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.
|No legal ruling has been more impactful on the direct sales industry than the Landmark Amway Case.|
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.
|Read the article “FTC Exempts MLM/Direct Selling from FTC Revised Proposed Business Opportunity Rule”|
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.
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