FTC Proposed Business Opportunity Rule

Resources and Analysis

In April 2006, the FTC released a sweeping proposed change in its FTC Business Opportunity Rule. The proposal was immediately and strongly criticized by representatives of and experts in the MLM, Direct Sales, Direct Selling, Network Marketing and Party Plan industry. The process to a completed Rule was expected to last 18 months to 3 years. For extensive analysis, text of the actual FTC Proposed Business Opportunity Rule and ongoing updates, please visit www.mlmlegal.com.

During the following two year period, the FTC received more than 17,000 comments on its proposed rule, the majority of which were from companies, representatives and distributors in the MLM industry. The vast majority of comments raised serious concerns regarding the onerous and burdensome nature of the proposed rules as well as extending the scope of the rule to the MLM /Direct Selling industry. In addition, scores of members of Congress weighed in with concerns about the impact on a well-established industry that involved millions of home-based businesses.

On March 18, 2008, the FTC responded favorably to constructive criticism, and announced that it was seeking to modify the Proposed Business Opportunity Rule to exempt MLM companies. (As part of its explanation of MLM exemption, the FTC cited comments from the editor of www.mlmlegal.com, Babener & Associates.) The FTC issued a Revised Proposed Business Opportunity Rule for comment. The revised draft, announced with the intent of exempting MLM companies, is still flawed in that its wording may still inadvertently create applicability to many leading MLM companies because proposed "definitions" section 437.1(c)(3)(ii) may mistakenly include MLM/Direct Selling companies that assist in customer gathering on the web, in print, institutional or co-op advertising campaigns or other customer lead generation programs. However, the proposed rule represents a good faith start to narrow the scope of the Proposed FTC Business Opportunity Rule and invite comments from the public to assist in this process. At the very least, the FTC was unequivocal in its stated intent to exempt the MLM industry, noting in its public statement:

On balance, based on this record and its law enforcement experience, the Commission does not believe it is practicable or sufficiently beneficial to consumers to attempt to apply the proposals advanced in this rulemaking against multi-level marketing companies, particularly when considering the burdens upon industry. The Commission, therefore, has determined that at this point, it will continue to use Section 5 to challenge unfair and deceptive acts or practices in the MLM Industry.

In 2011, the FTC released the Final Business Opportunity Rule, to be effective March 1, 2012. In its 200 page release, the FTC rhetoric, time and time again, clearly indicated its intent to exempt the MLM industry from broad sweeping coverage of the new Rule. Its position was succinctly expressed at page 33 of the Release:

Accordingly, while the Commission recognizes that problems may exist within the MLM industry, it continues to find that the Business Opportunity Rule is not the appropriate vehicle through which to address them. Rather, the Commission will continue to challenge unfair or deceptive practices in the MLM industry through Section 5 of the FTC Act. Thus, the final Rule has been crafted to avoid broadly sweeping in MLMs.

Unfortunately, the goodwill exemption so clearly offered in the FTC’s generalized discussion, was effectively retracted in footnotes and rejection of the MLM/Direct Selling/Network Marketing industry’s constructive comments and request for a specific called out exemption that matched the FTC’s stated goals.

The FTC specifically rejected requests by the industry to extend the exemption to otherwise typical assistance provided by almost all leading MLM/Direct Selling/Network Marketing Companies, including replicated websites, referral of customers, lead generation, etc. In failing to call out in the Rule its intent to not cover MLM opportunities or to further exempt typical MLM Company assistance, prong three is triggered, and the industry is left vulnerable.

MLMLegal.com offers constructive and remedial language that should be pursued by the MLM/Direct Selling/Network Marketing Industry in the below article, titled "The FTC Final Business Opportunity Rule: Still Work to Do for MLM/Direct Selling/Network Marketing."

Ongoing updates on the status:

The FTC Final Business Opportunity Rule: Still Work to Do

FTC Exemption Draft Falls Short... MLMLegal.Com and DSA Suggest Revisions

FTC Exempts MLM from Proposed Business Opportunity Rule

DSA Position on FTC MLM Exemption Proposed Business Opportunity Rule

FTC Proposed Business Opportunity Rule - Analysis

FTC Proposed Business Opportunity Rule - Press Release

FTC Proposed Business Opportunity Rule - Actual Text

FTC Proposed Business Opportunity Rule - DSA Response

The DRA Speaks Out

The MLMIA Speaks Out

The DSWA Speaks Out

MLMLegal.Com Speaks Out

Other Pages of Interest

FTC Proposed Business Opportunity Rule: Actual Text

In April 2006, the FTC released a sweeping proposed change in its FTC Business Opportunity Rule.

read more »

FTC Exempts MLM/Direct Selling from FTC Revised Proposed Business Opportunity Rule

In April 2006, the FTC released a sweeping proposed change in its FTC Business Opportunity Rule.

read more »

MLMLegal.com Speaks Out

Industry trade associations, companies and direct selling distributors have stressed the importance of addressing the tremendous hardship, if the proposed FTC Rule is adopted, that would fall upon an industry with approximately 14 million earners in the U.S. alone.

read more »

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