A company should only pay commissions on products and services offered to the general public.

Generally, network marketing companies mandate an upfront sales kit cost, typically in the $49-$99 range. This is an at-cost fee for sales and marketing materials support. The reimbursement cost is passed on to distributors. It is not a profit center for the company and no commissions are paid on such required fees. Almost all regulatory agencies and MLM statutes recognize and validate this practice. Beyond the at-cost sales kit, companies typically offer optional sales tools to distributors. Because support products are optional, they do not need to be at-cost, but any sales support tools should not be commissionable. A company should only pay commissions on products and services offered to the general public.

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Like the pine trees lining the winding road, I got a name… Jim Croce

And That Name Is Not “Pyramid”

So says a Belgian Appeal Court about American direct selling/network marketing company, Herbalife, a company with thousands of distributors in more than 80 countries.

In a ruling, December 2, 2013, the Court of Appeal in Brussels, came down like a sledge hammer on a lower court ruling of November, 2011 by the Brussels Commercial Court.** (Test-Aankoop v. Herbalife International Belgium NV, A.R. 2004/7787). The Appeal Court categorically reversed a lower court finding that Herbalife was a pyramid. To the contrary, it found the company to be in compliance with Belgian law and non-binding guidance that it referenced from the European Directive on direct selling.

**See a translated copy of the actual Belgian Court of Appeal Herbalife ruling.

Although a European court ruling, the core issue of “recognition of validity of personal use by direct selling distributors” has dominated discussion about the legitimacy of direct selling companies in the U.S. and internationally for two decades, and the import of this case and its discussion cannot be underestimated in its potential impact on future U.S. and international cases which distinguish legitimate direct selling from pyramid schemes.

The Belgian Lawsuit and the Lower Court Ruling

Based on a lawsuit brought by a nonprofit group, Test-Aankoop, in 2004, the lower court held Herbalife to be violative of Belgian law prohibiting pyramid schemes, the WMPC, the Belgian Law on Unfair Commercial Practices. The applicable pyramid law, as described by the Belgian Court of Appeal is as follows:

Article 91, 14° of the WMPC (Law of April 6, 2010, on market practices and consumer protection) provides that under all circumstances the following commercial practice shall be regarded as unfair:  

establishing, managing or promoting a pyramid scheme in which a consumer or an enterprise, after payment, is likely to receive a compensation that is derived primarily from the introduction of new consumers in the scheme rather than from the sale or consumption of products.

Herbalife argued that many downline distributors joined Herbalife to purchase product for personal use and, therefore, were end consumers. However, the lower court rejected that purchases by Herbalife downline distributors for personal use should be recognized as sales to end consumers, opining that they were really just merchants purchasing within the sales force system, and therefore Herbalife violated Belgian law and was a pyramid.

Rejecting that distributor purchases could constitute sales to end consumers, the lower court dismissed the Herbalife explanation of its system:

Contrary to what Herbalife contends, it has not been proven that the distributors sell to end consumers.

And that was the end of the story… at least for the lower court.

The Belgian Appeal Court:  Herbalife Is Not a Pyramid

After a two-year appeal period, the Belgian Court of Appeal ruled that the lower court had it “all wrong.” The Appeal Court ruling was unequivocal and unambiguous that Herbalife is a legitimate direct selling/network marketing/multilevel marketing business and that it is not a pyramid.

At the core of the decision was the Court of Appeal’s recognition of the legitimacy of personal use by distributors as a legitimate destination for product and basis for payment of direct sales commissions and indirect or override commissions on purchases by downline distributors.

A fundamental finding by the Court of Appeal was that commissions were, in fact, paid on product destined for end consumers, even if some of those consumers were distributors themselves. And the Court found that product, which was not sold to customers or used, was subject to return or buyback and that Herbalife adopted a clawback or reversal of commissions on returned product to make sure commissions were not paid on product that was not sold to customers or used by distributors. In other words, all product was accounted for, either as resold to customers, used for personal use or returned to the company, subject to a “clawback” of commissions.

As a result, the Court of Appeal held that the lower court was wrong in holding that commissions were not paid on sale or consumption of product. At several points in its decision, the Belgian Appeal Court reiterated multiple times its finding that “personal use” of product by distributors is a legitimate destination for product and payment of commissions:

The law requires therefore that it is not a question of own sales, so that the circumstance that the compensation is obtained on the grounds of the sale of products by other participants in the network, namely ‘downline’ distributors, does not form any infringement of the legal provision.

Nor does the law stipulate that the compensation may be obtained only from sales to a consumer who is not a distributor. 

As far as use is concerned, finally, the law does not stipulate that it is a question of the use by a non-distributor.

Under such circumstances it cannot be argued that the system of the appellant makes it possible that her products wander about endlessly and never find their way to the consumer. All products that are bought by a distributor from the appellant, are either resold to a consumer, or are used by himself, or are returned by him to the appellant.

A distributor who sponsors may also obtain indirect profit from the sales or from own use of these products by means of his/her ‘downline.’  Also this indirect profit, which is subject to a quid pro quo, must be considered a compensation that comes from the sale or use of products as referred to in Articles 91, 14° and 99 of the WMPC. The obtaining of this compensation and therefore the possibility to obtain this form of indirect profit does not therefore indicate the existence of the forbidden pyramid system.

Consequently, it cannot therefore be claimed that it is a question of the forbidden pyramid sales for the reason that the distributor could obtain additional profit from the indirect distribution of profit, ‘royalty overrides’ and production bonuses, calculated on the sale of products by the distributors ranked below him/her in the network, rather than from the direct sales to consumers.  As such, it is not forbidden for a distributor to aim for a network that is as broad as possible of ‘downliners’ in order to make as much profit as possible, as long as he/she is compensated on the basis of the purchase of products for selling on or for own use and not merely on the basis of the recruitment of new distributors.

From all previous determinations and considerations, it follows that it has not been shown that the sales system employed by the appellant can be considered as a system whereby the consumer/an enterprise, by means of a payment, receives a chance to a compensation which mainly flows from the establishment of new consumers/new enterprises in the system, than from the sale or consumption of products.

In conclusion, no infringement is shown to article 91, 14°, nor to article 99 of the WMPC.

Some Other Applause by the Court of Appeals for the Herbalife Business

Although the holding on “recognition of personal use” is at the core of the Belgian Appeal Court decision, the Court went on to note several salutary observations of Herbalife’s business:

1. From market research, which the appellant has carried out in August 2012 in Belgium, it showed that only 8% of the consumers of Herbalife were also distributors thereof. This shows that these products most definitely are being sold to ordinary consumers and are not only bought and sold within the system, and contradicts that they wander around endlessly within the system.

2. According to the figures communicated by Appellant, that are not contested, 85% of the distributors decide not to sponsor and opt therefore to sell the products directly to third parties or use them themselves.

3. From the aforementioned market study, it also shows that more than 50% of the respondents have already heard about the brand name Herbalife, and that 87% of the respondent have not bought any Herbalife products and that 88% of those who have already used the products, are of the intention to keep buying and using these products. Furthermore it concerns products that are used on a regular basis and not goods that are bought only once. As a result, as the number of buyers of these products increases, the demand for additional products will also increase.

4. The Court also noted that Herbalife has adopted and implemented the famous “Amway” consumer safeguard rules for its Supervisor-level distributors, which have been recognized over three decades of court cases, offering a buyback of product from terminating distributors, and providing a condition for receipt of commissions that those Supervisor-level distributors sell at least 70% of purchased product and have made monthly sales to each of ten customers.

5. The Court pointed out avoidance of an inventory loading incentive by implementing a “clawback” of upline commissions for returned product.

6. The opinion observed the offering of an entry level business kit and ongoing administrative fees that are commercially justified in price by the value provided, such that the payments are not to be viewed as “fees” for the right to recruit.

7. It noted that distributors are not mandated to buy product on an ongoing basis.

8. In addition the Court remarked on the lack of complaints: “Moreover, the respondent fails to submit any kind of documentation from which it would show that a Belgian distributor has filed a complaint about the alleged fact that he was being stuck with too largean inventory of products.”

The Next Chapter in Personal Use

The issue of recognition of distributor personal use, and its impact on legitimacy, has ebbed and flowed for two decades, since the 1990’s.

In fact, the Belgian lower court’s rejection of personal use and its decision that Herbalife was a pyramid, was an evidentiary poster child for hedge fund short sale critics who claimed, in 2012, that Herbalife stock was destined to be valueless. Obviously, the Appeal Court decision might require some rethinking on this point.

The Belgian Appeal Court decision seems to continue a legal trend toward recognition of personal use in legal cases which differentiate legitimate direct selling from pyramid schemes. The original precedent discussion of “end user” in pyramid cases dates to a 1975 FTC ruling involving a cosmetics company named Koscot, where it appeared that distributors were loaded with inventory and taught to find other distributors to do the same. In re Koscot Interplanetary Inc, 86 F.T.C. 1106 (1975).  The program was held to be a pyramid. The Koscot analysis test for pyramid schemes (which is not that significantly different than the Belgian law in the Herbalife case) is that pyramid schemes: “are characterized by the payment by participants 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 other participants into the program rewards which are unrelated to sale of the product to ultimate users.”

A cloud over the direct selling industry appeared when a gratuitous statement in a 1996 Ninth Circuit U.S. Court of Appeals decision, Webster v. Omnitrition, 79 F.3d 776, called into question whether sales to distributors should fulfill the Koscot standard of sales to ultimate users, i.e., perhaps only sales to non-distributor retail customers should count, as opposed to personal use by distributors.

Industry observers observed that the Omnitrition comment should not be accorded “weight” as the statement was “dicta” (unnecessary to reach the decision) and that the case was really about whether or not Omnitrition implemented safeguards to avoid “inventory loading” which were so clear that a trial would be necessary to determine Omnitrition was not a pyramid. (In reality, the decision did not involve a review of the merits of a trial court decision, but rather an appeal of a summary judgment in favor of Omnitrition.) Nevertheless, the language in Omnitrition created confusion in enforcement, in cases and in discussions by the legal and financial press. On various occasions and in various cases, the FTC argued that “personal use” should be excluded in a pyramid analysis, and that only sales outside the sales network should be considered, for purposes of pyramid vs. legitimate.

To address this confusion, more than a dozen states amended pyramid legislation to recognize the validity of personal use as an end destination of product. And the FTC issued a 2004 Advisory Opinion which accepted personal use in direct selling companies:

Internal Consumption

Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme, The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture.

It is important to distinguish an illegal pyramid scheme from a legitimate buyers club.  A buyers club confers the right to purchase goods and services at a discount. If a buyers club is organized as a multi-level reward system, the purchase of goods and services by one’s downline could defray the cost of one’s own purchases (i.e., the greater the downline purchases, the greater the volume discounts that the club receives from its suppliers, the greater the discount that can be apportioned to participants through the multi-level system). The purchase of goods and services within such a system can, therefore, be distinguished from a pyramid scheme on two grounds. First, purchases by the club’s members can actually reduce costs for everyone (the goal of the club in the first place). Second, the purchase of goods and services is not merely incidental to the right to participate in a money-making venture, but rather the very reason participants join the program. Therefore, the plan does not simply transfer money from winners to losers, leaving the majority of participants with financial losses.

Notwithstanding this clarification, and court reasoning in opinions in several subsequent cases (WholeLiving, BurnLounge) the FTC, from time to time, offered inconsistent positions about personal use in briefs and proposed judgment orders. So, some real confusion continues. And this confusion, in addition to the Belgian lower court decision, was exploited by short seller hedge funds in their criticism of the direct selling industry.

The industry continues to look for clarity both in court cases and even possible remedial legislation along the lines of legislation adopted by many states. For this reason, every court case becomes important.  And for this reason, the unambiguous statements of the Belgian Court of Appeal in the Herbalife case, cannot be underestimated.

Although the Koscot test (sales to the ultimate user) and the Belgian Court of Appeal analysis of its statute (product does not wander endlessly in the distributor system, but, in fact makes its way to the consumer) are not necessarily identical, the issues explored are so strikingly similar that the Belgian case will likely be cited as precedent in U.S cases on the subject of recognition of the role of personal use in pyramid analysis.

In fact, the discussion here appears to come full circle to the original analysis in the 1979 famous landmark Amway case. Amway has traditionally recognized personal use of product for commission purposes and the FTC Amway decision specifically recognized what it meant by sales to the “ultimate user” in terms similar to the Belgian court’s reference to the “end consumer”:

 “….This multilevel wholesaling network ends with those distributors who have not sponsored any new distributors, and who make purchases from their sponsors solely for their own use or for resale to consumers…….(emphasis added)

…..Specifically, the Amway Plan is not a plan where participants purchase the right to earn profits by recruiting other participants, who themselves are interested in recruitment fees rather than the sale of products.”
The Potential Impact of the Belgian Herbalife Decision May be Very Significant.

In fact, the Herbalife Belgian Court of Appeal’s Ruling may well represent the next chapter in the court decisions on the issue of the validity of recognizing personal use as an end destination for product and for the basis of commissions for direct selling companies.

The Belgian Court will undoubtedly be cited in future court cases in Europe in that the Belgian law is pursuant to the European Directive’s definition of a pyramid scheme; that directive calls for full harmonization under which every country in the EU is required to adopt the same terminology.  As a result, this decision will be precedent throughout the EU as to how these statutes, in each member country, should be applied.

In addition, the decision will likely be cited in U.S. cases where a central issue continues to be recognition of personal use by the sales force.  It will also likely be recognized as probative by regulatory enforcement agencies and legislative bodies as the issue of pyramiding is addressed.  And, of course, it will be cited in the financial press on the issue of the legitimacy of the direct selling industry model, a discussion that involves billions of dollars by investors in publicly traded direct selling companies.

For more information on this subject and other important issues in the area of MLM, Direct Selling and Network Marketing, please visit http://www.mlmlegal.com.

Jeffrey A. Babener, of Portland, Oregon, is the principal attorney in the law firm of Babener & Associates. For more than 25 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 NYSE direct selling companies, including Avon, Herbalife, USANA, NuSkin, etc.  He has lectured and published extensively on direct selling and many of his writings will be found at http://www.mlmlegal.com, of which he is Editor.  He is a graduate of the University of Southern California Law School, where he was an editor of the USC Law Review. Post USC Law, he served a one-year term appointment as a law clerk to Hon. David W. Williams, U.S. District Court, Central District of California. Mr. Babener is an active member of the State Bars of California and Oregon.

Read this article and related ones HERE.

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Most MLM experts agree that you must have adequate margins to pay commissions and to make a profit.

Obviously, your cost of goods is calculated as your acquisition or manufacturing cost. The more frequent question involves pricing. Most MLM experts agree that you must have adequate margins to pay commissions and to make a profit. Different products and services carry different profit margins. In addition, smaller margins may be satisfactory with high-priced products because there is still room for profit. Most MLM companies are likely to pay total commissions equal to between 30 and 45 percent of price sold to distributors for resale, or prices for which consumers buy directly from the company. A typical company will try to achieve a minimum 5-7 times markup to allow for commissions, overhead and profit. Typical mark up for resale by distributors is 25% of their purchase price. A good place to visit this issue is at the Starting and Running the Successful MLM Company Conference, offered by www.mlmlegal.com, where experts discuss margins, pricing, profit, proformas, and more for executives of startup and existing network marketing companies.

MLMLegal.com has launched the Innovation Campaign for its February 2014 MLM Startup Conference. Read how to get your two free tickets by clicking HERE!

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Some network marketing companies get creative with their consultant titles by calling them coaches, chocolatiers, guides, and ambassadors.

Generally, distributors, consultants, representatives, independent business owners (IBOs), member, etc. all describe a salesperson who sells products for a direct selling company. Although, it is common for party plan companies to use more artistic names such as stylist, artist, beauty consultant, etc.

In typical network marketing companies, IBOs are generally titled more generically, with titles such as distributors, associates, and independent sales representatives.

Party plan companies usually use a group (or party) selling approach, whereas network marketing companies use a person-to-person model. 

Some MLM companies get creative with their consultant titles by calling them coaches, chocolatiers, guides, and ambassadors.

The title of a distributor doesn’t really matter; although it is important, from a legal standpoint, to use the term “independent” in front of the title, to assure proper independent contractor status.

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All gifting clubs eventually die because they run out of people (and therefore cash) to continue to “feed” the pyramid.

A gifting club usually begins unintentionally between friends, family and neighbors. Unlike the traditional pyramid scheme, gifting clubs are not promoted as an investment by fraudulent financial advisers. Gifting clubs are usually home-grown. Those involved believe that they are genuinely helping one another. However, there is no exchange of merchandise and someone always ends up on the losing end.

Those who join usually do so by investing anywhere from $2,000 to $5,000 and then recruiting others to join. As more people join beneath them, their “investment” grows. Cash flow is passed from new recruits to those higher in the pyramid. Those at the top of the gifting club pyramid usually leave with roughly eight times the amount they originally invested, while those on the bottom lose their money as new recruits decline and cash ceases to drive the pyramid. All gifting clubs eventually die because they run out of people (and therefore cash) to continue to “feed” the pyramid.

Unfortunately, and to the surprise of the founders and participants, they are engaged in an unintentional cash pyramid headhunting recruitment scheme. Such practices violate consumer protection laws and criminal laws in most states. And, also unfortunately, the end game sometimes is a criminal prosecution for the participants, all of whom might be your next door neighbors and “great” people under most circumstances. Basic greed has blinded their judgment however, and the price to pay is often very “expensive.”

Additional information on gifting clubs is available at MLMLegal.com.

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Have you ever wondered what happens in an MLM trial?

Have you ever wondered what happens in an MLM trial?

In this presentation, MLMLegal.com gives you a rare, front row seat into the complexities of an MLM trial.

In more than six hours of video, partitioned in more than a dozen 25 minute segments, watch cross-examination and direct examination of expert witnesses led by lead trial counsel, Jeffrey Babener, MLM trial attorney and editor of MLMLegal.com.

Consider this a mini-trial course on MLM and regulatory enforcement.

The case profiled in these videos is Kentucky v. Travelmax International. Travelmax was a marketing company that sold travel education products and travel bookings and services through a network of MLM distributors. Its travel bookings had risen to several million dollars per month.

In 1996, the State of Kentucky filed suit, contending that Travelmax was a pyramid scheme under Kentucky laws. The state secured a temporary restraining order, without benefit of hearing. However, under state court procedures, the court was mandated to set formal hearings to determine if the temporary restraining order should be continued. In a series of hearings spanning from late 1996 to early 1997, trial on this issue was held. At the conclusion of the hearings, the Court ruled against the State of Kentucky and in favor of Travelmax, dissolving the temporary restraining order and permitting the company to continue its business in Kentucky, pending further hearings.

In the Court’s Findings of Fact, Conclusions of Law and Order, the Court summarized its position and encouraged the State to work with Travelmax as its business proceeded in Kentucky:

Thus, the court can find no violation of the consumer protection statutes, and therefore, no threat of harm to the public. The compliance procedures of the company are sufficient to provide for the protection of the citizens of the Commonwealth, pending the outcome of the other litigation in this matter. The court strongly encourages the Attorney General’s office to take full advantage of the apparent willingness of Travelmax to cooperate in overseeing its Kentucky operations.

See the actual Opinion and Order of the Kentucky Court [PDF]: www.mlmlegal.com/travelmaxorder.pdf

In fact, in the ensuing period after the favorable ruling for Travelmax, the State of Kentucky and Travelmax did come to an agreeable resolution and settlement that would avoid the necessity of formal hearings.

The educational opportunity here is unique. In most court hearings, a court reporter listens and transcribes the official transcript of testimony and argument. The transcription becomes the official record of the case. In the Travelmax hearings, no court reporter was present. Instead, the entire hearing was videotaped by a court videotaping system, and the videotape became the substitute official transcript record of the proceedings. The court’s record of court proceedings are public records and thus the record of the Travelmax case is a public record. In this case, the videotape record was subsequently digitized, and then extensive excerpts of cross examination, direct examination and argument by lead trial counsel, Jeffrey Babener, were organized for online presentation.

In the following video excerpts of the Travelmax trial, several of the trial participants are featured:

Jeffrey Babener, lead trial counsel for Travelmax.

Jeffrey A. Babener, of Portland, Oregon, is the principal attorney in the law firm of Babener & Associates. For three decades, 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 advisor to such leading companies as Avon, Herbalife, NuSkin, USANA, Melaleuca, Excel Communications, ACN, Nikken, etc. He has lectured and published extensively on direct selling and many of his writings will be found at www.mlmlegal.com, of which he is editor. He is a graduate of the University of Southern California Law School, where he was an editor of the USC Law Review. He has served as trial counsel in cases, involving direct selling, throughout the U.S. He has served on the Lawyers Council and Government Relations Committee of the U.S. Direct Selling Association and as General Counsel, and Board Member, for the Multilevel Marketing International Association.

James M. Shake, trial court judge in the Travelmax case. Judge, Circuit Court, Jefferson County, Kentucky.

Dr. Charles King, expert witness for Travelmax. Professor, Graduate School of Business, University of Illinois at Chicago. Professor King has studied and taught on the subject of direct selling at the University-level for many years. He has published extensively in the area. He has led specialized classes on direct selling and appeared as an expert witness in federal and state cases.

Michael Sheffield, Scottsdale, Arizona, expert witness for Travelmax. Mr. Sheffield has chaired a leading management consulting firm in the direct selling field. He has counseled many of the major direct selling companies, has lectured and published extensively and appeared as an expert witness on direct selling in federal and state cases. He is an acknowledged expert in MLM compensation plans and operations of direct selling companies.

Al Anolik, San Francisco, California, expert witness for Travelmax, is acknowledged as one of the foremost legal and business experts in the field of Travel. He has advised many of the leading travel businesses and has appeared as an expert witness in major litigation. He has published and lectured extensively in the travel field and has substantial experience in the implementation of the travel business through the direct selling channel of distribution.

Dr. William Keep, expert witness for the State of Kentucky in the Travelmax case. At the time of the trial, Dr. Keep was an assistant professor of marketing at the University of Kentucky. The focus of his expertise was “retailing” as opposed to MLM and Direct Selling. He has published extensively in the field of business and testified in court cases. Subsequent to the Travelmax case, Dr. Keep studied the field of direct selling further and published in the subject area.

The following video segments provide an insider’s view into an MLM trial:

Introduction to MLM and Direct Selling

Lead Travelmax Trial Counsel, Jeffrey Babener, explains to the Court the scope and breadth of the MLM industry with an overview of legal issues pertinent to the industry and to the trial of a pyramid case in the State of Kentucky. In addition, focus is made on the leading pyramid case in Kentucky involving Dare to be Great (1974).

An Inside Look at a MLM Trial – Jeff Babener Explains Direct Selling in Travelmax Trial – 1997

An Inside Look at a MLM Trial – Jeff Babener Explains Direct Selling in Travelmax Trial – 1997

Cross-examination of Dr. William Keep by Lead Travelmax Trial Counsel, Jeffrey Babener

Although Dr. Keep was called by the State of Kentucky as an expert witness to support the State’s case on pyramiding, the cross-examination, which focused on the credentials of Dr. Keep, revealed that Dr. Keep’s special area of focus was in the area of “retailing” and that his background and study in MLM/Direct Selling/Network Marketing was limited. The cross examination and voir dire (examination as to credentials as an expert) covers a wide range of legal and business issues in the direct selling field. In the end, Dr. Keep did not claim to be qualified to testify either as to the legitimacy or illegitimacy of the Travelmax marketing program. The cross-examination appears in the following segments:

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial 1997 – Part One

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial 1997 – Part One

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial – 1997 – Part Two

An Inside Look at a MLM Trial – Dr. William Keep – TravelMax Trial – 1997 – Part Two

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial – 1997 – Part Three

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial – 1997 – Part Three

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial – 1997 – Part Four

An Inside Look at a MLM Trial – Dr. William Keep – TravelMax Trial – 1997 – Part Four

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial – 1997 – Part Five

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial – 1997 – Part Five

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial – 1997 – Part Six

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial – 1997 – Part Six

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial – 1997 – Part Seven

An Inside Look at a MLM Trial – Dr. William Keep – Travelmax Trial – 1997 – Part Seven

Direct Examination of Dr. Charles King by Lead Travelmax Trial Counsel, Jeffrey Babener

As a student and Professor of MLM/Direct Selling/Network Marketing, Dr. King was called to explain an overview of the direct selling industry, a discussion of leading companies, a discussion of the indicators of legitimacy of a direct selling company and a discussion of the elements of a marketing program that would pose pyramid issues. Dr. King testified, in detail, regarding the Travelmax program, opining that the quality of the product, and the implementation of numerous consumer safeguards caused the Travelmax program to be in the mainstream of legitimate direct selling companies.

An Inside Look at a MLM Trial – Dr. Charles King in Travelmax Trial – 1997 – Part One

An Inside Look at a MLM Trial – Dr. Charles King in Travelmax Trial – 1997 – Part One

An Inside Look at a MLM Trial – Dr. Charles King in Travelmax Trial – 1997 – Part Two

An Inside Look at a MLM Trial – Dr. Charles King in Travelmax Trial – 1997 – Part Two

An Inside Look at a MLM Trial – Dr. Charles King in Travelmax Trial – 1997 – Part Three

An Inside Look at a MLM Trial – Dr. Charles King in Travelmax Trial – 1997 – Part Three

Direct Examination of Michael Sheffield by Lead Travelmax Trial Counsel, Jeffrey Babener

As a leading expert on MLM/Direct Selling/Network Marketing, Mr. Sheffield provided an overview of the industry, a detailed discussion of compensation plans offered by leading direct selling companies, the importance of quality products to a direct selling offering, an explanation as to appropriate consumer safeguards expected to be part of legitimate direct selling companies and a discussion of elements of pyramid schemes that should be avoided by direct selling companies. He testified that, after a thorough review of the Travelmax product and marketing program, he was of the opinion that the program was a legitimate direct selling marketing program and fit into the mainstream of leading companies in the direct selling field.

An Inside Look at a MLM Trial – Mike Sheffield in Travelmax Trial – 1997 – Part One

An Inside Look at a MLM Trial – Mike Sheffield in Travelmax Trial – 1997 – Part One

An Inside Look at a MLM Trial – Mike Sheffield in Travelmax Trial – 1997 – Part Two

An Inside Look at a MLM Trial – Mike Sheffield in Travelmax Trial – 1997 – Part Two

An Inside Look at a MLM Trial – Mike Sheffield in Travelmax Trial – 1997 – Part Three

An Inside Look at a MLM Trial – Mike Sheffield in Travelmax Trial – 1997 – Part Three

Direct Examination of Al Anolik by Lead Travelmax Trial Counsel, Jeffrey Babener

As a leading expert in both the travel business and travel law, Mr. Anolik provided an overview of the travel industry, a discussion of travel product offerings and explanation of the types of education offered to those interested in pursuing full or part time careers in travel. Mr. Anolik testified in detail as to his examination of the Travelmax business, that he was of the opinion that the Travelmax offerings were of high quality and that achievement of millions of dollars in monthly travel bookings was indicative of a reputable and legitimate travel business.

An Inside Look at a MLM Trial – Al Anolik in Travelmax Trial – 1997 – Part One

An Inside Look at a MLM Trial – Al Anolik in Travelmax Trial – 1997 – Part One

An Inside Look at a MLM Trial – Al Anolik in Travelmax Trial – 1997 – Part Two

An Inside Look at a MLM Trial – Al Anolik in Travelmax Trial – 1997 – Part Two

For more information on this subject and other important issues in the area of MLM, Direct Selling and Network Marketing, please visit http://www.mlmlegal.com.

Download a PDF version of this Opinion and Order of the Kentucky Court.

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

To date, there are over 700 educational and informational MLM company profiles at MLMLegal.com.

MLMLegal.com has worked for over four years to research, write and collect information on MLM, network marketing, direct selling, and party plan companies in order to compose the “MLM Company Profiles” webpage. To date, there are over 700 educational and informational MLM company profiles at MLMLegal.com. The editors of MLMLegal (the website hosted by seasoned MLM Attorney Jeffrey Babener, Owner of the Law Office Babener & Associates) are constantly bringing you updated MLM company profiles, removing companies that have gone out of business, and adding newly-launched network marketing companies. Hundreds of MLM companies have come and gone throughout the years, but many have proven that they have the longevity to succeed. Visit http://www.mlmlegal.com/profiles/index.html to see for yourself. This webpage is for strictly educational purposes. We do not specifically endorse any MLM company.

We’ve taken the time to organize the hundreds of MLM companies alphabetically and by products sold. Each company profile contains

– A logo

– A brief description of the company history

– The company’s impact on the MLM industry

– Products that the company sells

– The company’s opportunity or compensation plan

– The company’s sales and distributor base (if available)

– And, a link to the MLM company’s website

These profiles offer a quick way to compare compensation plans between companies or to find a company that offers a unique product that is perfect for you. Our research has also shown that no product is immune to direct sales (unless the company has no tangible product at all, in which then you should consider reading about illegal pyramid schemes). MLM companies are selling everything from green energy to cosmetic products.

Be sure to check the company’s website for the most updated information. Although we work tirelessly to keep the MLM company profiles up-to-date, the companies are constantly changing, merging, reorganizing, rewriting their compensation plans. So, enjoy this informative webpage we put together for your convenience!

Here are the 25 newest additions to the MLM Company Profiles webpage:

Stem Vida International, Inc

Temptu, Inc.

Southwestern Advantage

Queen Street America

Noonday Collection

Ocean Avenue LLC

Nature’s Pearl

Magnabilities.com

Kilambe Coffee

Healthy 74

2 Cutie Patooties

Americraft Cookware

Boisset

Bona Clara

BonLook

CloudZow, Inc.

Eco Power Partners

Emerald Essentials, Inc

Vidacup

iScentU

Dr. Organics, LLC

Limitless Worldwide, LLC

National Motor Club

Excellent Partners

Diva Girl

Be sure to read the *Editor’s Note which explains how we do not endorse any of these companies, we simply are providing a service of informing the public about direct selling companies in an unbiased fashion.

Are we missing a MLM company that you think we should profile? Reply to this post and let us know! We are always on the lookout for new MLM companies to profile on our website.

And, if you’re the owner of an MLM company on our website, you’ve probably already received a letter from us informing you that we’ve written about your company. If not, connect with us on LinkedIn or Facebook and we’d be happy to send you a copy of the introductory letter electronically (which gives you the option to write your own 200-word statement that we will post on your profile!).

And don’t forget to visit the rest of mlmlegal.com and mlmattorney.com for limitless information about the direct selling, network marketing, MLM, and party plan industries.

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The question of “rights in the downline” is one which is clearly headed for the courts within the next few years. Many MLM companies take the position that they are the sole owners of “downlines.” Many key distributors market their “downline structures” from one MLM company to another as if downline structure was a piece of property which could be marketed at will. When the “process” of multilevel, as a form of marketing is closely examined, the better argument is probably that neither of these positions is correct.

Multilevel marketing is a form of one-on-one direct selling by which companies contract with independent distributors to market products and compensate those distributors through sales commissions on sale of product produced by their sales organization, as well as offering distributors the opportunity to profit through the differential between wholesale and retail price. A downline is, in reality, a sales organization made up of independent distributors. It is not owned by key distributors, nor is it owned by an MLM company. Independent distributors are free to cancel participation at any time. In fact, those states that have adopted multilevel distribution statutes require that distributors be permitted to cancel participation at any time, for any reason upon notice to the company.

Most companies have adopted sophisticated data processing which provides detailed information on downline sales organizations. In the event a distributor leaves an organization, a company is obviously free to continue marketing through its system of independent distributors. Modern thinking MLM companies also provide availability of data processing information on the sales organization in the distributor’s downline. In fact, providing such information is tangible evidence a company may offer to regulatory authorities that its distributors are well informed as to their downline sales organizations. This indicates that the distributor plays a bona fide supervisory selling soliciting function in moving product to consumers. Many statutes now require this bona fide supervisory function as a precondition to receipt of commissions or overrides by distributors. Distributors are free to use information as to their own sales organization as they deem appropriate subject to restrictions regarding confidential information. Companies which attempt to restrict distributors after termination from working with other MLM organizations should seriously consider the federal and state antitrust implications of such restrictions. In California, for instance, noncompete agreements are unenforceable unless based on confidential information.

Companies may not arbitrarily terminate distributors without facing liability. Distributors enter into contracts with companies in reliance on the fact that they will be compensated for building sales organizations. Although many MLM companies adopt one year contracts with distributors, arbitrary or capricious termination of the distributor may clearly subject companies to contract claims as well as possible claims under various state dealer termination statutes. It should also be noted that, in recent years, many state courts have gone so far as to even award damages to “at will” employees, i.e., employees who are not under contract with the company. This line of cases, which has developed claims for “wrongful termination,” has produced sizeable awards of both compensatory and punitive damages. Such cases involving MLM companies are still in developmental stages.

For more information, visit our websites at www.mlmlegal.com and www.mlmattorney.com. Or, visit our blogs at http://mlmlegal.com/MLMBlog/ and http://mlmattorney.com/blog/.

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Parts of this article are borrowed from http://www.mlmconsultantadvice.com/babener_12.html, written by Jeff Babener in 2011.

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

1)      Creating a culture of team members who were “passionate, driven, unified”

2)       Staying focused on their goal and avoiding a “copycat” mentality

3)      Empowering their team members by providing them with innovative and unique products

4)      Offering their prospects and customers a “unique selling proposition” and a unified message

At the end of 2012, It Works! Global the company more than doubled its success, reaching over $200 million in sales.

The Direct Selling News article titled “One Decision to $100 Million… and Then Some” can be found here.

*MLMLegal.com and its sister websites do not endorse It Works! Global.

Additional articles written on how to succeed in MLM are available at:

Passion for Your Business: A Confidential Message to MLM Executives

Passion in Your Business

MLM Consulting: How to Build A Successful Direct Selling Business

Starting Your MLM Company: why They Work- Why They Fail

MLM Presentations: 27 Secrets to Success!

For more information, visit our websites at www.mlmlegal.com and www.mlmattorney.com. Or, visit our blogs at http://mlmlegal.com/MLMBlog/ and http://mlmattorney.com/blog/.

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And, as always, visit MLMLegal.com, the best MLM resource on the web. The next Starting and Running the Successful MLM Company Conference will be here before you know it! On May 16^th and 17^th, 2013 we are hosting the MLM Conference for the 25^th year! This is now our 64^th annual conference (held almost consistently three times per year over the last 24 years). All executives/owners of MLM, direct selling, network marking, and party plan companies are welcome to attend. This is the original MLM Startup Conference, hosted and perfected by direct selling industry expert, MLM Attorney Jeff Babener. Call 503-226-6600 or 800-231-2162 to register. (Can’t make this event? Keep an eye out for our October and February conferences as well.)

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

The Personal Use Issue in Pyramid Analysis; Who is an Ultimate User?

An excerpt from the article and link to the full article atwww.mlmlegal.com.  

Déjà vu, all over again … Yogi Berra

History repeats itself.

The 2012 billion dollar short seller attack on Herbalife, a 32 year old NYSE listed direct seller of nutritional products in 80 plus countries with annual sales in excess of $3 billion, is akin to a replay of seminal challenge to the MLM/Direct Selling model, won by Amway in 1979. In the Matter of Amway, 93 F.T.C. 618 (1979).

In the 1970’s FTC challenge, the criticism went to whether or not the core of the MLM referral selling model was a “deceptive” way to market. In the 2012 short seller attack, along with other criticisms, a principal complaint is that evidence of “substantial personal use and consumption” of company products by distributors themselves, renders an MLM/Direct Selling model inherently deceptive and an illegal pyramid scheme.

Memo to short sellers and algorithmic financial bloggers:

It may be time to reassess.

Some very salient facts and cases may well have been missed in the rush to challenge direct sellers.

1. A survey of FTC, SEC and Justice Department leading pyramid cases during the last two decades is instructive. Interestingly, in massive releases of the Herbalife short seller and the prolific financial blogging “call to action” that Herbalife is a pyramid that should and will be prosecuted by the FTC, NO ONE has bothered to actually examine the facts of leading FTC, SEC and Justice Department pyramid prosecutions of the last two decades… if they had done so, they might observe a significant chasm that exists between inherently deceptive and egregiously abusive pyramid schemes and the practices of leading direct selling companies.
2. They also may have missed the FTC’s own statements on personal use, as well as the trending legislation in more than a dozen states, recognizing the validity of personal use as a legitimate end destination of product.

For the full and detailed article “HERBALIFE: WHAT SHORT SELLERS MISSED ON THE WAY TO THE PRESS CONFERENCE…The Personal Use Issue in Pyramid Analysis Who is an Ultimate User?”

For more information, visit our websites at www.mlmlegal.com and www.mlmattorney.com. Or, visit our blogs at http://mlmlegal.com/MLMBlog/ and http://mlmattorney.com/blog/.

Find us on our social networks:

Google+

LinkedIn

Twitter

Myspace

Facebook

And, as always, visit MLMLegal.com, the best MLM resource on the web. The next Starting and Running the Successful MLM Company Conference will be here before you know it! On May 16^th and 17^th, 2013 we are hosting the MLM Conference for the 25^th year! This is now our 64^th annual conference (held almost consistently three times per year over the last 24 years). All executives/owners of MLM, direct selling, network marking, and party plan companies are welcome to attend. This is the original MLM Startup Conference, hosted and perfected by direct selling industry expert, MLM Attorney Jeff Babener. Call 503-226-6600 or 800-231-2162 to register. (Can’t make this event? Keep an eye out for our October and February conferences as well.)

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