Everything dies baby, that’s a fact.

But maybe everything that dies someday comes back.

Bruce Springsteen, Atlantic City

By Jeff Babener, Copyright 2017

What a difference a year makes. In a well-received presentation to the November, 2017 DSA Regulatory Conference, FTC Acting Chairperson, Maureen Ohlhausen, struck a totally different tone in regard to forward looking FTC enforcement policy on direct selling, contrasted with the October, 2016 presentation of former FTC Chairperson, Edith Ramirez.

The contrasting messages:

2016: Ramirez: We are the regulator, new rules to live by, just live with it, it’s our way or the highway…

2017: Ohlhausen: We are all in this together…we are all stakeholders…let’s work together for the benefit of both, fostering the success of an entrepreneurial  and small business direct selling industry, and protecting the security of consumers.

Came floating on a lemon leaf

Flying in on a jasmine wind

The Band’s Visit, Broadway Show, 2017

What happened? Why the rapprochement? Why the goodwill? Will it take hold? Well, it’s a guess, but there are many factors:

(1)      The former chairperson “termed out.”

(2)      A presidential election swept in with an anti-regulatory, pro-growth, pro-entrepreneurial and small business message.

(3)      The going forward composition of the FTC Commission will be Republican and more likely to be sensitive to the concerns of the “regulated.”

(4)      Importantly, the previous FTC aggressive position pushed the industry to seek certainty in their business that could only be achieved by federal anti-pyramid legislation firmly rooted in long standing case authority rather than arbitrary administrative enforcement, i.e., the bi-partisan H.R. 3409 Anti-Pyramid bill was introduced and gaining momentum.

(5)      Finally, the FTC may have realized that it had been heavy handed in recently announced enforcement positions.

Point/Counter-Point: Contrasting Punch Lists

It is worthwhile to contrast the “punch lists” of presentations and positions by the 2016 Ramirez and the 2017 Ohlhausen:

Former Chairperson Ramirez’s presentation followed the successful FTC prosecution of FTC v. Vemma and the overly rigid terms of the FTC vs. Herbalife settlement. Although very well-articulated, the presentation warned of potential future FTC guidance that was not rooted in 50 years of case authority, but rather in the newly adopted positions of the Chairperson and FTC staff…… an enforcement policy that that would require a complete overhaul of the model of many leading direct selling companies:

(1)      She renounced use of the famous Amway Safeguards Standard, adopted in the landmark FTC case, In re Amway, 1979 as being irrelevant, overrated and not really relied on by courts in pyramid cases. (an unfortunate misinterpretation of case law).

(2)      She redefined the famous Koscot Standard to require compensation to upline to be based on sales to  nonparticipant retail customers rather than based upon Koscot’s language—ie., commissions must be based on sales to “ultimate users”, effectively reclassifying distributor users as “second class” “ultimate users.”

(3)      She pivoted away from a legal analysis in the most recent BurnLounge case, which demanded, in pyramid cases, a factual analysis of the “primary motivation” test in which a court asks “what is the primary motivation for distributors when they make purchases”…instead migrating to a punch list of inflexible operating restrictions imposed on Herbalife in its recent settlement.

(4)      She essentially attempted to create a new legal standard, the “percentages test”, an arbitrary new rule in which upline distributors would be limited to receive commission credit for only one-third of sales volume attributed to personal use by downline distributors, whether or not such purchases were reasonable in quantity and for actual use by the distributor “ultimate user.”

(5)      She announced that a long time practice of almost all leading direct selling companies, autoship to distributors, should, effectively, be prohibited.

(6)      She pivoted away from a well-established component of leading direct selling programs, stating that monthly activity volume requirements may not include any purchases by distributors.

(7)      She asserted that the long time practice of established direct selling companies, tracking of performance activity, connected to wholesale purchasing, should be banned.

 Acting Chairperson Ohlhausen, on the other hand took the train in a totally different direction, rooting a going forward FTC policy on long established case authority and principles of government/industry collaboration rather than top down directives.

As acting chairperson of the FTC, Chairperson Olhausen underscored her goals for the direct selling industry…Gone were threats to upend long standing direct selling models:

(1)      One of her overriding goals, she said, “was to increase the FTC’s support of small business and entrepreneurs.”

(2)      She noted: “I recognize that at the heart of the direct selling model are entrepreneurs—those men and women who are out there innovating, taking risks, and trying to generate value.”

(3)      She stressed that the direct selling model offers “a lot” to entrepreneurs:

(a)      Low startup costs;

(b)      Administrative and logistical support from their companies;

(c)      Promotion of efficiencies in the marketplace for friends and families and consumers;

(d)      Varied and diverse products and services;

(e)      Innovations in selling using internet and social media and technology.

(4)      She pointed out the importance of flexibility in regulation by the FTC and that it is important that the FTC stay away from rigid application of “one size fits all” regulatory enforcement, looking instead on “our case-by-case” enforcement process of “specific harm” in that particular case.

(5)      Consistent with the views of leading companies in the direct selling industry, she applauded industry self-regulation with government oversight as a backup, while at the same time emphasizing that government enforcement powers should be “robust and judicious.” Why judicious? Said Ohlhausen, “Over-zealous government involvement can diminish industry members’ participation in the self-regulatory system, which reduces the system’s effectiveness. Businesses that believe government action is inevitable will not participate or invest in self-regulation.”  How true, and what a great prelude to cooperation between the FTC and the direct selling industry.

(6)      Chairperson Ohlhausen took the time to lay out several “bright line” markers intended to serve as FTC’s down payment on a cooperative relationship with direct selling:

(a)      “The FTC and the DSA have a good working relationship, and for that, I thank you. We’ll continue to cultivate that relationship…”

(b)      The FTC took special care to understand the dynamics of direct selling, and exempted multilevel marketing programs from its recently updated Business Opportunity Rule.

(c)      Pivoting from Chairperson Ramirez’s comments that the Herbalife settlement terms may be the basis of future FTC guidance or rules, Chairperson Ohlhausen stated unequivocally that settlements and orders do not apply to the entire industry: “The answer to that question is no. Orders arising from FTC settlements are binding only on the entities and individuals identified in the order. The orders may of course, provide industry participants with additional data points on, for example, business structures that the FTC believes comply with the law. But that’s not to say the structures outlined in those orders are the only way the FTC believes companies can comply.”

(d)      Does the FTC assume or believe that every multi-level company is a pyramid scheme? Responded Ohlhausen, “The answer to that question is also no…we recognize the direct selling model has a lot to offer the marketplace and consumers.”

(e)      After hearing from Chairperson Ramirez in 2016, what the industry heard, or inferred, was that the FTC was abandoning longstanding case authority for its own “punch list” of what does or does not fit within legitimate multilevel marketing vs. pyramid scheme. Not so fast, declared Chairperson Ohlhausen, i.e., the FTC is going back to basics…a refreshing comment from the industry’s perspective and one that is the driving force behind H.R. 3409. Said the Chairperson, “At the risk of getting into too much legalese, the FTC described an unlawful pyramid scheme in our case against Koscot Interplanetary, Inc. back in 1975. Most courts have adopted that description and it’s the description we have used in our recent cases. (Author’s comment: many industry observers might take exception to the observation that this approach has been the guiding FTC enforcement position in recent cases.) Under that description, unlawful multi-level marketing structures are “characterized by the payment of money to the company in return for which they receive (1) the right to sell a product and (2) the right to receive, in return for recruiting participants into the program, rewards which are unrelated to the sale of the product to ultimate users.” (emphasis added)” Citing, In re Koscot Interplanetary, Inc., 86 F.T.C. 1106, 1180 (1975).

(f)       And realizing that “there are a lot of nuances” packed in the Koscot Standard and analysis of legitimacy vs. pyramid, Chairperson Ohlhausen, importantly, noted, “I have instructed the FTC staff to meet with the various stakeholders, including the DSA, to discuss those nuances. We anticipate applying the information we’ve gained to issue future guidance, as well as to guide future law enforcement decisions.”

To read the full article, visit mlmlegal.com.

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Executive Summary: The legal environment and the accepted business model of leading direct selling companies has been relatively stable for 50 years. That equilibrium was upset by the regulatory proposals of a former FTC commissioner to upend that environment with new arbitrary rules that lack a basis in case authority or legislation…creating confusion in today’s direct selling market place. H.R. 3409, a mirror of many established state anti-pyramid statutes and the language of long adopted case authority, is intended to return predictability and stability and certainty to that market.

Like a poem poorly written

We are verses out of rhythm

Couplets out of rhyme

In syncopated time

Paul Simon, The Dangling Conversation

How We Got Here …Talking Past One Another

Creating Uncertainty and Confusion in an Established Market

He was born on third, but thought he hit a triple.

In July, 2016 the FTC concluded an investigation and settlement with Herbalife, without formal prosecution or litigation. No finding of wrong doing was made and no finding of “pyramid.” A substantial fine was paid. More significantly, Herbalife was obliged to radically change its MLM operating model to an extent that differentiated it from most other leading direct selling companies.

Industry observers postulated that the FTC had achieved by settlement a result that it could not have achieved through protracted litigation. And so why the result? Many experts, who follow the industry and FTC, understood the dynamics of why a publicly traded company, in the midst of a multi-year short seller attack (where its stock had spanned a volatile range of $27 to $80 over a four year period) might accede to onerous terms to bring an end to a cloud of uncertainty over its business. Many would argue that it was just a prudent move at a particularly vulnerable point of time in the financial markets.  Interestingly, the fine paid was eclipsed by the surge in market cap and stock valuation as a result of the settlement, a fact that did not elude Wall Street.

Herbalife may have prevailed financially, but the FTC was playing “long ball” in terms of its long term legal position. Would the bevy of operating restrictions carry over to a change in the legal environment for the entire direct selling industry? Was the FTC emboldened to approach the direct selling industry as if it had just changed the direction of direct selling law unilaterally by settlement as opposed to achieving a change in the law by persuading a court to change the rules?  Absolutely. Did it really change direct selling law? Well, sometimes history is written by the victor, whether correct or not. Or maybe that’s for the historians.

Post FTC/Herbalife Settlement, former FTC Chairwoman, Edith Ramirez, in her October, 2016 presentation to the U.S. Direct Selling Association, announced a vision for a new FTC paradigm outlook on legitimate direct selling that was totally at odds with decades of case authority, state legislation and operating models of a 50 year old industry. To many observers, her position seemed to be drawn from “whole cloth” and fashioned as a “top down” bureaucrat “take it or leave it” style, i.e., “that’s the way it is, live with it!,” and “we know better than you…too bad.” Her position stunned CEOs of major direct selling companies. (The anxiety was heightened by another long time, and industry criticized, tactical practice of the FTC, referenced in the industry as “trial by ambush,” in which the FTC filed for a temporary restraining order and asset freeze at commencement of suit…leaving a company without any funds to defend itself….another issue for another day…)

My Way or the Highway…Bending the Arc of Direct Selling History

Her new theory of legitimate (vs. pyramid) direct selling was premised on a percentage analysis of non-participant consumption (perhaps mandating as high as two-thirds requirement to meet the FTC’s new standards), i.e., that the acid test for pyramid was demonstration of consumption by non-participants rather than the 40 year case standard established in the famous Koscot case, demonstration of consumption by the “ultimate user,” which could be either a non-participant or a participant….in one “fell swoop” distributors who used product became “second class” ultimate users and direct selling companies were on notice that their model, one that long recognized personal use and one that the FTC as late as its 2004 Advisory opinion recognizing personal use, was in jeopardy.

Almost by fiat, she announced proposed upcoming FTC guidance (as of 2017, not yet issued) that would require complete overhaul of the model of many leading direct selling companies:

(1)      She renounced use of the famous Amway Safeguard Standard, adopted in the landmark FTC case, In re Amway, 1979 as being irrelevant, overrated and not really relied on by courts in pyramid cases.

(2)      She redefined the famous Koscot standard to require compensation to upline to be based on sales to the nonparticipant retailer customer rather than the Koscot’s language, ultimate user, effectively making distributors “second class” “ultimate users.”

(3)      She pivoted away from a legal analysis in the most recent BurnLounge case, which demanded, in pyramid cases, a factual analysis of the “primary motivation” test in which a court asks “what is the primary motivation for distributors when they make purchases”…instead migrating to a punch list of operating restrictions imposed on Herbalife in its recent settlement.

(4)      She essentially described a new legal standard, the percentages test, an arbitrary new rule in which upline distributors were limited to receive commission credit for only one-third of sales volume attributed to personal use by downline distributors, whether or not such purchases were reasonable in quantity and for actual use by the distributor “ultimate user.”

(5)      She announced that a long time practice of almost all leading direct selling companies, autoship to distributors, should be prohibited.

(6)      She pivoted away from a well-established component of leading direct selling programs, stating that monthly activity volume requirements may not include any purchases by distributors.

(7)      She asserted that the long time practice of established direct selling companies, tracking of performance activity connected to wholesale purchasing should be banned.

In the absence of “inventory loading,” almost all of the new restrictions on long standing industry “practices” had never been of particular concern in 40 years of cases or robust legislation at the state level.

All in all, a Molotov cocktail was thrown into the garden of direct selling occupied by icons like Avon, Mary Kay, Amway, etc.

Confusion Gives Birth to H.R. 3409? … Time for Clarity

Nature abhors a vacuum…

Markets abhor uncertainty…

It was, as if the former Commissioner was talking right past those companies and models that had marshalled an important American economic channel for decades. Actually, right past case history and precedent.

A $36 billion dollar industry had lived with and understood court guidelines for many decades, but the Chairwoman proposed to upend 40 years of legal precedent to bend the arc of direct selling history.

Did industry leaders feel ambushed?  Well, that is a “charged” word…but, yes.  Direct Selling executives were rooted in the stability of historical case authority and state legislation respecting the role of personal use and rooting legitimacy in the Koscot standard, rewards must be related to sales to ultimate users (which includes personal use in reasonable amounts by distributors), the Amway standard, which asks companies to mandate that distributors achieve some level of retail sales, adhere to the 70% rule which prohibits reorders unless distributors have resold product or used it for personal use in an amount of at least 70% and offer a reasonable repurchase policy for repurchase of inventory of terminating distributors, and the BurnLounge standard that rejected the FTC argument against recognition of the validity of personal use and opted for a case by case factual analysis of “primary intent” of distributor purchasing rather than a lock step rigid rule.

Was it a wholesale rejection of legal precedent and legislative standards? Probably. Did it veer away from standards carefully formulated in famous case precedents of Koscot, Amway, BurnLounge? Yes. Did it part company with the FTC’s own 2004 Advisory Opinion accepting the validity of “personal use” recognition, all the way to the point of even suggesting that the concept of MLM buying clubs was commendable?  With all due respect, Yes. Did the position even conflict with the BurnLounge deposition testimony of the FTC’s own economist, who recognized the validity of personal use? Yes. Did the Commissioner’s position ignore the clear and growing trend in at least a dozen states where legislation called out the recognition of distributor personal use as a valid end destination to the ultimate user? Yes. Again, respectively, this state trend was missed altogether. (Actually, the Direct Selling Association points out that at least 21 states have adopted anti-pyramid legislation that also mirrors the anti-inventory loading/repurchase requirements seen in H.R. 3409.) Whether or not this omission was merely an oversight, who knows?

A close point by point FTC “fact check” is worthy of a read and a cup of coffee:

Fact Checking the FTC’s New Legal Guidance 

Jeffrey Babener, 2016

For those of a more studious nature, check out the detailed analysis on the evolving legal standards in case authority (including Koscot, Amway and BurnLounge) and at the legislative level:

BurnLounge Appeal Decision: Guidance on Pyramid v. Legitimate MLM and the Role of Personal Use in Pyramid Analysis

Jeffrey Babener, 2014

Also see legal analysis of the FTC punch list of operational restrictions arising from the Herbalife settlement:

FTC v. Herbalife: Post-Settlement Legal Guidance for the Direct Selling Industry

Jeffrey Babener, 2016

Anxious is the understatement for the business environment promoted by Chairwoman Ramirez. Her position on legitimacy challenged the models of virtually every direct selling company. And with the foregone expectation that an even greater regulatory regime would inherit the White House in November, 2016, there was an expectation of “but wait there’s more, not less, regulation coming…so live with it.”

And then “poof,” the totally unexpected happened in the November, 2016 election. An anti-regulation President was elected with the opportunity to nominate a new majority of the FTC; the designated head of a “deregulation” task force was named, the largest shareholder of one of America’s leading direct selling companies; and within months of the election, the term of FTC Commissioner Ramirez came to an end.

And thus uncertainty replaced anxiety in the direct selling industry…which brings us to the legal and business rationale for pending H.R. 3409, denominated the Anti-Pyramid Promotional Scheme Act of 2017…for the first time in history, proposed federal anti-pyramid legislation:

Two Different Views of H.R. 3409…the Next Challenge

Can you hear me now?…the Verizon guy…

Pending before Congress is H.R. 3409, a bi-partisan bill entitled the Anti-Pyramid Promotional Scheme Act of 2017.

It is the first of its kind at the federal level. Interestingly, anti-pyramid statutes have been enacted in almost all states for half a century, and specific anti-pyramid laws that are almost identical to proposed H.R. 3409 have provided guidance for more than 20 years in more than a dozen states.

However, no federal anti-pyramid statute has ever appeared on the books. The FTC Act Section 5 broadly prevents “unfair or deceptive practices,” and yet it has been the principal vehicle for anti-pyramid enforcement other than the SEC and U.S. Department of Justice, whose mandate is to prosecute fraud, securities fraud and securities violations.

The stated purpose of H.R. 3409: To amend the Federal Trade Commission Act to prohibit pyramid promotional schemes and to ensure that compensation is not based upon recruitment of participants into a plan or operation, but on sales to individuals who use and consume the products or services sold, and for other purposes.

Now, does that sound any more controversial than the “mother and children protection act of _____.”  Well, guess again. Opponents of H.R. 3409 see a wolf in sheep’s clothing. They see it as a bill that seems innocuous on its face, but that is really intended to rob the FTC of its flexibility to chase after any pyramid scoundrel by actually defining the parameters of a pyramid rather than allowing the FTC to employ a vague statute, without specificity, to chase after direct selling businesses with assertions that their practices are “deceptive and unfair.”  In other less democratic countries, critics refer to such styles of governance as “a government of ‘men’ as opposed to a government of ‘laws.’”

The bipartisan sponsors of H.R. 3409 and the direct selling industry, led by the Direct Selling Association, assert that the legislation is anything but “flim flam.”  And quite honestly, a close look at H.R. 3409 does make it difficult to believe that it is anything other than robust consumer protection legislation…and that the “boogey man” is not hiding around the bend, ready to pounce on the innocent consumer. In fact, H.R. 3409 comes down like a sledge hammer on scams and schemes:

(1)      It condemns inventory loading;

(2)      It calls out as evil pyramid headhunting recruitment schemes;

(3)      It forbids payment of commissions or rewards that are unrelated or not based on sale of products and services to the “ultimate consumer;”

(4)      It absolutely rejects programs in which distributor product purchases are made in unreasonable amounts, either for resale or actual personal and family use;

(5)      And it demands, as a condition of legitimacy that companies adopt a repurchase policy in which terminating distributors will be refunded for returned product inventory, in resalable condition, that has been purchased within 12 months of termination.

If there is any new concession to the industry, it is that, in the course of protecting the consumer, H.R. 3409 also codifies case authority and state legislation in recognizing the legitimacy of reasonable personal use by distributors as being a sale to an “ultimate user.”

And there lies the rub…the parties are talking past each other…and in the words of Larry David’s grandmother…everyone is farmisht (confused as to what is the state of the law for legitimate direct selling).  It is difficult to imagine that anyone could cogently argue that “uncertainty” is a good thing for a 50 year old channel of distribution in the U.S. H.R. 3409, at the very least, provides a good starting template for input from all groups of good will, consumer groups, the FTC, Congress, the States and the direct selling industry. Perhaps, even the President, who has served as a spokesperson for at least two MLM companies, will place this issue on the Executive Branch anti-regulation task force agenda.

Why H.R. 3409? … Just One More Reason…Time for Clarity and Certainty in the Markets

It is hard to stand on shifting sands.

In the absence of some definitive resolution, the collision of the Ramirez FTC paradigm and the half century model of direct selling and 40 years of federal case authority and state legislative authority produces nothing but operational paralysis for a $36 billion industry and its 20 million participants.

Proponents and opponents of H.R. 3409 may debate ad infinitum on the goals of protecting the consumer or protecting the rights of direct selling distributors. But, a very clear unenunciated reason for passage of H.R. 3409 is that the overreaching positions of the FTC have created total uncertainty in the marketplace, and H.R. 3409 brings clarity and synchronicity to actual case authority and a clear federal standard that allows “business to be business” again. H.R. 3409 bursts the bubble of confusion.

Jeffrey A. Babener, of Portland, Oregon, is the principal attorney in the law firm of Babener & Associates. For more than 30 years, he has advised leading U.S. and foreign companies in the direct selling industry, including many members of the Direct Selling Association. He has served as legal advisor to various major direct selling companies, including Avon, Amway, Herbalife, USANA, and NuSkin. He has lectured and published extensively on direct selling. He is a graduate of the University of Southern California Law School, where he was an editor of the USC Law Review, followed by an appointment as a law clerk to the U.S. District Court for the Central District of California. He is an active member of the State Bars of California and Oregon.

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Presented by one of the most trusted individuals in direct selling and MLM, Jeffrey Babener, Editor of http://www.mlmlegal.com.
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Come visit the new and improved MLMLegal.com! This is the first major renovation of MLMLegal.com. MLMLegal.com’s new face is easy to navigate and full of valuable and educational content, pertinent to direct sellers. And Babener & Associates is working on updating more pages throughout 2016.

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Conference Information: The day will begin at 9:00AM and end at 5:30PM, then from 5:30PM-8:30PM there will be one-on-one time with the speakers. For more information visit our website or call 800-231-2162/503-226-6600. Registrations are taken exclusively by phone and questions are always welcome.

Presented by one of the most trusted individuals in direct selling and MLM, Jeffrey Babener, Editor of MLMLegal.com.
About Attorney Jeffrey Babener: Conference Host and Chairman, Editor of MLMLlegal.com, as well as the leading direct selling attorney in the United States – With over 30 years of experience as a direct selling attorney, Jeffrey Babener has advised leading companies in the MLM/Direct Selling industry, ranging from Avon to Nikken, to Herbalife, to Melaleuca, to USANA, and to Excel Communications, Nerium International, plus many more. He has been published in national magazines such as Money, Inc., Atlantic Monthly, Entrepreneur magazine, Direct Selling News, Direct Sales Journal, Success magazine, Money Maker’s Monthly, among countless others. He’s authored several books, including his most popular Network Marketing: What you should know. Mr. Babener has chaired more than 70 national conferences on direct selling.

Learn how to receive two COMPLIMENTARY tickets to attend the next Starting and Running the Successful MLM Company Conference by visiting the MLMAttorney.com.

See the Press Release.

Visit us at www.mlmlegal.com to learn more.

At the very least, a direct sales company should not enter the marketplace without legal review of its marketing program. Hiccups caused by having to respond to regulatory agencies, consultant complaints, vendor conflicts, etc. can be bad for any MLM business and its reputation.

An experienced and seasoned direct sales attorney can be the single most valuable resource that a MLM company can ever utilize. Look for a professional who has represented leading direct selling companies as well as startup companies.

As industry experts, they commonly know more about multilevel marketing and direct selling than most of their clients. In fact, more than half of our conversations with clients involve discussions about the MLM industry, rather than the mere legal aspects of running a direct sales company. And over time, such an experienced “consigliere” (see the movie The Godfather) may become the most trusted business advisor to a company and a vital member of the business team.

Apart from tremendous insight into the business, an experienced network marketing attorney can answer in five minutes what would take a business attorney five hours to research. And, the business attorney would likely still not completely understand the issue, let alone the solution.

The direct sales industry has – for better or for worse – provoked vast amounts of legislation and regulatory control that network marketing attorneys must navigate.

A brief list of regulations, legislation and legalities that experienced MLM attorneys, such as Jeff Babener of Babener & Associates, must commonly appraise include:

– Pyramid statutes

– MLM statutes

– Business Opportunity Rule

– Securities

– FTC regulations

– Postal regulations

– FDA rules and regulations

– Distributor relationships

– Vendor relationships

– Distributor discipline

– Trademark

– IRS and tax regulations

– International expansion

– Sales tax

– Marketing

– State law and registration

– And, legal review of sales kit contents, which include:

1) Consultant agreements

2) Policies and procedures

3) Product brochures

4) Compensation plan

5) Marketing plan presentations

6) Forms, from receipts to multiple owner applications, etc.

At the very least, a direct sales company should not enter the marketplace without legal review of its marketing program. Hiccups caused by having to respond to regulatory agencies, consultant complaints, vendor conflicts, etc. can be bad for any MLM business and its reputation.

Click here to watch the full video!

For more information, watch the video The Legal Issues of Starting and Running a MLM Company.

For more information about the importance of hiring a network marketing, visit Attorney Jeff Babener’s websites: www.mlmlegal.com and www.mlmattorney.com.

In addition, our next Starting and Running the Successful MLM Company Conference takes place October 22 and 23, 2015 in Las Vegas. View our conference flyer and speaker list online. Participate in our Innovation Campaign for your chance to receive TWO FREE TICKETS to attend our next conference.

Visit us at www.mlmlegal.com to learn more.

There has been an ongoing tug of war between the MLM industry and the FTC in terms of determining whether or not personal use should have an impact on a company’s legitimate operations.

Part One

The MLM industry has, during the last 20 years, developed positive working relationships with regulatory agencies such as attorneys general and the FTC (Federal Trade Commission). There was a time, however, back in the 1970s, when the FTC challenged the legitimacy of the direct selling industry as being a pyramid scheme. They accused Amway of operating illegally and Amway prevailed in a very famous 1979 case where it was held that the network marketing industry is a legitimate business model and the business opportunity is not a pyramid scheme.

Afterwards, regulatory agencies and the industry went quiet until the 1990s. It was then questioned whether or not product-using consultants were a legitimate end-destination for products or whether consultants were simply retail customers. There has been an ongoing tug of war between the MLM industry and the FTC in terms of determining whether or not personal use should have an impact on a company’s legitimate operations. The industry, with the cooperation of attorneys generals in more than a dozen states, were able to amend legislation in those states to recognize that personal use of product by distributors is a legitimate end-destination, just as if it were a retail sale.

More recently, about four years ago, the FTC decided to update its Business Opportunity Rule (which is more oriented toward franchises or programs that require substantial investments). The proposed draft would have completely encompassed direct selling companies to the point that it would have been onerous to offer a MLM, network marketing, direct selling opportunity in the marketplace.

For instance, one of the proposed rules would have stated that if you approached your neighbor about joining a network marketing company then you would have to wait a week before returning to follow up with them on their decision. This waiting period would not have been very conducive to offering a business opportunity, and therefore, not very practical for the network marketing industry. The industry responded to the proposed rule. Over 17,000 comments poured into the FTC from MLMLegal.com, the DSWA, the DSA, distributor associations, and direct selling companies indicating that they thought the rule was overreaching.

These blog posts are paraphrased from the DSWA interview with Nikki Keohohou. Visit our website to view the entire interview: Executive Interview by the DSWA – “Legal Hotspots for Direct Selling Companies” with Jeff Babener.

Click here to read Part Two.

For more information on the network marketing industry visit www.mlmlegal.com and www.mlmattorney.com.

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Our next Starting and Running the Successful MLM Company Conference takes place October 27 and 28, 2016 in Las Vegas. Call 503-226-6600 or 800-231-2162 to register. If you’d like to see how you can get free tickets to the next MLM Startup Conference, visit our Innovation Campaign page.

Visit us at www.mlmlegal.com to learn more.

If you don’t start it right, you can’t expect to get it right.

For over 27 years MLMLegal.com and Babener & Associates has hosted the most prestigious MLM conference for executives of startup and existing direct selling companies. We’ve provided some statistics and overview of our last MLM Startup Conference:

Our February Conference, the 66th national Conference on starting and running a direct selling/network marketing/part plan/MLM company, involved approximately 70 companies, representing roughly 28 states and six countries, ranging from the U.S., Canada, South America, Mexico, U.K., Europe, Africa, and Asia.

Speakers at the Conference have served as professional advisors to such companies as Avon, Amway, NuSkin, Usana, Melaleuca, Nikken, Herbalife, and many of the leading direct selling companies.

The Conference topics discussed included industry knowledge, legal environment, compensation plan development, technology, staffing, payment systems, recruitment, ecommerce, social networking, and internet marketing.

You too can attend the Starting and Running the Successful MLM Company Conference, which takes place in February, May and October. To see if you qualify to attend, visit our Conference Information page. Also, to see how you can attend for free, visit our Innovation Campaign page. To register for the next conference, call 800-231-2162.

For more information on the network marketing industry visit www.mlmlegal.com and www.mlmattorney.com.

Find us on our social networks:

Google+

LinkedIn

Twitter

Facebook

Our next Starting and Running the Successful MLM Company Conference takes place May 15th & 16th, 2014 in Las Vegas. Check out the Innovation Campaign for information on how you can get two free tickets to the MLM Startup Conference in Las Vegas. Call 503-226-6600 or 800-231-2162 to register.

Visit us at www.mlmlegal.com to learn more.

What do you do when you need answers on the go? MLM Legal now offers a free iTunes application.

MLMLegal.com is one of the most informative and reliable websites about network marketing on the web. MLM Legal provides educational articles answering common industry questions, such as:

–          How to start a network marketing company

–          An inside look at a MLM trial

–          Herbalife and personal use

–          How to identify a pyramid scheme

–          How to analyze compensation plans

–          And, many more.

MLM Legal offers over 70 videos where MLM expert Jeff Babener discusses network marketing for both consultants and company owners. The website offers research assistance by providing over 700 MLM company profiles, a vendor and supplier directory, and the latest industry news. MLM Legal also offers free materials to those who qualify, including a free MLM Startup Manual, an insightful DVD, and newsletters.

MLM Legal is free and open to anyone, anytime. However, what do you do when you need answers on the go? MLM Legal now offers a free iTunes application. This application offers up-to-date information on the direct selling industry, news and headlines, frequently asked questions, MLM law in 50 states, hundreds of articles, notorious MLM cases, as well as legal news and articles written by Jeff Babener.

MLMLegal on iTunes is free and will provide you with valuable information on the go. Download the free iTunes app HERE.

Visit www.mlmlegal.com and www.mlmattorney.com for more information on the network marketing industry.

Find us on our social networks:

Google+

LinkedIn

Twitter

Facebook

Our next Starting and Running the Successful MLM Company Conference takes place October 27 and 28, 2016 in Las Vegas. Call 503-226-6600 or 800-231-2162 to register.

Visit us at www.mlmlegal.com to learn more.

The October MLM Startup Conference in Las Vegas – for the Executives of Startup and Existing Direct Selling Companies.

There are only two weeks left to register for the MLM Startup Conference for Executives of Startup and Existing Direct Selling Companies. This is the 65th annual, two-day conference, featuring industry experts and invaluable tools for the MLM startup entrepreneur. The conference will be held on October 24th and 25th, 2013. Call our office to register: 503-226-6600 or 800-231-2162.

HOW CAN I FIND OUT MORE?

Visit the website:

www.mlmlegal.com

or, read visit our blogs:

http://mlmlegal.com/MLMBlog/ and http://mlmattorney.com/blog/

Extensive information about the conference can be found here.

Watch the MLM Conference videos:

MLMlegal Releases New Film on MLM Startup Conference – Produced by Networkingstar.com

The MLM Startup Conference in Las Vegas

MLM Startup Conference – A Must for Executives of Startup and Existing MLM Companies

BEST BET? Call:

503-226-6600 or 800-231-2162

Visit us at www.mlmlegal.com to learn more.

1. Promotions where the business opportunity is the “product.” If there is no legitimate product or service being sold, but only the opportunity itself, then chances are, the promotion is a pyramid scheme.
2. Products that are sold at inflated prices. Sometimes pyramid promoters try to mask their true intent by selling a product. Often, the product will be vastly overpriced and thus unlikely to generate much retail activity, thereby indicating that the real item being sold is the compensation plan.
3. Programs that require inventory “loading.” A legitimate MLM opportunity doesn’t require you to buy unreasonable amounts of inventory to begin your business.
4. Programs that require substantial initial cash investments. According to MLM Attorney Jeff Babener, many states consider a required up-front investment of $500 or more to be “substantial” and thus likely to attract the attention of law enforcement.
5. Programs that require mandatory purchase of peripheral or accessory products or services. Some pyramids seek to hide their true face by allowing a minimum price for a “start-up” kit and then compelling the investor to buy more expensive items such as training or demonstration materials. Jeff Babener believes that business-start-up kits and selling aids should be sold at company cost.
6. Companies that don’t “buy back.” According to Mr. Babener, “Any plan that does not agree in writing to repurchase a reasonable percentage of unsold inventory or unused sales materials for a stated time after purchase should be avoided.”
7. Programs that pay fees for recruiting. “A legitimate MLM opportunity will have compensation based on product sales and not on recruiting,” Babener states. If money is paid for signing up new distributors rather than for product sales, the business is likely to be a pyramid scheme.
8. Recruiters who misrepresent potential earnings. If the opportunity is sold as a “get-rich-quick” scheme, beware. The only people who do well are those who can sucker others into buying into a criminal confidence game.

Visit us at www.mlmlegal.com to learn more.