a description of
unfair and deceptive acts, in proposed sections 245.3(b)(1) and (b)(2),
coupled (in the case of alloys) with a ``safe harbor,'' in proposed
section 245.3(c)(1).
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\24\ Subsection (a) exempts certain parts (e.g., springs) from
any determination of metallic composition. There was no comment on
this subsection and the Commission proposes no change other than
redesignating it as subsection (e).
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Subsection (d) sets a standard for use of ``gold filled,'' (three
one-thousandths of an inch of mechanically-plated gold of not less than
10 karat fineness, or approximately 75 microns) and subsection (e) sets
a standard for use of ``gold plate'' or ``rolled gold plate'' (one and
one-half thousandths of an inch of mechanically-plated gold of not less
than 10 karat fineness, or approximately 37.5 microns.) An expansion of
the meaning of ``gold plate'' was suggested, and is discussed at
subsection b. infra. No comments objected to the current requirements
for the use of the terms ``gold filled'' or ``rolled gold plate,'' and
the Commission proposes maintaining these requirements as ``safe
harbors'' for the use of these terms. However, ISO Standard 3160-1
(Watch cases and accessories--Gold alloy coverings--Part 1: General
requirements) allows the use of ``rolled gold'' for products with 5
microns of 10 karat gold, although the ISO Standard does not allow the
karat fineness to be marked.²⁵ Accordingly, the Commission
solicits comment on whether the ``safe harbor'' for ``rolled gold''
should be changed to conform with the ISO standard (i.e., from 37.5
microns to 5 microns).
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\25\ ISO Standard 3160-1 is attached as Annex 7 to the comment
of Japan Watch (216).
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a. Thickness of Gold Electroplate
Section 245.3(f) advises industry members to mark as ``gold
electroplate'' or ``gold electroplated'' watchcases which have been
electroplated with gold or a gold alloy of not less than 10 karat
fineness to a thickness throughout of not less than \3/4\ 1000ths of an
inch (approximately 19 microns), and which can successfully withstand
the adhesion, hardness, and porosity tests set forth in the appendix.
If the gold electroplate is at least 1 and \1/2\ 1000ths of an inch
thick, it may be described as ``Heavy Gold Electroplate.''
²⁶ Section 245.3(f) permits a designation of the karat
fineness of the gold coating to be placed immediately before the terms
``gold electroplate,'' ``gold electroplated,'' or ``heavy gold
electroplate.'' ²⁷ Sellers also may disclose the actual
thickness of the electroplate.²⁸
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\26\ No comments objected to the standard for heavy gold
electroplate.
\27\ ISO Standard 3160-1 prohibits, in section 7.4, any mention
of karat fineness of the gold alloy electrodeposit, although it must
be at least 14 karats. Japan Watch (216) explained, at p. 4, that
the karat mark is not put on the product lest it mislead consumers
into thinking the item is solid gold, rather than merely plated. The
Commission has received no complaints from consumers indicating that
they misinterpreted the mark ``14k Gold Electroplate'' to mean solid
14 karat gold alloy. Nevertheless, the Commission solicits comment
on whether this portion of subsection (f) should be changed to
conform to the ISO standard. The ISO standard also requires, in
section 7.6, a marking of the ``nominal value'' of the thickness in
microns. The concept of ``nominal value'' appears to treat a thinner
layer of higher karat gold as equivalent to a thicker layer of lower
karat gold (e.g., 1 micron of 24 K is equivalent to 2 microns of 12
K).
\28\ Current section 245.3(d), (e), and (f) and paragraph 1 of
the appendix currently allow a twenty percent tolerance in measuring
the thickness of gold plating. With respect to ``gold plate'' (which
includes gold electroplate) and ``rolled gold,'' the ISO standard
allows, in section 6.1, for a 20% tolerance. However, paragraph 1 of
the appendix, unlike the ISO standard, requires that the total
quantity of precious metal plating be ``sufficient to equal the
quantity necessary to provide the specified minimum thickness on all
points on such watchcase including the thinnest point.'' The
Commission solicits comment on whether this qualification of the
tolerance is necessary.
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The JVC proposed no changes in the current thickness required for
gold electroplate. Several watch industry commenters, however, urged
that the current standard be lowered. The Swiss Federation proposed
lowering the minimum standard to conform to current Swiss law (8
microns) or the ISO standard (5 microns).²⁹ Similarly, Japan
Watch commented that the standard should conform to ISO Standard 3160-
1, which requires a thickness of at least 5 microns of 14 karat gold
for an item marked as gold plate.³⁰ This standard also
requires disclosure of the nominal thickness of gold coating in
micrometers (microns).³¹ Both Japan Watch and the Swiss
Federation argued that the lack of consistency with international
standards limits access of U.S. consumers to products sold overseas,
and adds to the costs of watches designed for the U.S.
market.³²
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\29\ Comment 232, pp.26-27.
\30\ Comment 216, p.4 and Annex 7.
\31\ Note that the electroplate thickness standards differ both
in terms of the micron thickness and the karat fineness of the gold
used. The ISO standard of 5 microns of 14 karat gold would be
equivalent to 7 microns of 10 karat gold. The U.S. Watch Council's
proposal of 1 micron of 23 karat gold, discussed infra, would be
equivalent to 1.64 microns of 14 karat gold or 2.3 microns of 10
karat gold.
\32\ Comment 216, p.1; Comment 232, p.24.
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Other comments indicated that the current Guide's thickness
standard is obsolete, because technology now permits a thinner yet
durable layer of gold to be deposited electrolytically.³³
Benrus suggested a one micron standard for gold electroplate, based on
use of that ``standard'' by a large segment of the watch industry and
the fact that one micron or more of plating ``has substantial
durability and reliability and gives years of satisfactory service.''
³⁴ The U.S. Watch Council also asserted that the industry
follows a basic standard of 1 micron of thickness (40 millionths of an
inch of 23 karat gold) for gold electroplating.³⁵ North
American Watch stated that ``it is routine to apply a gold
electrodeposit of more than 10 karat fineness with a thickness of, for
example, 2 microns.'' ³⁶
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\33\ Benrus (22) p.2.
\34\ Id. at 1-2. But see Newhouse (76) pp.2-3 (stating that
electroplate surfaces are less durable than mechanically plated gold
and recommending a minimum thickness of 20 microns).
\35\ Comment 118, p.1.
\36\ Comment 251, p.3. It opposed any minimum standard for the
thickness of gold electroplate on watches, except when an
affirmative representation of thickness, such as ``heavy gold
electroplate,'' is made, but stated that the existing standard of
1500 millionths of an inch for ``heavy gold electroplate'' is
acceptable. Id. at 5.
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The Commission believes that it is useful for the Guides to
establish a ``safe harbor'' for the use of the term ``gold
electroplate,'' but that the current 19 micron standard is far above
what is necessary to prevent unfair and deceptive acts. It may also
unnecessarily limit competition among gold electroplated watchcases and
between gold electroplated watchcases and watchcases made of gold-
colored base metal. Lowering the minimum thickness would allow industry
members who wish to comply with the Guides to describe their products
accurately, by identifying as ``gold electroplate'' watches that have a
coating of gold alloy less than 19 microns thick. Currently, the Guides
provide that such watches may be identified only as base metal. The
consumer has no way to distinguish them from watches that actually are
made of base metal. The Watch Council argued that the ``consuming
public

[[Page 33320]]

should be able to choose watches with better levels of
electroplating.'' ³⁷
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\37\ Comment 118, p.1.
---------------------------------------------------------------------------

Although lowering the minimum thickness required for gold
electroplate would allow consumers greater choice of products, it also
has the potential to increase incentives and opportunities for industry
members to misrepresent the thickness of the gold electroplate of their
products. The current Guides do not require, but merely allow, a
disclosure of the actual fineness and thickness of the gold
electrodeposit. The Commission recognizes that manufacturers and
sellers of watches with thicker layers of gold electrodeposit are
likely voluntarily to disclose the amount of gold electrodeposit to
advertise a higher value or longer life for their products.
Nonetheless, lowering the minimum thickness requirement from one with
which the industry and consumers have had decades of experience
dramatically broadens the range of products to which the term ``gold
electroplate'' properly may be applied. The amount of gold
electrodeposit necessary to provide lasting and effective service as a
gold electroplated watch could vary considerably according to the
expected life of the watch. Because a much broader range of products
may be sold as gold electroplate if the Commission lowers the minimum
thickness requirement, the Commission believes that manufacturers and
sellers of watches with thinner coatings of gold electrodeposit would
have an incentive not to disclose the actual thickness and actual karat
fineness. The lack of such a disclosure is likely to cause substantial
and unavoidable consumer injury by leading consumers to believe that
all gold electroplate watches lacking such a disclosure are equally
valuable and equally durable.
Furthermore, none of the comments addressed what consumers expect
to receive when they purchase a watchcase marked ``gold electroplate.''
Some consumers may expect they are getting a watchcase with a
relatively thick, durable layer of gold electrodeposit, because the
U.S. standard historically has been high. Established consumer
expectations therefore weigh in favor of disclosing the actual
thickness of gold electroplate, if the minimum thickness for use of the
term gold electroplate is drastically lowered. It is likely that a
significant number of reasonable consumers may assume that watches
marked ``gold electroplate'' satisfy the same relatively thick standard
of 19 microns of at least 10 karat gold that has been used for decades,
unless they know the actual thickness and karat fineness.
In addition, if the thickness and karat fineness of the gold
electrodeposit are marked, consumers will be better able to comparison
shop between watches with differing quantities of gold electrodeposit.
Consumers who value more highly a thicker or finer layer of gold (or
simply more total gold) will have the information that allows them to
select the watch that best serves their particular needs. Consumers who
are willing to accept a watch with a thinner or lower karat layer of
gold in exchange for a lower price will be able to determine whether
they are paying a price commensurate with the actual thickness and
karat fineness of the gold electrodeposit. The Commission notes that
the ISO standard for gold plate also requires disclosure of the actual
minimum ``nominal thickness,'' a comparable concept.³⁸ The
Commission proposes that the revised Guides include a ``safe harbor''
for gold electroplate claims that include a statement of actual
thickness and actual fineness, and solicits comment on this change,
including whether ``nominal'' thickness would be preferable.
---------------------------------------------------------------------------

\38\ As noted, the ISO standard specifies that karat fineness
cannot be marked but that ``nominal thickness'' must be marked. For
``gold plate'' (which, in the ISO standard includes electroplate),
there must be a 14 karat minimum. Thus, the marking indicating
``nominal thickness'' would be the same for a product that
contained, e.g., 5 microns of 14 karat gold, as for a product that
contained 3.5 microns of 20 karat gold.
---------------------------------------------------------------------------

With regard to the inclusion of a minimum thickness in the ``safe
harbor,'' the Commission finds persuasive the comments of NAW, Benrus,
and the Watch Council indicating that electroplating of as little as 1
or 2 microns of fine gold comports with industry practice and, due to
technological advances in electroplating, is sufficient to render
lasting and effective service for inexpensive watches intended to last
only a couple of years. The ISO standard advocated by the Swiss
Federation and Japan Watch appears overly restrictive in light of such
advances. Nevertheless, the Commission solicits comment on whether the
minimum thickness requirement in the ISO standard (5 microns of 14
karat gold) is preferable to 1 micron of 23 karat gold.
As Japan Watch pointed out, for a product marked ``gold plated,''
the ISO standard requires that the alloy be of at least 14 karat
fineness.³⁹ Section 245.3(f), however, requires a minimum of
10 karat fineness. The Swiss Federation suggested lowering the minimum
fineness requirement to 9 karats to conform with Swiss law and
unspecified ``developments'' in the European Community.⁴⁰
Neither the JVC nor any other commenter advocated changing the existing
minimum fineness requirement. Because there is insufficient information
on the record to warrant departing from the existing minimum fineness
standard, the Commission does not propose changing the 10 karat minimum
fineness for gold electroplate.⁴¹
---------------------------------------------------------------------------

\39\ JCWA (216) p.4.
\40\ Comment 232, p.26.
\41\ The 10 karat minimum standard has been used at least since
1933 when it first appeared in Commercial Standard CS 67-38,
promulgated by the then Bureau of Standards of the U.S. Department
of Commerce. It was incorporated into the Trade Practice Rules for
the Jewelry Industry, 16 CFR Part 23, in 1957. In 1977, the
Commission proposed permitting sellers to market gold of less than
10 karat and silver of less than 92.5% if the quality was accurately
disclosed. This proposal was published for public comment. Over 1200
comments were received, many from consumers, and over 98% of the
comments opposed lowering the standard. The Commission found, based
on articles and test reports, that articles of less than 10 karat
fineness tend to tarnish and corrode. The Commission ultimately
retained the 10 karat minimum fineness for gold and the 92.5%
standard for silver. 42 FR 29,916, 29,917 (1977).
---------------------------------------------------------------------------

Finally, the Commission proposes deleting the current requirements
that the electroplated product pass the adhesion, hardness, and
porosity tests described in the Appendix to the Watch Guides. None of
the commenters suggested retaining these tests, and the Commission has
concluded that these tests reflected industry practice in the 1960's,
before current methods of gold electroplating existed and do not
reflect current industry practice. In addition, the ISO standard for
gold plate does not rely on any tests other than tests to confirm the
minimum thickness and fineness.
b. Gold Plate
The Watch Guides recognize only electrolytic and mechanical means
of applying gold plate. Further, section 245.3(e) limits use of the
term ``gold plate'' to watchcases to which a layer of gold has been
mechanically applied to a thickness of at least one and one half one
thousandths of an inch (37.5 microns). Such watchcases alternatively
may be identified as ``rolled gold plate'' under the current section
245.3(e).
Citizen urged that use of the general term ``gold plate'' not be
restricted to any particular method of applying gold covering, but
rather be used to inform consumers that the article so designated has a
surface covering of gold. ⁴² The

[[Page 33321]]

Commission agrees that the term gold plate should apply to both
mechanically and electrolytically plated watches. As the ISO standard
recognizes in its definition of gold plate, a gold plated covering may
be achieved by electrolytic, chemical, or other means. The current
Watch Guides may limit competition and consumer choice by preventing an
industry member from describing its product as ``gold plate'' if it has
a durable layer of gold coating applied by any means other than
mechanical. Accordingly, the Commission proposes removing the term
``gold plate'' from current section 245.3(e) and defining gold plate to
cover any industry product to which a surface coating of gold has been
applied by any method. The Commission seeks comment on this change.
---------------------------------------------------------------------------

\42\ Comment 228, p.3. Citizen described a new method of
applying gold covering, ``ion plating,'' and suggested that the
Guides contain a provision regarding this new technique and the use
of the term ``Gold Ion Plate.'' However, it offered no reason why
there is a need to identify the specific method of plating, and no
evidence that indicates that consumers care about the method by
which gold coating is applied. According to the Commission's
proposed revisions, discussed above, gold ion plated watchcases
could be identified as ``gold plate'' or ``gold plated.''
---------------------------------------------------------------------------

However, consumers are likely to expect a minimum level of
durability from an item labeled ``gold plate.'' Accordingly, the
Commission believes that the Guides should inform the industry of the
conditions under which use of the term ``gold plate'' would not be
deemed unfair or deceptive. The ISO Standard 3160 for gold plated
watches requires a minimum thickness of 5 microns of 14 karat gold for
gold plate regardless of the method by which it is applied. The
Commission believes that the 5 micron ISO standard for gold plated
watchcases provides a supportable safe harbor for application of a
broader, inclusive gold plate designation for watchcases. However, for
gold electroplated watchcases, the record evidence (as discussed above)
supports an even lower, 1 micron of 23 karat gold, or its equivalent,
safe harbor. ⁴³ The Commission would not exclude from the
broad ``gold plate'' category those gold electroplated watches that
fall below the stricter ISO minimum thickness of 5 microns, but satisfy
revised section 245.3's gold electroplate requirements. Accordingly,
the Commission proposes a minimum safe harbor for application of the
term ``gold plate'' if one of two conditions are met: (1) the plating
meets the thickness requirements in revised section 245.3, for gold
electroplate (i.e., a thickness equivalent to 1 micron of 23 karat gold
for gold electroplate), ⁴⁴ or (2) the watchcase has a gold
coating at least 5 microns thick of 14 karat gold or the equivalent
(i.e., it satisfies the ISO standard).
---------------------------------------------------------------------------

\43\ As noted, no comments suggest changing the Watch Guides'
current minimum thickness safe harbors for gold filled watchcases
(three one-thousands of an inch or 75 microns) or rolled gold
watchcases (one and one-half one thousands of an inch or 37.5
microns).
\44\ Thus, a product meeting the gold electroplate thickness
requirement could be marked either ``gold electroplate'' or ``gold
plate.''
---------------------------------------------------------------------------

As proposed, the term ``gold plate'' would cover a broad range of
watchcases with gold coatings that may vary considerably in thickness
and durability. Accordingly, to ensure consumers are not deceived by
the term ``gold plate,'' the Commission also proposes that the actual
minimum thickness and fineness of the gold plating be disclosed in
microns on the watchcase in close proximity to the mark identifying the
watchcase as gold plate. (Because the ISO standard requires the marking
of the ``nominal thickness,'' the Commission seeks comment on whether
the ``nominal thickness'' or the actual karat fineness and thickness
should be so disclosed.)
Finally, the Commission proposes deleting current section 245.3(l),
which states that if the plating is not of a sufficient thickness as to
render lasting and effective service, there must be a disclosure of
this fact on a tag, label, or other printed material which accompanies
the watch. The Commission believes that the revised ``safe harbor''
provisions, discussed above, describe non-deceptive use of certain
terms, such as ``gold plate'' and make this provision unnecessary.
c. Use of Terms ``Gold Flashed'' and ``Gold Washed''
The JVC proposed adding a sentence to the definition of ``gold
electroplate'' in section 245.3(f) to provide that ``[w]hen the gold
electrodeposit is less than 75 millionths of an inch, and meets the
minimum [10 karat] fineness, the case may be marked or described as
`gold flashed' or `gold washed.' '' ⁴⁵ The Watch Guides
currently do not permit use of the term ``gold flashed'' or ``gold
washed,'' although these terms are used for jewelry. ⁴⁶
---------------------------------------------------------------------------

\45\ JVC Petition, Sec. 23.25, Section III, (f).
\46\ See current Guides for the Jewelry, Precious Metals, and
Pewter Industries, 16 CFR 23.4(c)(4).
---------------------------------------------------------------------------

Several commenters opposed the use of these terms for watches, for
various reasons. ⁴⁷ None of the comments indicated that
members of the watch industry currently use the terms gold washed or
gold flashed. Further, the Commission is not aware of any international
standard for gold flashed or gold washed watches.
---------------------------------------------------------------------------

\47\ Citizen (228) p.5; AWA (236) p.2 (stating that the terms
gold flashed and gold washed suggest ``something impermanent and
shoddy'' and that ``[d]ifferent technologies permit varying
thicknesses of gold to produce the same effect--a durable covering
of cold electroplate'').
---------------------------------------------------------------------------

However, under the current Guides, manufacturers of watches that
use gold electrodeposit in amounts too small to be able to identify the
watches as ``gold electroplate'' are unable to inform consumers that
the watch contains gold at all. The Commission's proposed revisions to
the gold electroplate and gold plate provisions acknowledge the
technological advances and allow manufacturers of watches with a
thinner, yet durable coating of gold to indicate to consumers that the
item is plated with gold. Under the proposal, industry members could
apply the terms ``gold electroplate'' or ``gold plate'' to watchcases
covered with gold alloy of at least 23 karat fineness to a thickness of
at least 1 micron (40 millionths of an inch) or the equivalent (e.g., 2
microns of 11.5 karat fineness). There is no evidence that surface
deposits of gold alloy of less than 40 millionths of an inch are
sufficient to render lasting and effective service during the life of
the watch. Thus, the Commission has not included a provision regarding
the use of the terms ``gold flashed'' or ``gold washed.''
3. Vermeil
The JVC proposed a standard definition for a ``vermeil'' watchcase
of a silver base coated with gold.⁴⁸ The JVC's proposal
states that a watchcase cannot be described as ``vermeil'' unless it
has a sterling silver base, with a gold coating of at least \3/4\ of
1,000th of an inch (approximately 19 microns) of 10K gold or better,
applied either by mechanical bonding or electroplating. The FRN
solicited comment on this proposal.
---------------------------------------------------------------------------

\48\ JVC Petition, Sec. 23.25, Section III, (i).
---------------------------------------------------------------------------

Most comments specifically addressing vermeil watchcases agreed
with the JVC's proposed standard without stating any specific
reasons.⁴⁹ Other comments advocated adopting a vermeil
standard, but did not indicate whether the JVC's proposal was the
appropriate standard nor did they offer an alternative.⁵⁰
Other comments indicated that the JVC's vermeil standards for watches
differed from the JVC's proposal for vermeil jewelry.⁵¹
---------------------------------------------------------------------------

\49\ JMC (1) p.1; Fasnacht (4) p.1; Estate (23) p.1; Handy (62)
p.1; Newhouse (76) p.3; MJSA (226) p.10; and AWA (236) p.2
(endorsing the JVC's vermeil proposal because such watches ``are a
distinct product and should be subject to specific standards'').
\50\ Phillips (204); Leach (257) p.6.
\51\ Canada (209) p.5 (advocating the same vermeil standard for
both jewelry and watchcases, because the term would be better
understood by consumers if used consistently); Citizen (228) p.3
(stating that it did not object to a vermeil watchcases standards,
but questioning why it should be significantly greater than the
JVC's proposed vermeil jewelry standard); and Sheaffer (249) p.5
(stating that the minimum vermeil standard should be the same for
all entities).

---------------------------------------------------------------------------

[[Page 33322]]

The inclusion of a definition of vermeil could help prevent
deceptive uses of the term, to the extent that consumers expect or may
come to expect that items sold as vermeil conform to industry usage of
that term. The basic premise that it is deceptive to sell a product
identified as having a specific metallic composition when it does not
conform to consumer's expectations of characteristics associated with
that term (e.g., quality and durability)--apply with equal force to
vermeil.
None of the comments, however, establish a need for a vermeil
standard for watches. Only Japan Watch indicates that there is current
production of vermeil watchcases, but it does not indicate that such
watches are being sold in the United States. Accordingly, the
Commission does not propose to include a vermeil standard, because
there appears to be no need to do so to prevent consumer deception.
4. Silver and Silver-Plated Watchcases
Section 245.3(g) states that use of the terms ``silver,''
``sterling,'' or ``sterling silver'' is deceptive unless the watchcase
contains at least 925 parts per thousand silver, and that use of the
term ``coin silver'' is deceptive unless it contains 900 parts per
thousand silver. Section 245.3(h) states that watchcases ``which have
been plated or electroplated with silver should be marked as `silver
plate' or `silver plated,' if after the completion of all finishing
operations, such plating is of sufficient thickness to withstand normal
use and last throughout the estimated life of the watch.''
The JVC proposed adding the following sentence to this section:
``The term `Sterling' shall not be applied in any manner to a silver-
plated watchcase.'' ⁵² This change merely states in the
negative what is stated affirmatively in sections 245.3(g) and (h) of
the current Watch Guides. These provisions are derived from the
National Stamping Act, which states that silverplated articles shall
not ``be stamped, branded, engraved or imprinted with the word
`sterling' or the word `coin,' either alone or in conjunction with
other words or marks.'' 15 U.S.C. 297(a). The Commission believes that
the best way to convey this information is by a Note referencing this
section of the National Stamping Act.
---------------------------------------------------------------------------

\52\ JVC Petition, Sec. 23.25, Section III, (g)
---------------------------------------------------------------------------

5. Metallic Composition of Parts of Watchcases
Section 245.3(k) specifies that watchcases composed of parts having
different metallic compositions shall be marked as prescribed for
watchcases, with an accompanying explanation of the part or parts to
which such markings or descriptions apply, such as ``14 K Gold Filled
Bezel.'' ⁵³ Japan Watch advocated that only the metallic
composition of ``major parts'' (that is, center, bezel and back) be
disclosed.⁵⁴ Although the Commission believes, as noted
above, that it would probably not be unfair or deceptive to simply fail
to mark a watch as to metallic composition, it might well be unfair and
deceptive to mark part of a watch as, e.g., gold, when other parts are
not gold but are similar to gold in appearance. Hence, in proposed
Guide section 245.3(d), this section has been redrafted to state that
if a watchcase is composed of parts having different metallic
compositions, and has exposed surfaces that are or have the appearance
of being metal, a mark placed on the product that indicates the
metallic content of the product should be closely accompanied by an
identification of the parts to which the mark applies. The Commission
requests comment on this change.
---------------------------------------------------------------------------

\53\ Current section 245.3(a) specifies that certain parts, such
as springs, that are necessarily required to be of some base metal,
may be excluded in determining the metallic content of a watchcases.
\54\ Comment 216, p.3.
---------------------------------------------------------------------------

6. Location of Markings and Abbreviations: Section 245.3(m)
Subsection (m) states that all markings of metallic composition
should be of a permanent type placed on the exterior, exposed surface
of the back of the watchcase. The metallic composition of a permanently
attached watchband, however, may be disclosed either on the band or on
the back of the watchcase. The JVC proposed no change, but the FRN
solicited comment on the section.
Nearly all comments that specifically addressed this issue
supported retaining the current marking requirements.⁵⁵
Other comments indicated that the section prevents misrepresentations
and lessens the chance that consumers receive
misinformation.⁵⁶ However, the National Stamping Act
explicitly allows marking by means of a label or tag. Moreover, a
marking could be satisfactory if it is somewhere other than on the
back.⁵⁷ The Commission proposes deleting the portion of
subsection (m) that requires that a watch be permanently marked and
that it be marked on the back.
---------------------------------------------------------------------------

\55\ JMC (1) p.1; Fasnacht (4) p.2; Estate (23) p.2; G&B (30)
p.10; Jabel (47) p.2; Handy (62) p.6; ArtCarved (155) p.6; Bales
(156) p.11; IJA (192) p.5; Bedford (210) p.3; and Citizen (228) p.4.
Canada (209) p.5 stated, without explanation, that ``this question
deserves further review.''
\56\ Sibbing's (5) p.2; Bridge (163) p.3 (stating that
``[m]arking the acutal metal composition of each watch case on the
watch case helps prevent misrepresentation'').
\57\ See USWC (118) p.1 (favoring deletion of the requirement
that required disclosures be made on the back of watchcases, stating
out that casebacks may have ornamental designs, names or award
engravings on them, or be the back side of a coin or medallion, or
have transparent glass lenses).
---------------------------------------------------------------------------

Subsection (m) also contains statements about the conspicuousness
of markings that may be appropriate. In addition, subsection (m) states
that certain abbreviations may be used (e.g., ``R.G.F.'' for rolled
gold plate) but that the word ``electroplate'' may not be abbreviated.
In the proposed Guides, these issues are addressed in subsections
245.3(c)(2)-(5). The Commission proposes omitting the prohibition on
abbreviating electroplate.
7. Misuse of Terms: Section 245.3(n)
Section 245.3(n) of the current Guides provides that: ``The words
`gold,' `karat,' `silver,' `sterling,' `coin,' or any abbreviation
thereof either alone or in conjunction with other words such as
`solid,' `plate,' `plated,' `filled,' `electroplate,' or
`electroplated' or any abbreviation thereof should not be used as a
marking or as descriptive of a watchcase or part thereof in labeling,
advertising, trade names or otherwise in a manner inconsistent with the
provisions of this section.'' This subsection could be read to make the
use of the terms discussed in other subsections mandatory. As discussed
above, the Commission proposes revising the Guides to set forth safe
harbors (examples of marking and descriptions that would not be
considered to be misleading) and recognizes that there may be other
non-deceptive terms that could be used to describe an item. Because
subsection (n) is unnecessary and provides no additional information to
the reader, the Commission proposes deleting it.
8. Disclosures in Advertising: Section 245.3(o)
Section 245.3(o) urges disclosure in advertising and promotional
material of the information about metallic composition placed on
industry products in conformity with section 245.3, when failure to
make such a

[[Page 33323]]

disclosure would create the false impression that the product is of a
certain metallic composition. However, current section 245.2 admonishes
against misrepresentation in general, including misrepresentation as to
``substance.'' Thus, the Commission proposes deleting it.

E. Misrepresentation as to Durability or Suitability: Section 245.4

This section informs industry members that they should not
misrepresent the characteristics of a product, its ability to resist or
withstand damage from stated causes, or its suitability for a
particular use, such as a chronometer or for skin diving. Although
neither the JVC nor the commenters proposed changes to this section,
commenters did propose changes to other sections that the Commission
believes are best addressed in this section.
As discussed supra, the Swiss Federation proposed the addition of a
definition for ``chronometer'' based on the ISO standard, which would
require industry members to test and obtain a certificate before
describing a watch that keeps time with precision as a chronometer. No
evidence has been brought to the Commission's attention indicating that
consumers believe use of the word ``chronometer'' alone, without any
reference to testing and certification, means that the device has been
tested and certified. However, because section 245.4 prohibits
misrepresentation of chronometers, the Commission has tentatively
determined to take into account the international standard that exists
for chronometers. Specifically, the Commission proposes including a
Note to section 245.4 stating that conformity to the ISO definition
constitutes a ``safe harbor'' for a claim that a watch is a
chronometer. The Commission seeks comment on this change.
AWI and Japan Watch asked the Commission to expand the Guides to
include definitions and tests for divers' watches, and Japan Watch
suggested the use of the ISO standard.⁵⁸ The Commission is
not aware of any consumer complaints that a watch sold as a diver's
watch did not satisfy consumers' expectations of what a diver's watch
is. However, because there is an ISO standard concerning divers'
watches, the Commission seeks comment on adding a Note establishing the
ISO standards for divers' watches as a ``safe harbor'' and seeks
comment on this change. If such a note proves unnecessary, the
Commission proposes consolidating section 245.4 into 245.2
(Misrepresentation in general).
---------------------------------------------------------------------------

\58\ AWI (116) p.1; JCWA (216) p.3. The ISO standard for divers'
watches is ISO 6425--Divers' Watches.
---------------------------------------------------------------------------

F. Misrepresentation of Protective Features: Section 245.5

Section 245.5(a) is repetitive of section 245.4 in that it cautions
against misrepresenting the ability of a product to withstand or resist
damage or other harmful effects from stated causes. However, it
specifically states that a product should not be described as
``shockproof,'' ``waterproof,'' ``nonmagnetic,'' or ``all proof.'' No
comments objected to this provision, and therefore, the Commission has
retained it in the proposed Guides. The Commission, however, seeks
comment on whether this provision is necessary and desirable.
Section 245.5(a) also states that products may be described as
``shock resistant,'' ``water resistant,'' or ``antimagnetic'' if they
withstand tests described in the appendix to the Watch Guides. The JVC
proposed no changes to this section. The FRN solicited comment on
whether the current definitions and tests for protective features of
watchcases (e.g., water resistance, shock resistance) described in this
section should be retained.
Most commenters who addressed this issue favored retaining the
current definitions and tests. ⁵⁹ Two jewelry industry
members suggested updating the tests, but did not explain how or why.
⁶⁰ Four watch industry commenters suggested revising one or
more of the tests or definitions. ⁶¹ All of these commenters
appeared to view the use of definitions and tests in the Guides as
useful. The Swiss Federation noted that consumers cannot easily confirm
that watches are water resistant, shock resistant, or anti-magnetic.
⁶² The Swiss Federation and Japan Watch, however,
recommended substituting ISO standards in some instances for those
currently being used. The Commission agrees that industry is likely to
need guidance with respect to what constitutes an adequate basis for
claiming that a watch is water resistant, shock resistant, or anti-
magnetic, and that the creation of ``safe harbors'' for the non-
deceptive use of these terms is beneficial to industry and consumers.
---------------------------------------------------------------------------

\59\ Benrus (22) p. 2; Citizen (228) p. 4 (stating that there is
no evidence that watches meeting the current standards do not
provide ``adequate performance'' and stating that the industry has
responded to the market by selling and marking water resistant
watches for specialized uses); AWA (236) p. 2 (stating that there is
no evidence of consumer dissatisfaction with the standards, that the
standards safeguard against problems arising under normal
conditions, and that consumers requiring watches for special
circumstances, such as diving, can purchase products marked for such
purposes). Eleven members of the jewelry industry supported the
existing definitions and tests, but did not explain why. JMC (1);
Fasnacht (4); Sibbing's (5) (stating that the existing definitions
and tests have worked well and there is no reason to change them);
Estate (23); Jabel (47); Handy (62); McGee (112); ArtCarved (155) p.
6 (supporting established, published standards in general); Bales
(156); LaPrad (181); IJA (192); Leach (257).
\60\ Bridge (163) p. 3; Bedford (210) p. 3.
\61\ See discussion, below, regarding the comments of Swiss
Federation, Timex, JCWA and AWI
\62\ Comment 232, p. 5.
---------------------------------------------------------------------------

1. Water Resistance of Watches
Section 245.5(a)(2) provides that the term ``water resistant'' may
be applied to an industry product that is sufficiently impervious to
water and moisture so as to insure that it will successfully withstand
the test described in paragraph 4 of the appendix to the Watch Guides.
That test requires that the watch being tested be immersed in water for
specified periods at specified pressures and not admit any water or
moisture.
The Swiss Federation and Japan Watch recommended adopting the tests
used in ISO Standard 2281-1990(E). ⁶³ ISO Standard 2281
provides two alternative sets of tests. One uses a water pressure test
and involves immersion in water for specified periods at specified
temperatures. The other uses an air pressure test.
---------------------------------------------------------------------------

\63\ Swiss Federation (232) pp. 5, 21-22; JCWA (216) p. 3.
---------------------------------------------------------------------------

Timex contended that the current water resistance test is outmoded
and unduly burdensome. It advocated a test for water resistance that
would expose watches to helium pressure equivalent to water pressure at
15 pounds, but recommended considering the ISO standard as an
alternative.⁶⁴ AWI did not specifically reference the ISO
test, but commented that the test for water resistance should allow for
testing with new, waterless testers.⁶⁵
---------------------------------------------------------------------------

\64\ Comment 239, pp.6-7.
\65\ Comment 116, p.1.
---------------------------------------------------------------------------

Based on its comparison of the ISO standard and the existing test,
the Commission is satisfied that both methods test whether pressure, to
a level consistent with ordinary use of a water resistant watch,
results in condensation or moisture inside the watch. Based on the
widespread use of the ISO test, and its apparent compatibility with the
purposes and measure of success of section 245.5's test for water
resistance, the Commission proposes revising section 245.5 to identify
safe harbors for use of the term ``water resistant'' for watches that
satisfy either the current test or the requirements of ISO 2281.

[[Page 33324]]

On the basis of the limited descriptions of the alternative tests
proffered by Timex and AWI, the Commission is unable to evaluate
whether such alternatives would satisfactorily measure water
resistance.
2. Shock Resistant Watches
Section 245.5(a)(1) and paragraph 3 of the appendix currently
require that to be identified as ``shock resistant'' or ``shock
absorbing,'' an industry product must be sufficiently resistant to
shock to withstand certain shocks equivalent to being dropped from a
height of three feet onto a horizontal hardwood surface without losing
more than 60 seconds per day in timekeeping accuracy or damaging the
physical condition of the product. Timex noted that the current test
for shock resistance applies only to mechanical watches, and should be
expanded to cover quartz watches.⁶⁶ The Swiss Federation and
Japan Watch advocated adopting the test for shock resistance used in
ISO Standard 1413-1984(E).⁶⁷ The ISO uses a test to simulate
the shock received by a watch in falling one meter onto a horizontal
hardwood surface. It requires that the residual effect on accuracy of
quartz watches not exceed 2 seconds per day and that the residual
effect on accuracy of all other watches not exceed 60 seconds per
day.⁶⁸ The Swiss Federation noted that the ISO's test for
mechanical watches does not differ materially from the current Guides.
The test for quartz watches, however, imposes a stricter timekeeping
requirement than for mechanical watches.⁶⁹
---------------------------------------------------------------------------

\66\ Comment 239, pp.6-7.
\67\ Swiss Federation (232) pp. 20-21; JCWA (216) p.3.
\68\ Horology--Shock-resistant Watches, ISO Standard 1413-1984
(E), para. 4.
\69\ Comment 232, p.21.
---------------------------------------------------------------------------

The Commission notes that quartz watches apparently are inherently
more accurate than mechanical watches and therefore are held by the
industry to a higher standard of minimum accuracy. Accordingly,
consumers expect greater accuracy from inexpensive quartz watches than
they do from inexpensive mechanical watches. Thus, the Commission
proposes updating section 245.5's test to incorporate the ISO residual
effect standards that are stricter for quartz watches than for watches
with mechanical movements.
The Commission also notes that the language used in the current
Guide's test requires observations of a watch's daily timekeeping rate
in language that is applicable only to watches with mechanical
movements (i.e., the necessary observations are to be made ``one hour
after the watch has been fully wound''). Because the test should be
applied to all watches claimed to be ``shock resistant'' or ``shock
absorbing,'' the Commission proposes revising the current test to
provide that the necessary observations are made either one hour after
a watch with a mechanical movement has been fully wound or at least two
hours after a quartz watch has been functioning. This approach adopts
the ISO standard's pre-test observations of accuracy for quartz
watches.
Because many watch industry members are familiar with and support
retaining the current test, the Commission proposes identifying two
alternative safe harbors for shock resistance: the current test, as
updated to apply to quartz watches, and ISO Standard 1413-1984(E).
Satisfying either of these tests would be a reasonable basis for claims
of shock resistance.
3. Antimagnetic Watches
Section 245.5(a)(3) and paragraph 5 of the appendix allow an
industry product to be described as ``antimagnetic'' if it is designed
and constructed to provide a substantial degree of protection against
magnetism and will successfully withstand a test that places it in a
particular electrical field under specified conditions without altering
the daily rate of the watch by more than 15 seconds. The Swiss
Federation and Japan Watch urged adoption of ISO Standard 764-1984(E)
for antimagnetic watches.⁷⁰
---------------------------------------------------------------------------

\70\ Swiss Federation (232) pp.5, 23; JCWA (216) p.3. AWI (116)
at p.1, supported the current definition and test.
---------------------------------------------------------------------------

The ISO standard requires placing the watch in a magnetic field of
a specified intensity generated by a particular apparatus for several
minute long exposures.⁷¹ For mechanical watches, the
residual effect must not exceed 30 to 45 seconds per day depending upon
the size of the watch; for quartz watches, the residual effect must not
exceed 1.5 seconds per day.⁷²
---------------------------------------------------------------------------

\71\ Horology--Antimagnetic Watches, ISO 764-1984(E), para. 5.
\72\ Id., para. 4.1, 4.2
---------------------------------------------------------------------------

As discussed above, quartz watches generally are expected to be
more accurate than mechanical watches. The ISO standard, however,
permits mechanical watches today to be less accurate following
completion of the antimagnetism test than the test contained in the
current Watch Guides. Mechanical watches manufactured today generally
may not be as antimagnetic as mechanical watches manufactured thirty
years ago, because different metals are used today. Thus, the ISO
standard reflects current industry practice. Accordingly, the
Commission proposes incorporating the ISO residual effects for quartz
and mechanical watches into the current test and identifying both the
revised test and the ISO standard as safe harbors for claims of
antimagnetism.
4. Pre-Sale Explanations
Section 245.5(b) states that when a watch described as ``shock
resistant,'' ``water resistant,'' or ``antimagnetic'' is sold to the
ultimate consumer, the description should be accompanied by a statement
explaining the meaning of the term and the care and maintenance
required. This statement should also be made on ``any point of sale
material describing or referring to the watch having the designation in
question and on a label or tag firmly affixed to the watch bearing the
designation.'' Timex requested that the Commission revise this
provision, arguing that it is ``clearly impractical'' in mass
merchandising and that it is sufficient to provide the explanation,
care, and maintenance statement in instruction booklets and
catalogs.⁷³
---------------------------------------------------------------------------

\73\ Comment 239, p.11.
---------------------------------------------------------------------------

The Commission has tentatively determined that this section is not
necessary to prevent unfair or deceptive practices and thus, proposes
deleting the provision. Comment is sought on this change.

G. Proposed ``Deception as to Movements'': Section 245.6

Section 245.6, ``Deception as to jewels,'' advises industry members
not to misrepresent the number of jewels contained in a watch, or that
a watch is ``jeweled'' or contains a jeweled movement. Subpart (a)
states that industry members should not describe a watch as ``jeweled''
unless the movement contains at least seven jewels, each of which
protects against wear from friction by providing a mechanical contact
with a moving point. Subpart (b) states that industry members should
not refer to the number of jewels contained in a watch ``unless each
and every one of these jewels'' protects against wear from friction by
providing a mechanical contact with a moving point. Neither the JVC nor
the commenters proposed changing section 245.6. The Commission proposes
retaining these provisions.
The Commission also proposes addressing in this section the JVC
proposal regarding quartz watches. The JVC proposed that the Guides
state that ``Industry members shall not misrepresent * * * the
characterization

[[Page 33325]]

of a watch as a `quartz watch.' * * * [nor] describe a watch as a
`quartz watch' unless a silicon oxide (`quartz') crystal contained in
the watch serves the purpose of dividing time and regulating the time
display by means of vibrations of such crystal caused by its placement
into an electric field.'' \74\
---------------------------------------------------------------------------

\74\ JVC Petition, Sec. 23.29.
---------------------------------------------------------------------------

Both comments that specifically addressed this proposal stated that
the Guides should cover quartz watches and endorsed the JVC's
proposal.\75\ Several other comments indicated that the Watch Guides
should be updated to reflect the existence of quartz watches, but did
not specifically address the JVC's proposal concerning
misrepresentation of quartz watches.\76\
---------------------------------------------------------------------------

\75\ AWA (236) p. 2; Citizen (228) pp. 2, 5.
\76\ Swiss Federation (232) pp. 21, 28-29; Timex (239) pp. 6, 8.
---------------------------------------------------------------------------

The Commission believes the language suggested by the JVC would be
helpful to the industry and to consumers by discouraging claims that
watches with mechanical movements and containing some amount of quartz
as a decorative feature are ``quartz watches.'' Both consumer
expectations and commercial practice in the watch industry support
limiting the description ``quartz watch'' to those watches that have
quartz movements. Accordingly, the Commission proposes adding a new
paragraph regarding quartz watches in section 245.6, and retitling the
revised section ``Deception as to movements'' to reflect its broader
applicability.

H. Misrepresentation of Accessories: Section 245.7

Neither the JVC nor the commenters proposed changes to section
245.7, which admonishes industry members not to misrepresent the
composition, quality, or other material fact respecting watch
accessories. Such accessories, as defined in section 245.1(c), are
products, other than watch bands, that are affixed to and sold with
watchcases or watches (e.g., bracelets, pins, or pendants). As
discussed supra, the Commission proposes deleting the definition of
``accessories,'' in section 245.1(c) of the current Guides, and
expanding the definition of ``watchcase'' or ``case,'' in proposed
Guides section 245.1(b), to include any permanently attached accessory.
With this change, section 245.7 is unnecessary; section 245.3, which
covers misrepresentation of metallic composition of watchcases, will
cover all such permanently attached accessories. The Commission
proposes deleting section 245.7, and adding a Note following the
definition of ``watchcase'' that states, ``Detachable metallic watch
bands and other accessories of the detachable type are subject to the
provisions of the Guides for the Jewelry, Precious Metals, and Pewter
Industries, 16 CFR Part 23.''

I. Deceptive Selling of Used, Rebuilt, or Secondhand Products: Section
245.8

Section 245.8 requires disclosure of the fact that an industry
product or parts are not new, or are used, secondhand, rebuilt,
repaired, or refurbished. The disclosure must be made in all product
advertising, on the product or a label firmly affixed to the product,
and on the immediate container in which the product is sold to the
ultimate consumer. Although a disclosure of some type may indeed be
necessary to prevent unfairness or deception, the Commission no longer
believes that the disclosure is adequate only if it is on the product
and on its immediate container. The Commission proposes modifying this
provision to require simply that there be a disclosure, without
specifying how it must be made. The Commission requests comment on this
change.
The JVC proposed adding a second paragraph to this section that
would require the disclosure to all subsequent buyers of any alteration
to a watch manufactured under a brand name or trade name. Such
alterations would include modification, removal, or addition of any
identifying trademark, name, number, or other information on any part
of a trade name or brand name watch, as well as the ``unauthorized
opening'' of a water resistant watch. The person making such an
alteration would invalidate the existing warranty, become the new
warrantor of the watch, and be required to identify whether the
warranty is full or limited. The manufacturer or designer of a brand
name or trade name watch would have the option of refusing to honor its
original warranty, if it discovers that a watch presented to it for
service has been so altered after the watch left the manufacturing
facility.\77\
---------------------------------------------------------------------------

\77\ JVC Petition, Sec. 23.31.
---------------------------------------------------------------------------

The FRN sought comment on the JVC's proposal. Several comments from
members of the jewelry industry supported the proposal with little or
no explanation.\78\ One jeweler opposed changing section 245.8, but
provided no reason.\79\ Other jewelry industry comments expressed
qualified support for the JVC's proposal, but either opposed any
provision that would invalidate a warranty by mere battery replacement
or requested clarification as to the definition of ``unauthorized
opening'' of a water resistant watch.\80\
---------------------------------------------------------------------------

\78\ Sibbing's (5) p. 2 (particularly supported section dealing
with alteration of the watch to avoid harming the reputation of
brand name watches); Estate (23) p. 2; G&B (30) p. 10; Jabel (47) p.
2 (``disclosure is a good thing''); Handy (62) p. 10; ArtCarved
(155) p. 6 (both the consumer and the manufacturer need to be
protected from a third party); Bridge (163) p. 3; Bedford (210) p. 3
(noting that disclosure should also be made if a diving watch will
no longer be useable as such); Leach (257) p. 6.
\79\ Fasnacht (4) p. 1.
\80\ Battery replacement: JMC (1) p. 1; Solid Gold (261) p. 3.
Authorization: McGee (112) p. 5; IJA (192) p. 5.
---------------------------------------------------------------------------

No watch industry commenter expressed support for the JVC's
proposal in its entirety. Both Timex and Citizen opposed all of the
JVC's proposed warranty provisions, arguing that such provisions
conflict with the Magnuson Moss Warranty Act, 15 U.S.C. 2301 et
seq.\81\ Timex pointed out that ``[t]he watch warranty may specify this
limitation without need for establishing an industry standard.'' \82\
---------------------------------------------------------------------------

\81\ Timex (239) pp. 8-9; Citizen (228) p. 4.
\82\ Comment 239, p. 9.
---------------------------------------------------------------------------

Several watch industry commenters strongly opposed the JVC's
proposal that any person who opens a ``water resistant'' watch without
authorization invalidates the warranty and becomes the warrantor. Three
pointed out that any competent watch repairer should be able to replace
a battery without being authorized by the manufacturer of the
watch.\83\ AWI questioned whether the U.S. Customs Service's routine
inspection for interior marks on watches would invalidate the
manufacturer's warranty under the JVC's proposal.\84\ Similarly, the
Swiss Federation submitted that the unauthorized opening of a water
resistant watch is better provided for in the warranty itself, rather
than by substituting the retailer for the warrantor.\85\
---------------------------------------------------------------------------

\83\ Benrus (22) p. 1; USWC (118) p. 1; Citizen (228) p. 4.
\84\ Comment 116, p. 1.
\85\ Comment 232, p. 38.
---------------------------------------------------------------------------

Only two watch industry commenters specifically addressed the
aspects of the JVC's proposal pertaining to alteration of trademarks
\86\ or brand names. Because section 245.9 of the Guides currently
advises industry members not to imitate, simulate, obliterate, conceal,
or remove trade names, tags, or other disclosures on watches under
circumstances having the capacity and tendency to deceive the ultimate
consumer as to the manufacturer's identity, the product's origin, or in
any other material respect, the portion of the JVC proposal dealing
with alteration of a trademark or tradename is discussed in more detail
infra in conjunction with

[[Page 33326]]

section 245.9. The remaining parts of the JVC proposal are discussed
below.
---------------------------------------------------------------------------

\86\ Benrus (22) p. 1; Newhouse (76) p. 3.
---------------------------------------------------------------------------

Warranty Disclosure
There is no information indicating that the JVC's proposed warranty
provisions are needed to prevent unfair or deceptive acts or practices
under section 5 of the FTC Act, or to lessen the burdens of existing
regulation. The JVC's proposal essentially would require that consumers
wishing to maintain the manufacturer's original warranty use only
authorized dealers to repair brand name or trade name watches. This
would limit competition for watch repair, including simple replacement
of batteries. It also would conflict with the Magnuson-Moss Warranty
Act's prohibition on tie-in sales provisions in warranties, unless the
manufacturer offering the warranty sought and obtained a waiver.\87\
---------------------------------------------------------------------------

\87\ See Magnuson-Moss Warranty Act--Federal Trade Commission
Improvements Act, 15 U.S.C. 2302(c). It is possible, however, that a
seller of a warranted watch could become a co-warrantor under
Magnuson-Moss. Certain actions and representations may make sellers
of warranted products co-warrantors under Magnuson-Moss, If under
state law such a seller is deemed to have adopted any written
affirmation of fact, promise, or undertaking with regard to a watch
covered by a written warranty. 16 CFR 700.4.
---------------------------------------------------------------------------

More narrowly drawn language could help the industry avoid
practices that the Commission is likely to view as unfair and
deceptive. In Zale Corp., 77 F.T.C. 1098 (1970), the Commission
determined that representing a watch as guaranteed or under warranty is
deceptive if the seller knows or has reason to know that the guarantee
or warranty does not apply to the watch.\88\ The Commission believes
that it would assist the watch industry in complying with section 5 of
the FTC Act to include a specific warning in section 245.8 (revised
section 245.7) that a seller should not mislead consumers into
believing that a watch which has been altered, repaired, rebuilt, or
refurbished is covered by the manufacturer's guarantee or warranty when
the seller knows or has reason to know the watch is not guaranteed. The
Commission solicits comment on this change.
---------------------------------------------------------------------------

\88\ The Commission alleged, among other things, that the
failure of a retail watch seller to disclose that the original watch
movement had been removed from a particular manufacturer's watchbase
misled purchasers into believing that the watch was the original,
unaltered product of that manufacturer. The complaint also alleged
that, as a result, many watch manufacturers did not honor their
guarantees covering the original watches, and purchasers were misled
into believing that the manufacturers would honor their guarantees.
---------------------------------------------------------------------------

Used Disclosures
The Swiss Federation also proposed a revision of section 245.8--
i.e., it requested that the Commission define a ``used'' watch so that
unscrupulous merchants do not make deceptive consumer sales.\89\ It
proposed that the Guides provide that a purchaser may return a product
to the original place of purchase within a specified number of days and
the merchant may later resell it as new. Even products returned during
this period, however, may not be resold as ``new'' if they bear obvious
signs of wear.\90\ A watch would be ``used'' when it is sold under
conditions that begin the running of the manufacturer's warranty, i.e.,
to unauthorized retailers posing as consumers, or when it is returned
after the specified number of days. The Swiss Federation warned that
watches sold or returned under these conditions ``are often modified,
damaged, or otherwise presented for resale under circumstances that
facilitate consumer deception.'' \91\
---------------------------------------------------------------------------

\89\ Comment 232, pp.5, 31.
\90\ Id. at 30.
\91\ Id.
---------------------------------------------------------------------------

AWA proposed an amendment to section 245.8, which is nearly
identical to that suggested by the Swiss Federation,\92\ and which
states in part:
---------------------------------------------------------------------------

\92\ Comment 236, p.4. The only substantive differences between
the Swiss Federation did not specify the number of days during which
a watch must be returned to the retail seller to be resold as new,
and the Swiss Federation would add language stating that ``this
return exception will not apply, and the watch will be deemed as
used, if it bears obvious signs of wear.'' Comment 232, p.31. The
Swiss Federation noted that some states have statutes ``controlling
this question.'' Id. at 30 n.16.
---------------------------------------------------------------------------

A watch or any part thereof is used or secondhand:
(a) At any time after
(i) Its original sale or transfer to a purchaser by a retail
seller, or
(ii) Immediately after any sale or transfer that initiates the
running of a manufacturer's warranty, unless the purchaser or
transferee returns the watch to the same retail seller in new and
unused condition within 15 days from the date of sale or transfer to
such purchaser or transferee.
(b) Immediately after any sale or transfer that voids a
manufacturer's warranty;
(c) If its case, movement or serial numbers, or other
distinguishing numbers or identification marks or trade names or trade
marks have been erased, defaced, removed or altered;
(d) If any serial numbers, identification marks, trade names or
trade marks have been concealed under circumstances having the capacity
or tendency of deceiving the ultimate consumer as to the identity of
the manufacturer, origin of the product, or in any other material
respect;
(e) if it is rebuilt, repaired, refinished or reconditioned, or
contains parts that are used, secondhand, replaced, rebuilt, repaired,
refinished, or reconditioned, whether such rebuilding, replacing,
repairing, refinishing or reconditioning has been done by the retail
seller or another person.\93\
---------------------------------------------------------------------------

\93\ Comment 236, p.6.
---------------------------------------------------------------------------

Citizen opposed AWA's proposed definition of ``used or secondhand''
as arbitrarily specifying a 15 day return period. ``Specifying any
return period would impose an impossible burden on retailers and would
result in the FTC's obligation to micro manage their return policies.''
\94\ Further, to the extent that a sale or transfer voiding a
manufacturer's warranty, or the alteration or concealment of serial
numbers, should be considered ``unfair,'' they should be addressed
separately, not deemed to render a product ``used'' or ``secondhand.''
\95\
---------------------------------------------------------------------------

\94\ Comment 228, p.6.
\95\ Id.
---------------------------------------------------------------------------

The Commission believes that the proposed revisions to current
section 245.8 (now 245.7) (i.e., advising against misleading consumers
as to the coverage of the manufacturer's warranty) adequately address
most of the concerns expressed by the Swiss Federation and the AWA,
without placing unnecessary burdens on the industry. That portion of
their proposals that deals with removal of trade names or other
identification marks is discussed below.

J. Deceptive Imitation, Obliteration, or Concealment of Names,
Trademarks, or Marks: Section 245.9

Current section 245.9 advises industry members not to imitate or
simulate competitors' tradenames or trademarks, and not to obliterate,
conceal, or destroy any disclosures on watch products or their
containers under circumstances that would tend to deceive ultimate
consumers as to the manufacturer, the country of origin, or in any
other material respect.
The JVC proposed no changes to section 245.9. However, as noted
above in the discussion of section 245.8, it did propose an addition to
section 245.8 that would require the disclosure to all subsequent
buyers of any alteration to a watch manufactured under a brand name or
trade name, including modification, removal, or addition of any
identifying trademark, name, number, or other information on any part
of such a watch. Benrus and Newhouse supported this proposal.\96\

[[Page 33327]]

Citizen commented that the JVC's proposed disclosures would be
unworkable, pointing out that the premium and award incentive
industries frequently add their clients' trademarks to industry
products and importers frequently add stones to watches that are
imported with empty settings.\97\
---------------------------------------------------------------------------

\96\ Benrus (22) p.1 (stating that alteration of a trade name
should not be permitted, nor alteration of a brand name to deceive
the purchaser); Newhouse (76) p.3 (stating, without explanation,
that alteration of a brand name should be considered counterfeiting
under the Guides).
\97\ Comment 228, p.4 (stating also that even the addition of a
label or tag for inventory purposes might be an alteration subject
to disclosure under the JVC's proposal).
---------------------------------------------------------------------------

Several commenters suggested that the Commission add counterfeiting
to section 245.9's list of prohibited activities, proscribe both
advertising and trafficking in counterfeit watches, and incorporate by
reference the language of the 1984 Trademark Counterfeiting Act, 18
U.S.C. 2320.\98\ Citizen commented that the existing prohibition
against the imitation or simulation of trademarks of competitors ``* *
* under circumstances having the capacity and tendency of deceiving the
ultimate consumer'' conflicts with the Lanham Act and the 1984
Trademark Counterfeiting Act.\99\
---------------------------------------------------------------------------

\98\ AWA (236) pp.5-6; Swiss Federation (232) p.5, p.33; Citizen
(228) p.6.
\99\ Comment 228, p.2. Citizen further contended that section
245.9 implies, in conflict with trademark law, that it would be
acceptable to imitate or simulate a trademark if disclosure is made.
Id. This interpretation is not supported by the text of section
245.9.
---------------------------------------------------------------------------

The comments correctly note that, unlike the FTC Act, the 1984
Trademark Counterfeiting Act defines ``traffic'' within the context of
defining a federal criminal offense that may occur simply by obtaining
control of goods or services bearing a counterfeit mark with intent to
transport, transfer, or dispose of such items as consideration for
anything of value.\100\ Thus, the 1984 Trademark Counterfeiting Act has
made many of the activities described in section 245.9 of the Guides
criminal.\101\ Moreover, the Anticounterfeiting Consumer Protection Act
of 1996, Public Law No 104-153 (1996), recently strengthened the
provisions of the 1984 Trademark Counterfeiting Act. In addition,
although not all ``passing off'' might be defined as counterfeiting,
private remedies for these actions exist under the Lanham Act, 15
U.S.C. 1051.\102\
---------------------------------------------------------------------------

\100\ 18 U.S.C. 2320.
\101\ Id.
\102\ In particular, section 43(a) of the Lanham Act, 15 U.S.C.
1125(a)(1), provides a civil remedy when a person uses in commence
``any word, term, name, symbol, or device, or any combination
thereof, or any false designation of origin, false or misleading
description of fact, or false or misleading representation of fact,
which (A) is likely to cause confusion, or to cause mistake, or to
deceive as to the affiliation, connection, or association of such
person with another person, or as to the origin, sponsorship, or
approval of his or her goods, services, or commercial activities by
another person.''
---------------------------------------------------------------------------

Guides, as stated in 16 CFR Part 17, are ``administrative
interpretations of laws administered by the Commission for the guidance
of the public in conducting its affairs in conformity with legal
requirements.'' They are meant to ``provide the basis for voluntary and
simultaneous abandonment of unlawful practices by members of the
industry.'' Id. The actions described in section 245.9 are illegal
under criminal and civil statutes other than section 5 of the Federal
Trade Commission Act. Moreover, persons engaging in these actions in
spite of the criminal and civil statutes prohibiting them are not
likely to voluntarily abandon these practices because the Guides state
that they are also illegal under section 5 of Federal Trade Commission
Act. Therefore the Commission believes that it may be unnecessary to
continue to advise the watch industry that the activities described in
section 245.9 of the Guides are illegal under section 5 of the Federal
Trade Commission Act. The Commission proposes deleting section 245.9
from the Guides, and seeks comment on this change.

K. Disclosure of Foreign Origin: Section 245.10

Section 245.10 advises, in subsection (a), that watches with
movements or movement parts of foreign origin should not be offered for
sale or sold without a clear and conspicuous disclosure of the country
(or countries) of origin of the movement. This section further
specifies that the country of origin of the movement depends upon two
factors: (1) Where the movement is assembled and (2) the origin of the
parts used in assembling the movement. Under section 245.10(b)(1), if
the movement is assembled in the same foreign country in which movement
parts constituting 50% or more of the cost to the assembler of all the
parts of the movement have been manufactured, the name of that country
alone may be used to designate the origin (e.g., ``Swiss Made''). Under
section 245.10(b)(2), if movement parts constituting 50% or more of the
cost to the assembler of all the parts of the movement have been
manufactured in a single country different from the country in which
the movement is assembled, the names of both countries, and no other
country, are used to designate the country of origin of the movement
(e.g., ``Assembled in France from Swiss parts''). Under section
245.10(b)(3), if the movement is assembled in one country, but movement
parts constituting 50% or more of the cost to the assembler of all the
parts of the movement have not been manufactured in a single other
country, only the name of the country of assembly is to be used, with a
disclosure that the parts are partially foreign, imported or domestic,
as the case may be (e.g., ``Movement assembled in the United States
from domestic and imported parts'').
The JVC did not propose any changes in this section. However, based
on the comments, changes in international trade, and consumer awareness
of changes in the marketplace since the Guides were promulgated, the
Commission believes that it is no longer necessary to continue to
retain Section 245.10 or to otherwise address origin issues in the
Guides. Section 245.2 of the Guides, however, will continue to advise
that misrepresentation of country of origin is unfair and deceptive.
In the past, failure to disclose foreign origin has been found to
violate section 5 of the FTC Act. Commission cases have held that
consumers generally expect to see country of origin marks on imported
goods (because section 304 of the Tariff Act of 1930, 19 U.S.C. 1304,
has required such marks on goods entering the country for many years),
and that consumers assume a product without such marking was
manufactured in the United States. Commission cases finding that a
substantial number of consumers interpret the absence of country of
origin marking to mean that a product was made in the U.S. are based on
evidence of consumer perceptions in the 1960s or earlier.
In Manco Watch Strap Co., 60 F.T.C. 495, 514-515 (1962), the
Commission created a rebuttable presumption that the absence of a
country of origin label would lead consumers to believe the item was
made in the United States. In the Commission's reexamination of its
Made in USA policy, the Commission sought comment on whether this
presumption continues to be valid. 61 FR 18600 (Apr. 26, 1996). The
Commission found that ``manufacturing and the sourcing of components
have become increasingly global in nature, and that consumers appear to
be increasingly aware that goods they buy are produced throughout the
world.'' 62 FR 25020, 25046 (May 7, 1997). The Commission determined
that it is no longer appropriate to retain this presumption, and stated
that disclosure of foreign origin on unmarked goods is required ``only
if there is some evidence that, with respect to the particular type of
product at issue, a significant

[[Page 33328]]

minority of consumers views country of origin as material and believes
that the goods in question, when unlabeled, are domestic.'' 62 FR
25020, 25047.
With respect to watches, the evidence indicates that the country of
origin of a watch is still a material claim for many consumers.\103\
However, it is not certain that today a significant number of consumers
acting reasonably would believe that a watch without country of origin
marking is of U.S. origin. Although some watches are assembled in the
United States from imported parts, virtually no watches are made in the
United States with domestic parts.\104\ Consequently, it may not be
reasonable for consumers to assume that unmarked watches are domestic,
and it may not be deceptive for a seller to fail to mark a watch with
its country of origin.\105\
---------------------------------------------------------------------------

\103\ A recent survey submitted by the Swiss Federation found
that about 49% of the respondents considered the country of origin
of a watch either ``very important'' or ``somewhat important.''
Comment 232, p. 12, Exhibit 4.
\104\ Swiss Federation (232) p. 7 n. 4. Several comments
addressed the issue of whether watches assembled in U.S. possessions
could be marked ``Made in USA.'' Citizen (228) p. 6; Swiss
Federation (232) Exhibit 5, pp. 4-5. Section 245.10(a)(4) of the
Watch Guides defines ``United States'' to include the states, the
District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam,
and American Samoa. As noted above, the Commission proposes deleting
Sec. 245.10 entirely. With respect to ``Made in USA'' claims, the
Commission is examining its standard for such claims, and has
proposed guides addressing such claims, in a separate proceeding.
(See 62 FR 25020, May 7, 1997). The Commission's proposed Guides for
the Use of U.S. Origin Claims apply (with certain, specified
exceptions) to all products, including watches, and thus, eliminate
the need for the Watch Guides to contain separate admonitions as to
the use of ``Made in USA.'' 62 FR 25020, 25047 (May 7, 1997).
\105\ Commission cases have long recognized that, for some
products, disclosure of foreign origin is not required. L. Heller &
Son, Inc., 47 F.T.C. 34 (1950), aff'd, 191 F.2d 954 (7th Cir. 1951)
(finding that the public interest does not require disclosure of the
origin of a foreign product of a type not produced in the United
States, such as cultured pearls, natural pearls, or diamonds).
---------------------------------------------------------------------------

Nevertheless, because of Customs regulations, all watches imported
into the United States are required to contain marks indicating country
of origin. The current Guides require the disclosure of more
information than is required by Customs--i.e., the origin of the parts
of the movement.\106\ (Both Customs and the Guides regard the movement
as the ``guts'' of the watch, but Customs does not require disclosure
of the origin of the parts of the movement; rather, it requires
disclosure of the country of assembly of the movement.\107\) However,
in the interest of harmonization of foreign origin markings generally
and because country of origin of movement parts may no longer be
material to consumer purchasing decisions, the Commission has
tentatively determined that the Watch Guides should not require
disclosure of the origin of movement parts.\108\
---------------------------------------------------------------------------

\106\ Customs regulations relating to country of origin emanate
primarily from section 304 of the Tariff Act of 1930 (``Tariff
Act''), as amended, 19 U.S.C. 1304. The Tariff Act of 1930, as
amended, and Customs' implementing regulations provide that every
article of ``foreign origin,'' or its container, imported into the
U.S. must be marked in a conspicuous place with the name of the
country of origin of the article.
\107\ Three commenters [Citizen (228) p. 2; Swiss Federation
(232) p. 17; Timex (239) pp. 5-6] stated that the current Guides'
country of origin provisions conflict with Customs' marking
requirements and urged that they be harmonized. With the exception
of the use of the word ``assembled,'' which Customs does not
generally view as sufficient to indicate the country of origin [see
HQ 735251 (Oct. 7, 1993), 1993 U.S. CUSTOMS HQ LEXIS 1144], it
appears that Customs' and FTC country of origin marking requirements
for watches already are consistent, albeit not identical. Except for
watches that are assembled abroad of U.S. origin parts, Customs has
not viewed the term ``assembled in'' as sufficient to indicate the
country of origin. Id. Generally, watches can be marked ``Made in,''
``Product of,'' just with the name of the country of origin, or with
the word ``Movement'' or the abbreviation ``MVT'' with the name of
the country of origin. Id.; HQ 734758 (Mar. 1, 1993). However, in
the Federal Register notice of June 6, 1996, Customs announced that
it was modifying 19 CFR 134.43 to provide, in section (e) Assembled
articles, that, where the country of origin of an article is
determined to be the country where the article was finally
assembled, the article may be marked as follows: ``(1) Assembled in
(country of final assembly); (2) Assembled in (country of final
assembly) from components of (name of country or countries of origin
of all components); or (3) Made in, or product of, (country of final
assembly).''
\108\ Timex (239) stated, at p. 6, that the ``the origin of
parts no longer has any meaning to consumers since the introduction
of quartz technology and precision timekeeping. Now a $10 quartz
watch will keep as good or better time than the most expensive
watch.''
---------------------------------------------------------------------------

Finally, the Swiss Federation objected to certain markings
currently allowed by Customs and by the Guides and submitted survey
evidence suggesting that these marks may sometimes be misleading
because they imply incorrectly that a watch was encased and inspected
in the named country. It recommended that use of the unqualified name
of a country and use of the name of a country with the word ``Made'' be
reserved for watches that contain movements manufactured in the
specified country and that are completed (i.e., encased and inspected)
in the same country. It argued that the origin of a finished watch,
rather than the origin of the movement alone, significantly influences
consumers' purchasing decisions.\109\ The survey evidence it cited
showed that U.S. consumers would prefer to buy a watch manufactured in
Switzerland, rather than in France, Hong Kong or Japan.\110\ It also
showed that 14% of the respondents were ``very confident'' and 39% were
``somewhat confident'' that if ``Swiss'' appears on a watch's face, the
complete watch was manufactured in Switzerland.'' \111\
---------------------------------------------------------------------------

\109\ Comment 232, p.10.
\110\ Id. at 12, citing Exhibit 4, The Gallup Organization,
Country of Origin as a Consideration in the Purchase of Watches
(July 1992), p.5. The survey was commissioned by the Swiss
Federation. It presented a choice among only the four countries
named in the text.
\111\ Id., Exhibit 4, pp.3,7.
---------------------------------------------------------------------------

The Swiss Federation also contended that, due to advances in
manufacturing technology, widespread use of lower cost quartz
movements, and the availability of special features of watches, the
movement now represents a significantly lower proportion of the
finished watch's value. ``In addition, technological advances in the
quality and type of movement require greater testing and final
inspection after assembly of the movement.'' \112\ Moreover, it alleged
that special features make encasing and subsequent testing more
important, noting, e.g., that the accuracy of a chronometer or a water
resistant watch cannot be assured until a watch is encased.\113\
---------------------------------------------------------------------------

\112\ Swiss Federation (232) p.8.
\113\ Id.
---------------------------------------------------------------------------

However, the Tariff Act only requires that products entering the
United States be marked with one country of origin. Moreover, because
there is currently an international attempt to harmonize Customs rules
of origin, the Commission has tentatively determined not to issue new
guidelines that vary from requirements already imposed by Customs for
foreign-origin markings.\114\ As necessary, the Commission can address
this issue in the case-by-case context of specific products and claims,
weighed against other factors, rather than giving general guidance in
the

[[Page 33329]]

Watch Guides.\115\ Further, to the extent that competitors believe that
the origin of processes other than the ones Customs considers in making
its determination are truly important, they can use comparative
advertising to tout how their products may be unique; for example,
``Entirely Swiss Made,'' whereas other products have only Swiss-made
movements.
---------------------------------------------------------------------------

\114\ On April 7, 1995 at 60 FR 19605, the United States
International Trade Commission announced an investigation and a
request for public comment entitled ``International Harmonization of
Customs Rules of Origin.'' The notice stated, ``The investigation is
intended to provide the basis for Commission participation in work
pertaining to the Uruguay Round Agreement on Rules of Origin (ARO) *
* * adopted along with the Agreement Establishing the World Trade
Organization (WTO). The ARO is aimed at obtaining the harmonization
and clarification of nonpreferential rules of origin for goods in
trade on the basis of the substantial transformation test; at
achieving discipline in the rules' administration; and at providing
a framework for notification, review, consultation, and dispute
settlement. These harmonized rules are intended to make country-of-
origin determinations impartial, predictable, transparent,
consistent, and neutral, and to avoid restrictive or distortive
effects on international trade.'' Id. The notice noted that there
will be subsequent notices inviting comments on ``draft U.S.
proposals on the rules, which generally will be issued on a product
sector basis * * *.'' Id.
\115\ Section 245.2 of the Guides will continue to advise that
misrepresentation of country of origin is unfair and deceptive.
---------------------------------------------------------------------------

The Commission therefore proposes deleting section 245.10 entirely,
and seeks comment on this proposal.

L. Proposed Deletion of Sections 245.11-245.16

The JVC omitted from its proposal current sections 245.11 through
245.16. Each of these sections is of general applicability and some of
them correspond to a broader, non-industry specific guide or rule.\116\
For the most part, the comments did not address the deletions proposed
by the JVC.
---------------------------------------------------------------------------

\116\ Section 245.11 addresses deceptive pricing. Section 245.12
covers commercial bribery, which is addressed by the Robinson-Patman
Act. Section 245.13 covers ``Coercing purchase of one product as a
prerequisite to the purchase of other products.'' Section 245.14
addresses ``Misrepresentation of the character and size of business,
extent of testing, etc.'' Section 245.15 covers ``Guarantees,
warranties, etc.'' Section 245.16 governs ``Use of the word
`free'.''
---------------------------------------------------------------------------

Neither the Watch Council nor AWI specifically addressed any
proposed deletions, but both recommended rejecting the JVC's petition
and retaining the current Guides.\117\ Citizen supported the first two
parts of a proposal made by AWA to revise section 245.15, discussed
below, but otherwise recommended retaining sections 245.11 through
245.16 in their present form.\118\ AWA supported deleting sections
245.11 through 245.13, because they proscribed practices not particular
to the watch industry and barred by statute.\119\
---------------------------------------------------------------------------

\117\ USWC (118) p.1; AWI (116) p.1.
\118\ Comment 228, p.5.
\119\ Comment 236, p.3.
---------------------------------------------------------------------------

AWA, however, proposed retaining a revised version of section
245.15, ``Guarantees, warranties, etc.'' AWA recommended that section
245.15 not delineate precise elements of warranty disclosures or
warrantors' duties. Instead, it proposed substituting three paragraphs
for current section 245.15 that would: (1) prohibit representations
that an industry product is covered by a guarantee or warranty unless
it is in fact covered by one that fully complies with all applicable
state and federal laws; (2) prohibit representations that an industry
product is covered by a ``full'' or ``limited'' written warranty unless
it is covered by the specified type of warranty that fully complies
with the Magnuson-Moss Warranty Act or any successor legislation, as
well as with any other applicable state or federal laws; and (3)
require an industry member that performs unauthorized alteration or
repair services on an industry product to fully and nondeceptively
disclose that any damage arising from such unauthorized alteration or
repair services may not be covered by any applicable warranty.\120\ AWA
argued that the failure of persons repairing or altering a watch from
its original condition to notify consumers that damage caused in the
process of unauthorized alterations or repairs might not be covered by
any applicable warranty ``has the potential to mislead consumers.''
\121\ It proposed extending the definition of ``industry member'' to
any person that performs alterations or repair services on industry
products, whether or not such alterations or repair services involve
the sale of an industry product.\122\
---------------------------------------------------------------------------

\120\ Id. at 3-4.
\121\ Id. at 3.
\122\ Id.
---------------------------------------------------------------------------

The Commission believes that AWA's concerns about watch repair and
alteration are adequately addressed by revised section 245.8 (now
section 245.7), which advises watch sellers against misleading
consumers with regard to the coverage of a manufacturer's guarantee or
warranty.\123\ The Commission also has concluded that it is unnecessary
to include in the Guides the remaining aspects of AWA's proposal
because they address practices not particular to watch industry
products. Accordingly, the Commission proposes deleting sections 245.11
through 245.16.
---------------------------------------------------------------------------

\123\ See discussion above.
---------------------------------------------------------------------------

III. Request for Comment

The Commission seeks public comment on the Watch Guides as a whole,
and all of the proposed changes discussed above. The Commission also
requests comment on the following specific questions:
1. Is there a continuing need for Guides for the Watch Industry?
(a) What benefits would the proposed revised Guides for the Watch
Industry provide to purchasers?
(b) Would the proposed revised Guides impose costs on purchasers?
(c) Do international standards provide sufficient guidance to the
watch industry?
(d) Are industry self-regulation and ``market mechanisms,'' such as
manufacturer reputation or manufacturer warranties, sufficient to
protect consumers from misrepresentations regarding watches?
2. What changes, if any, should be made to the proposed revised
Guides to increase the benefits of the Guides to purchasers?
(a) How would these changes affect the costs the proposed revised
Guides may impose on firms subject to their admonitions?
3. What significant burdens or costs, including costs of
compliance, would the proposed revised Guides impose on firms subject
to their admonitions?
(a) Would the proposed revised Guides provide benefits to such
firms?
4. What changes, if any, should be made to the proposed revised
Guides to reduce the burdens or costs imposed on firms subject to their
admonitions?
(a) How would these changes affect the benefits provided by the
Guides?
5. Do the proposed revised Guides overlap or conflict with other
federal, state, or local laws or regulations?
6. Since comment was sought on the existing Watch Guides in 1992,
what effects, if any, have changes in relevant technology or economic
conditions had on the provisions of the Guides?
7. Should detachable accessories to watchcases be covered by the
Watch Guides? If so, why?
8. Should the Guides advise that watchcases be marked to indicate
their metallic content? If so, why?
9. Should the provisions specifying a minimum thickness for
``rolled gold'' be changed to conform with ISO standard 3160-1?
10. Is the tolerance for plating thickness, in paragraph 1 of the
Appendix, necessary? If so, why?
11. Should the Guides admonish against the disclosure of karat
fineness for gold electroplated products in accordance with ISO
standard 3160-1?
12. Should the Guides advise the disclosure of the actual thickness
and karat fineness of gold electroplate? Is a disclosure of the
``nominal thickness'' of the electroplate, as required by ISO standard
3160-1, preferable?
13. Is the proposed safe harbor for gold electroplate
representations (1 micron of 23K gold) preferable to ISO standard 3160-
1 (5 microns of 14K gold)? If so, does 1 micron of 23 karat gold
provide a durable coating, sufficient to render lasting and effective
service?
14. Should the term ``gold plate'' be used to describe a watchcase
with a gold coating, regardless of the method of application of the
coating? For gold plated items, should the Guides advise the disclosure
of the actual thickness and karat fineness of the plating? Is a

[[Page 33330]]

disclosure of the ``nominal thickness'' of the plating, as required by
ISO standard 3160-1, preferable?
15. Is proposed section 245.3(d) adequate to prevent the deceptive
marking of a watchcase composed of more than one metal?
16. Should the Commission add a Note to the Guides which states
that ``Representations that a watch is a chronometer are not considered
unfair or deceptive if the watch meets the definition of chronometer in
ISO standard 3159?''
17. Should the Commission add a Note to the Guides which states
that ``Representations that a watch is a diver's watch are not
considered unfair or deceptive if the watch meets the definition of a
diver's watch in ISO standard 6425?''
18. Is section 245.5(a)'s admonition against the use of the terms
``shockproof,'' ``waterproof,'' ``nonmagnetic,'' or ``all proof''
justified? Explain.
19. Should the Guides advise the disclosure of the care
requirements for protective features of a watch? If so, how should that
disclosure be made?
20. Should the Guides advise the manner in which the disclosure
that a product or its parts are not new, or are used, secondhand,
rebuilt, repaired or refurbished, be made? If so, how should the
disclosure be made?
21. Should the Guides admonish against misleading consumers into
believing that a watch which has been altered, repaired, rebuilt or
refurbished, is covered by the manufacturer's guarantee or warranty,
when the seller knows or has reason to know that the watch is not
guaranteed?
22. Should the Guides continue to advise industry members that it
is unfair or deceptive to imitate, simulate or counterfeit the trade
names or trademarks of competitors, or to obliterate, conceal, or
remove tags, labels, marks, or other disclosures placed on an industry
product under circumstances likely to mislead the ultimate consumer?
23. With respect to imported watches, should the Guides continue to
advise industry members to disclose the origin of the parts of the
watch movement (in addition to the U.S. Customs Service requirement
that the origin of the assembly of the movement be disclosed)? Is such
a disclosure of material importance to consumers?

List of Subjects in 16 CFR Part 245

Advertising; Trade Practices; Watch Bands; and Watches.

The Commission proposes to amend Chapter I of Title 16 of the Code
of Federal Regulations by revising: Part 245 to read as follows:

PART 245--GUIDES FOR THE WATCH INDUSTRY

Sec.
245.0 Scope and application.
245.1 Definitions.
245.2 Misrepresentation in general.
245.3 Misrepresentation of metallic composition of watchcases.
245.4 Misrepresentation as to durability or suitability.
245.5 Misrepresentation of protective features.
245.6 Deception as to movements.
245.7 Deceptive selling of used, rebuilt, or secondhand products.

Appendix A to Part 245--Thickness Tolerance and Tests

Authority: 15 U.S.C. 45, 46.

Sec. 245.0 Scope, application, and purpose.

(a) Statement of purpose. The guides in this part represent
administrative interpretations of laws administered by the Federal
Trade Commission for the guidance of the public in conducting its
affairs in conformity with legal requirements. The guides in this part
specifically address the application of section 5 of the FTC Act (15
U.S.C. 45) to the advertising and marketing of watches. They provide
the basis for voluntary compliance with such laws by members of
industry. Conduct inconsistent with the positions articulated in the
guides in this part may result in corrective action by the Commission
under section 5 if, after investigation, the Commission has reason to
believe that the behavior falls within the scope of conduct declared
unlawful by the statute.
(b) The guides in this part apply to persons, partnerships or
corporation, at every level of the trade (including but not limited to
manufacturers, suppliers, and retailers) engaged in the business of
offering for sale, selling, distributing or importing industry
products.
(c) The guides in this part apply to claims and representations
about industry products included in labeling, advertising, promotional
materials and all other forms of marketing, whether asserted directly
or by implication, through words, symbols, emblems, logos,
illustrations, depictions, product brand or trade names, visual
representations, pictures, televised or computer images, diagrams, or
other depictions, or through any other means.

Sec. 245.1 Definitions.

For the purpose of this part the following definitions apply:
(a) The term watch means a timepiece or time-keeping device for
measuring or indicating time which is designed to be worn on or about
the person.
(b) The term watchcase or case means any metal case, covering, or
housing of any quality or description for a watch as defined above and
includes the back, center, lugs, bezel, pendant, crown, bow, cap, and
other parts thereof, including a watch band or other accessory which
has been permanently affixed thereto; and unless otherwise stated,
either term as used in these guides applies to the case whether
marketed separately or together with the movement or works.

Note: The Guides for the Jewelry, Precious Metals, and Pewter
Industries, 16 CFR Part 23, address detachable metallic watch bands
and other detachable accessories.

(c) The term movement means that part of a watch which produces and
maintains a recurring phenomenon and is capable of counting time. The
movement is connected to a means of displaying time by either a dial
and hands (analog) or a digital display, and is mounted in a case.
(1) Mechanical movement means a movement which divides time into
equal parts using a balance wheel or any other mechanical means of
determining intervals of time that uses power generated by a mainspring
which may be wound by hand or automatically.
(2) Quartz movement means a movement which divides time into equal
parts using a synthetic quartz crystal that vibrates using power
generated by electrical energy.
(d) The term mark means any letter, figure, numeral, symbol, sign,
word, or term, or any combination thereof, which has been stamped,
embossed, inscribed, or otherwise placed, on any industry product for
the purpose of disclosing its metallic composition or any other
material information.
(e) The term industry product means a watch or watchcase, or a part
thereof, as defined in paragraphs (a), (b) and (c) of this section.

Sec. 245.2 Misrepresentation in general.

It is unfair or deceptive to misrepresent the grade, quality,
estimated life, appearance, substance, size, construction, novelty,
composition, accuracy, dependability, imperviousness, repairability,
conformance to standards, methods of manufacture, country of origin, or
any other material aspect of an industry product or part.

[[Page 33331]]

Sec. 245.3 Misrepresentation of metallic composition of watchcases.

(a) It is unfair or deceptive to misrepresent the metallic
composition of a watchcase.
(b) The following are examples of markings or descriptions that may
be misleading:
(1) Use of the word ``Gold,'' or any abbreviation, without
qualification, to describe all or part of an industry product, which is
not composed throughout of fine (24 karat) gold.
(2) Use of the word ``Gold,'' or any abbreviation, to describe all
or part of an industry product which is composed throughout of an alloy
of gold, unless a correct designation of the karat fineness of the
alloy immediately precedes the word ``Gold,'' or its abbreviation, and
such fineness designation is of at least equal conspicuousness.
(3) Use of the word ``Gold,'' or any abbreviation, to describe all
or part of an industry product, which is not composed throughout of
gold or a gold alloy, but is surface-plated or coated with gold alloy,
unless the word ``Gold,'' or its abbreviation, is adequately qualified
to indicate that the product or part is only surface-plated.
(4) Use of the term ``Gold Plate,'' ``Gold Plated,'' or any
abbreviation, to describe all or part of an industry product, unless
such product or part contains a surface-plating of gold alloy, applied
by any process, which is of such thickness and extent of surface
coverage that reasonable durability is assured.
(5) Use of the terms ``Gold Filled,'' ``Rolled Gold Plate,''
``Rolled Gold Plated,'' or ``Gold Overlay,'' or any abbreviation, to
describe all or part of an industry product, unless such product or
part contains a surface-plating of gold alloy applied by a mechanical
process which is of such thickness and extent of surface coverage that
reasonable durability is assured, and unless the term is immediately
preceded by a correct designation of the karat fineness of the alloy
that is of at least equal conspicuousness as the term used.
(6) Use of the term ``Gold Electroplate,'' or ``Gold
Electroplated,'' or any abbreviation, to describe all or part of an
industry product, unless such product or part is electroplated with
gold or a gold alloy and such electroplating is of such thickness and
extent of surface coverage that reasonable durability is assured.
(7) Use of the word ``Gold,'' or any abbreviation, or of a quality
mark implying gold content (e.g., 9 karat), to describe all or part of
an industry product, which is composed throughout of an alloy of gold
of less than 10 karat fineness.
(8) Use of the words ``silver,'' ``sterling,'' or ``sterling
silver,'' or any abbreviation, to describe all or part of an industry
product, which is not composed throughout of at least 925/1000ths pure
silver. Use of the word ``coin silver'' to describe all or part of an
industry product, which is not composed throughout of at least 900/
1000ths pure silver.
(9) Use of the words ``silver,'' ``sterling,'' ``sterling silver,''
or ``coin silver'' or any abbreviation, to describe all or part of an
industry product, which is not composed throughout of silver, but is
surface-plated or coated with silver, unless the word ``silver,'' or
its abbreviation, is adequately qualified to indicate that the product
or part is only surface-plated.
(c) The following are examples of markings and descriptions that
are not considered unfair or deceptive.
(1) An industry product or part thereof, composed throughout of an
alloy of gold of not less than 10 karat fineness, may be marked and
described as ``Gold'' when such word ``Gold,'' wherever appearing, is
immediately preceded by a correct designation of the karat fineness of
the alloy, and such karat designation is of equal conspicuousness as
the word ``Gold'' (for example, ``14 Karat Gold,'' and ``14 K. Gold,''
and ``14 Kt. Gold''). Such product may also be marked and described by
a designation of the karat fineness of the gold alloy unaccompanied by
the word ``Gold'' (for example, ``14 Karat,'' ``14 Kt.,'' and ``14
K.'').
(2) An industry product or part thereof, on which there has been
affixed on all significant surfaces, by any process, a coating,
electroplating, or deposition by any means, of gold or gold alloy of
not less than 10 karat fineness, may be marked or described as ``Gold
Plate'' or ``Gold Plated,'' or adequate abbreviation thereof, (as, for
example, G.P.), if such products either could be marked as ``gold
electroplate'' under paragraph (c)(5) of this section, or are plated to
a thickness throughout which is equivalent to at least five microns
(approximately 200 millionths of an inch) of 14 karat gold after
completion of all finishing operations, provided that a mark indicating
the karat fineness and the actual thickness of the gold plate in
microns, is disclosed in close proximity to and equally conspicuously
as the mark identifying the watchcase as ``gold plate'' or ``gold
plated'' (for example, ``5 microns 14 K. gold plate,'' or ``5
14 K. G.P.'' for an item plated with 5 microns of 14 karat gold.)
(3) An industry product or part thereof, on which there has been
affixed on all significant surfaces by mechanical means, a plating of
gold or gold alloy of not less than 10 karat fineness, may be marked or
described as ``Gold Filled,'' or adequate abbreviation, when the
plating is of a thickness throughout of not less than 75 microns
(approximately three one-thousands of an inch) after completion of all
finishing operations, and when the term or abbreviation is immediately
preceded by a designation of the karat fineness of the gold alloy of
which the plating is composed, which is of equal conspicuousness as the
term used (for example, ``12 Karat Gold Filled,'' ``12 K.G.F.'').
(4) An industry product or part thereof, on which there has been
affixed on all significant surfaces by mechanical means, a plating of
gold or of a gold alloy of not less than 10 karat fineness, may be
marked or described as ``rolled gold plate,'' or an abbreviation, when
the plating has a thickness throughout of not less than 37.5 microns
(approximately one and one-half one thousands of an inch) after
completion of all finishing operations, and when the term or
abbreviation is immediately preceded by a designation of the karat
fineness of the gold alloy of which the plating is composed, which is
of equal conspicuousness as the term used (for example, ``10 Karat
Rolled Gold Plate,'' ``10 K. R.G.P.'').
(5) An industry product or part thereof, on which there has been
affixed on all significant surfaces by an electrolytic process, an
electroplating of gold, or of a gold alloy of not less than 10 karat
fineness, which has a minimum thickness throughout which is equivalent
to at least 1 micron (approximately 40 millionths of an inch) of 23
karat gold after completion of all finishing operations, may be marked
``gold electroplate,'' provided that the karat fineness and the actual
minimum thickness of the gold electroplate is disclosed in microns in
close proximity to and equally conspicuously as the mark identifying
the watchcase as ``gold electroplate.'' If the thickness of such gold
electroplate is 37.5 microns (approximately one and one-half one
thousandths of an inch) or greater, it may be described as ``heavy gold
electroplate.'' The terms ``gold electroplate'' and ``heavy gold
electroplate'' may be immediately preceded by a correct designation of
the karat fineness of the gold alloy of which such coating is composed.

Note: A watch case which has been electroplated with 5 microns
of 14 karat gold meets the requirements of this section and may be
marked gold

[[Page 33332]]

electroplate, provided that the karat fineness and the actual
thickness of the gold electroplate is disclosed in microns in close
proximity to and equally conspicuously as the mark identifying the
watchcase as ``gold electroplate.''

(6) An industry product or part thereof, which is composed
throughout of at least 925/1000ths pure silver, may be described as
``silver,'' ``sterling,'' or ``sterling silver,'' or any abbreviation.
An industry product or part thereof which is composed throughout of at
least 900/1000ths pure silver, may be described as ``coin silver.''
(7) An industry product or part thereof, which has been plated with
silver may be marked as ``silver plate'' or ``silver plated,'' if,
after the completion of all finishing operations, all significant
surfaces of the product or part contain a plating or coating of silver
which is of substantial thickness,\1\ which will withstand normal use
and last throughout the estimated life of the product.

\1\ The term ``substantial thickness'' means that all areas of
the plating are of such thickness as to assure a durable coverage of
the base metal to which it has been affixed. Since industry products
include items having surfaces and parts of surfaces which are
subject to different degrees of wear, the thickness of plating for
all items or for different areas of the surface of individual items
does not necessarily have to be uniform.
---------------------------------------------------------------------------

Note to paragraph (c)(7): The National Stamping Act provides
that silverplated articles shall not ``be stamped, branded, engraved
or imprinted with the word `sterling' or the word `coin,' either
alone or in conjunction with other words or marks.'' 15 U.S.C.
297(a).

(8) An industry product or part thereof, which is composed in whole
or in part of a precious metal other than gold or silver, or of an
alloy of such a metal, or which has been plated by any method with such
a metal or alloy thereof, may be marked so as to disclose the kind of
precious metal or alloy used and the manner of its use.
(9) An industry product or part thereof, which does not fall within
the descriptions provided in paragraphs (c) (1) through (7) of this
section, may be marked as ``Base Metal'' or so as to identify clearly
the kind or kinds of metal of which it is composed, e.g., ``Aluminum,''
``Stainless Steel,'' ``Chromium Plated Steel.''
(d) If a watchcase is composed of parts having different metallic
compositions, and has exposed surfaces that are or have the appearance
of being metal, a mark placed on the product that indicates the
metallic content of the product should be closely accompanied by an
identification of the part or parts to which the mark is applicable
(e.g., ``Base Metal Back,'' ``14K Gold Filled Bezel'').
(e) In determining the metallic composition of watchcases, parts
which are necessarily required to be of steel or some other base metal
may be excluded, namely, the springs, hinge pins for jointed cases,
spring pins for straps or bands, separate inside movement holding
rings, and crown cores.
(f) The provisions of this section relating to markings and
descriptions of industry products and parts thereof are subject to the
applicable tolerances under the National Stamping Act (15 U.S.C. 294,
et seq.), or any amendment thereof. For plated items, refer to the
permissible tolerances set forth in paragraph 1 of Appendix A to this
part.

Sec. 245.4 Misrepresentation as to durability or suitability.

It is unfair or deceptive to misrepresent the ability of a product
to resist or withstand damage from stated causes, or of its suitability
for particular uses. Illustratively, it is unfair or deceptive to
falsely designate or describe a watch as a chronometer or use such
terms as ``skin divers,'' ``navigators,'' or ``railroad'' to describe
industry products which do not possess the characteristics, e.g.,
ruggedness, accuracy, dependability, or other features, required of
watches used by persons engaged in those activities.

Note: Representing that a watch is a chronometer would not be
considered unfair or deceptive, if the watch meets the definition of
``chronometer'' in ISO standard 3159 (Timekeeping instruments--
Wrist-chronometers with spring balance oscillator).
Note: Representing that a watch is a diver's watch would not be
considered unfair or deceptive, if the watch meets the definition of
a ``diver's watch'' in ISO standard 6425 (Divers' Watches).

Sec. 245.5 Misrepresentation of protective features.

(a) It is unfair or deceptive to misrepresent the ability of an
industry product to withstand or resist damage or other harmful effects
from stated causes. Illustratively, it is unfair and deceptive to
describe an industry product as ``shockproof,'' ``waterproof,''
``nonmagnetic,'' or ``all proof,'' even if such term or terms are
qualified by words or phrases, e.g., ``waterproof when case, crown, and
crystal are intact.''
(b) The following are examples of markings and descriptions that
are not considered unfair or deceptive:
(1) Use of the term ``shock resistant'' or ``shock absorbing'' to
describe an industry product, if the person making that claim has a
reasonable basis for concluding that the product possesses a level of
resistance to damage from shock, sufficient to insure that it will
successfully withstand being dropped from a height of 3 feet onto a
horizontal hardwood surface. Satisfying ISO Standard 1413-1984(E) \2\
or passing the test described in paragraph 2 of the appendix provides
such a reasonable basis.
---------------------------------------------------------------------------

\2\ ISO standards are available from: American National
Standards Institute, Customer Service, 11 W. 42nd Street, 13th
Floor, New York, NY 10036-8002, Telephone (212) 642-4900; FAX (212)
302-1286.
---------------------------------------------------------------------------

(2) Use of the term ``water resistant'' to describe an industry
product, if the person making that claim has a reasonable basis for
concluding that it is sufficiently impervious to water or moisture so
as to insure that at the time of its sale to the ultimate consumer it
will successfully withstand being immersed in water during such
activities as bathing, showering, and swimming. Satisfying ISO Standard
2281-1990(E) or passing the test described in paragraph 3 of Appendix A
to this part provides such a reasonable basis.
(3) Use of the term ``antimagnetic'' to describe an industry
product, if the person making that claim has a reasonable basis for
concluding that it is so designed and constructed as to provide a
substantial degree of protection against magnetism after sale to the
ultimate consumer, and the product will successfully withstand
accidental exposure to unusually strong magnetic or electrical fields.
Satisfying ISO Standard 764-1984(E) or passing the test described in
paragraph 4 of Appendix A to this part provides such a reasonable
basis.

Sec. 245.6 Deception as to movements.

(a) It is unfair or deceptive to misrepresent the number of jewels
contained in a watch, or that a watch is ``jeweled'' or contains a
jeweled movement.
(b) The following are examples of markings and descriptions that
are not considered unfair or deceptive:
(1) Describing a watch as ``jeweled'' or as containing a jeweled
movement if the movement contains at least seven jewels each of which
serves the purpose of protecting against wear from friction by
providing a mechanical contact with a moving part at a point of wear.
(2) Describing a watch as containing a certain number of jewels if
each of these jewels serves the purpose of protecting against wear from
friction by providing a mechanical contact with a moving part at a
point of wear.
(c) It is unfair or deceptive to represent that a watch is a
``quartz

[[Page 33333]]

watch'' or contains a quartz movement if such is not the case.
(d) A watch may be described as a ``quartz watch'' or as containing
a quartz movement if a silicon dioxide (``quartz'') crystal contained
in the watch serves the purpose of dividing time and regulating the
time display by means of vibrations of such crystal caused by its
placement into an electric field.

Sec. 245.7 Deceptive selling of used, rebuilt, or secondhand products.

(a) It is unfair or deceptive to sell or offer for sale an industry
product which in whole or in part is, or which contains parts that are,
used, secondhand, rebuilt, repaired or refinished, unless a disclosure
is made that such product or parts are not new, or are used,
secondhand, rebuilt, repaired, or refinished.
(b) It is unfair or deceptive to represent that a watch which has
been used, rebuilt, repaired, or refinished is covered by the
manufacturer's guarantee or warranty, when such is not the case.

Appendix A to Part 245--Thickness Tolerances and Tests

Set forth in this Appendix are the thickness tolerances and tests
referred to in this part.
1. Thickness tolerances: plated and electroplated cases. The
minimum thickness specified in Sec. 245.3(c) (2), (3), (4), and (5) for
the coatings of gold or gold alloy on watchcases shall mean that the
coating of precious metal affixed to the surface of the metal stock
shall be throughout the surface and at the thinnest point not less than
the thickness specified after the completion of all finishing
operations, including polishing, except, however, for such deviations
therefrom, not exceeding 20 percent (minus) of the stated thickness, as
may be proved by the manufacturer to have resulted from unavoidable
variations in manufacturing processes and despite the exercise of due
care, which deviation so proved should be allowed if and when the
quantity of precious metal remaining plated on the outside of the case
is sufficient to equal the quantity necessary to provide the specified
minimum thickness at all points on such watchcase including the
thinnest point.
2. Test for shock resistance. A watch should be tested for shock
resistance in a room having a temperature between 18 and 25 degrees
Centigrade which does not vary by more than two degrees during the
test. A wrist watch which does not have a permanently affixed band
should be tested without the band or strap. The test should be
conducted as follows:
a. One hour after a mechanical watch has been fully wound or two
hours after a quartz watch has been allowed to function, its daily
rate in each of the following three positions should be determined
by observing it for two minutes in each position:
(1) Position HB (horizontal with dial facing down);
(2) Position VC (vertical with three o'clock to the watch's
left);
(3) Position VB (vertical with three o'clock pointed downwards).
b. Shocks equal to that which the watch would receive if it were
dropped from a height of three feet onto a horizontal hardwood
surface should be applied as follows:
(1) The first shock should be applied to the middle of the watch
at a position directly opposite the crown and in a direction which
is parallel to the plane of the watch;
(2) The second shock should be applied to the crystal, and in a
direction which is perpendicular to the plane of the watch.
c. (1) Five minutes after the last shock, the daily rate of the
watch in each of the three positions described in paragraph 2. a. of
this appendix above should be determined by observing it for two
minutes in each position. The differences in daily rate before and
after the shock should be determined for each position. The residual
effect of the shocks will be equal to the greatest of these
differences.
(2) A watch will be considered to have passed the foregoing
test, if after application of the shocks, it does not stop; the
residual effect does not exceed 2 seconds per day for quartz watches
and 60 seconds per day for all other types of watches; and an
examination of the watch does not disclose any physical damage which
would affect its operation or appearance, e.g., hands bent or out of
position, cracked crystal, or automatic or calendar devices
inoperable or out of alignment.
3. Test for water resistance. A watch should be tested for water
resistance by immersing it completely for at least five minutes in
water under atmospheric pressure of 15 pounds per square inch and
for at least another five minutes in water under an additional
pressure of at least 35 pounds per square inch (total pressure of 50
pounds per square inch). If the watch does not admit any water or
moisture it will be considered to have passed the test.
4. Test for anti-magnetic qualities. A watch should be tested
for its resistance to magnetism by placing it in a demagnetized
condition in an electrical field of not less than 60 Gauss for at
least five seconds in a vertical position and for at least five
seconds in a horizontal position. If the daily rate of a quartz
watch has not been changed by more than 1.5 seconds as a result of
the foregoing exposure, or the daily rate of all other types of
watches has not been changed by more than 15 seconds as a result of
the foregoing exposure, it shall be considered to have passed the
test.

By direction of the Commission.
Donald S. Clark,
Secretary.
Note: This appendix will not appear in the Code of Federal
Regulations.

Appendix--List of Commenters and Abbreviations
--------------------------------------------------------------------------------------------------------------------------------------------------------
Abbreviation No. Commenter
--------------------------------------------------------------------------------------------------------------------------------------------------------
ArtCarved.......................... 155 ArtCarved.
AWA................................ 236 American Watch Association.
AWI................................ 116 American Watchmakers Institute.
Bales.............................. 156 Bales Diamond Center & Mfg. Inc.
Bedford............................ 210 Bedford Jewelers, Inc.
Benrus............................. 22 Benrus Watch Co. Inc.
Best............................... 225 Best Products Co., Inc.
Bridge............................. 163 Ben Bridge.
Canada............................. 209 Consumer & Corporate Affairs Canada.
Citizen............................ 228 Citizen Watch Co. of America, Inc.
Estate............................. 23 Estate Jewelers.
Fasnacht........................... 4 Fasnacht's Jewelers.
G&B................................ 30 Gudmundson & Buyck Jewelers.
Gold Institute..................... 13 Gold Institute.
Handy.............................. 62 Handy & Harman.
IJA................................ 192 Indiana Jewelers Association.
ISA................................ 237-237A International Society of Appraisers.
Jabel.............................. 47 Jabel Inc.
JCWA or Japan Watch................ 216 Japan Clock & Watch Association.
JMC................................ 1 Jewelry Merchandising Consultants.

[[Page 33334]]

Lannyte............................ 65 Lannyte Co.
LaPrad............................. 181 Robert E. LaPrad.
Leach.............................. 257 Leach & Garner.
Matthey............................ 213 Johnson Matthey.
McGee.............................. 112 McGee & Co.
MJSA............................... 226 Manufacturing Jewelers & Silversmiths of. America, Inc.
NACSM.............................. 219 National Association of Catalog Showroom Merchandisers, Inc.
NAW................................ 251 North American Watch Corp.
Newhouse........................... 76 Leon M. Newhouse.
Nowlin............................. 109 Nowlin Jewelry, Inc.
Phillips........................... 204 Phillips Jewelers, Inc.
Sheaffer........................... 249 Sheaffer Inc.
Skalet............................. 61 Skalet Inc.
Sibbing's.......................... 5 Sibbing's Jewelry.
Solid Gold......................... 261 Solid Gold Jewelers.
Swiss Federation................... 232 The Federation of the Swiss Watch Industry.
Timex.............................. 239 Timex Corp.
USWC............................... 118 U.S. Watch Council Inc.
--------------------------------------------------------------------------------------------------------------------------------------------------------

[FR Doc. 97-15820 Filed 6-17-97; 8:45 am]
BILLING CODE 6750-01-P

Visit the Official Version

Document Information

Published:: 06/18/1997
Department:: Federal Trade Commission
Entry Type:: Proposed Rule
Action:: Request for public comments.
Document Number:: 97-15820
Dates:: Written comments will be accepted until September 2, 1997.
Pages:: 33316-33334 (19 pages)
PDF File:: 97-15820.pdf
CFR: (9): 16 CFR 245.10; 16 CFR 245.0; 16 CFR 245.1; 16 CFR 245.2; 16 CFR 245.3; More ...