SECTION 6: Network Marketing and the Law
By Jeffrey A. Babener
Excerpted from Network Marketing: What You Should
Know, Jeffrey Babener, Legaline Publications
MLM consultant practice tips. An experienced
MLM Legal Expert and MLM Law Advisor may become the most important part
of an MLM Corporate team. This person has experienced almost
every MLM Business and Legal Issue and will likely provide experienced
MLM Insight and guidance on MLM Business and MLM Law Related issues.
MLM Legal and MLMLegal.com and Babener and Associates provides
expert MLM Consultant and MLM Consulting advise on MLM corporate, MLM
software, MLM Compensation, MLM Taxes, etc. MLM Consulting is an important
component for MLM startup. Careful Choice of MLM Software is another
component of MLM Corporate. An MLM Consultant and MLM Law and
MLM Legal is part of the MLM Startup Team. MLM Compensation must
be reviewed by an MLM Consulting standpoint by an MLM Consultant and
MLM Legal and MLM Law professional and programmed by a MLM Software
and MLM Technology provider.
Personal Use - The Once and Future Issue.
There has always been tension between the direct selling industry and the regulatory community as to the role of "personal use" of products and services by distributors of network marketing companies. The broad and ambiguous language in pyramid legislation has contributed to the problem. Pyramid statutes have always prohibited the payment of commissions in a multilevel program unless based upon the "sale goods or services." "To whom" must those goods or services be sold in order to avoid being a pyramid? This is a difficult question.
Almost all major direct selling companies have defined a "retail sale' to include sales to nondistributors, as well as sales to distributors for actual use or consumption. Many regulatory officials, however, have maintained that the "mark of legitimacy" is to be found in the program where the primary sales revenue comes from sales to nondistributors.
As a theoretical goal, the regulatory position is admirable. The fact is that personal use in the direct selling community has been a major factor in sales revenue for many companies from their inception.
For many years after the 1979 Amway decision, a "live and let live attitude" prevailed between the industry and regulatory community. Although periodic legal skirmishes occurred, the industry and regulatory community appeared to be content to "agree to disagree," and instead the focus on legal investigation was upon inventory loading, cash pyramids, phony products and earnings hype.
The comments of a federal appeals court in 1996 class action case involving a company called Omnitrition invigorated the debate. In that decision, which involved an interim ruling in the case, the federal appeals court questioned whether or not a network marketing company could be viewed as legitimate if its sales were not derived from nonparticipant customers. The language in the decision was much criticized by the industry and the Direct Selling Association, in fact, filed an amicus brief requesting the court to reconsider its reasoning. The DSA amicus brief cited the importance of personal use in direct selling marketing programs. However, the decision stood.
In the aftermath of the decision, both state and federal regulatory agencies were emboldened to sue or obtain consent decrees against network marketing companies which contain very restrictive requirements regarding recognition of personal use by distributors. State agencies were all over the board on their position. Some demanded 50 percent sales to nondistributors. Some demanded 70 percent sales to nondistributors. Some demanded 80 percent to nondistributors. Even the Federal Trade Commission awakened after 20 years of dormancy and demanded that more than 50 percent of sales be to nondistributors in various consent decrees.
The aggressiveness of government activity was alarming to the industry. The industry quickly marshaled forces and, in short order, at least four state adopted legislation specifically recognizing personal use as a legitimate end destination for products. Other states were likewise targeted for such legislation and the industry was of the belief that a trend would be started that ultimately would be recognized by all state and federal regulatory agencies. So strongly did the industry feel about it, that its leading trade association, the Direct Selling Association, undertook consideration of a formal amendment to its ethics code which would recognize that, for purposes of a pyramid analysis, a retail sale would include sales to nonparticipants, as well as sales to participants for actual use or consumption.
Notwithstanding the ongoing debate on "personal
use" the industry seems to thrive in almost all states. There is no question,
however, that the "personal use:" issues is a thorny issue and one issue
upon which the industry and regulatory community must carry on an earnest
ongoing dialog to reach a consensus that protects consumers, distributors
and network marketing companies.
NETWORK MARKETING/MLM consultant practice
tips. Every NETWORK MARKETING/MLM company should establish an NETWORK
MARKETING/MLM distributor relations and NETWORK MARKETING/MLM compliance
department. Success in the NETWORK MARKETING/MLM field is dependent
on continuous NETWORK MARKETING/MLM Support and NETWORK MARKETING/MLM
Communications relationship that demonstrates ongoing support in NETWORK
MARKETING/MLM Marketing issues and is clear on guidelines for compliance
with NETWORK MARKETING/MLM Business and NETWORK MARKETING/MLM Law issues.
NETWORK MARKETING/MLM Legal and NETWORK MARKETING/MLMLegal.com and Babener
and Associates provides expert NETWORK MARKETING/MLM Consultant
and NETWORK MARKETING/MLM Consulting advise on NETWORK MARKETING/MLM
corporate, NETWORK MARKETING/MLM software, NETWORK MARKETING/MLM Compensation,
NETWORK MARKETING/MLM Taxes, etc. NETWORK MARKETING/MLM Consulting is
an important component for NETWORK MARKETING/MLM startup. Careful
Choice of NETWORK MARKETING/MLM Software is another component of NETWORK
MARKETING/MLM Corporate. An NETWORK MARKETING/MLM Consultant and
NETWORK MARKETING/MLM Law and NETWORK MARKETING/MLM Legal is part of
the NETWORK MARKETING/MLM Startup Team. NETWORK MARKETING/MLM
Compensation must be reviewed by an NETWORK MARKETING/MLM Consulting
standpoint by an NETWORK MARKETING/MLM Consultant and NETWORK MARKETING/MLM
Legal and NETWORK MARKETING/MLM Law professional and programmed by a
NETWORK MARKETING/MLM Software and NETWORK MARKETING/MLM Technology