By Jeffrey A. Babener

© 2019

(First Published in World of Direct Selling)

History is Written by the Victor

Ring the bells that still can ring

Forget your perfect offering

There is a crack, a crack in everything 

That’s how the light gets in

Anthem, Leonard Cohen

Quiet Uncertainty

It was like the calm of quiet uncertainty before the storm. In May, 2019, 26 year old leading direct selling company, AdvoCare, announced that it would exit MLM in favor of a one level direct sales model. It indicated that it was doing so, and “had no choice,” after confidential talks with the FTC. That was it. No other explanation. And the industry asked: What is this all about? It may be true, as T.S. Elliot said, “the world will end in a whimper, not a bang.” For a detailed article on the May withdrawal and ramifications, see AdvoCare Abandons MLM: Uncertainty Returns to Direct Selling. (World of Direct Selling).

A Jarring Dissonance

The FTC Speaks

And then, in October 2019, a cacophony, as the other shoe dropped. The FTC announced a stipulated judgment in which AdvoCare was proclaimed online and in newspapers across the country as a pernicious pyramid scheme that had swindled hundreds of thousands.

The settlement came with a $150m fine, life time MLM bans for AdvoCare’s CEO and top distributors, and the FTC spiked the ball in the end zone, noting at its press conference,

“It is significant that we have a large and well known multilevel marketing company that is admitting that it operated as a pyramid… “

Sending an underlined message across the bow of the direct selling industry, the FTC online blog labeled the case as “the landmark settlement.”

Buyer’s Remorse

“Foul!,” called AdvoCare in an immediate responsive press release:

“The FTC incorrectly stated in a press conference that AdvoCare had admitted to operating as a pyramid. This is categorically false. AdvoCare forcefully rebutted this charge in its discussions with the FTC. To this day, AdvoCare denies it operated as a pyramid.”

Actually, AdvoCare was technically right… no such admission had been given (although it had stipulated to the veracity of the factual allegations in the Complaint), prompting the Director of the FTC Bureau of Consumer Protection to later apologize at the Washington, D.C. DSA Legal and Regulatory Conference.

A pyrrhic victory for AdvoCare, whose marketing program and opportunity for thousands of distributors was totally gutted. “Elvis had left the building.”

FTC has Non-Legal Leverage. What Now?

This was the third major DSA member company hit by the FTC in less than 5 years. And the FTC accomplished its goals, without litigation, but rather the sheer leverage it had over the companies and individuals based on their unique factual situation. For Vemma, an asset freeze. For Herbalife, the overriding need to address its position as a publicly traded company. For AdvoCare, industry speculation about the unstated jeopardy of owners and board members, as well as existential threat to the business. For better or worse, the FTC accomplished its objectives in all three cases without taking the matter to formal adjudication. Therefore, the new quasi legal standards were set by FTC leverage, without firing a litigation shot, rather than by actual case law. Case law did not change.

Serious? To paraphrase a general counsel of one of the industry’s largest MLM companies:

“Our first priority is not to prepare for a FTC confrontation, but rather to use our best efforts to stay off their radar in the first place.”

More to come? Could well be. The industry was left with a choice. It could wring its hands or treat this as a teachable moment for its future. As they say, a new reality, and “it is what it is.”

(From the industry’s perspective, were the penalties draconian? Absolutely. Might it have been more appropriate to adopt a remedial solution rather than ban the entire MLM model? Absolutely. But that is another issue for another day.)

The initial instinct of the industry was to recoil from a near death blow to a 26 year old industry leader and longtime DSA member, complaining of a new era of FTC bullying.  But, as the facts unraveled, some real concerns arise as “the crack in the bell lets the light in.” Maybe, it was not about bullying after all. The industry needs to pay serious attention and self- reflection about guidance it provides to its own companies.

Fact Checking the FTC and AdvoCare

What were the facts in issue from the standpoint of the FTC and AdvoCare? Well, as far as AdvoCare, we will never know. The company capitulated, without even filing one defensive document. And so, all we really can discern is what the FTC alleged. And from a legal standpoint, their version “stands” because, notwithstanding a preamble that states that AdvoCare neither admits nor denies any of the allegations in the Complaint, the stipulated order for permanent injunction and monetary judgment, recites:

VI.(D) The facts alleged in the Complaint will be taken as true, without further proof, in any subsequent civil litigation by or on behalf of the Commission against Settling Defendants….”

And so, we won’t really hear AdvoCare’s explanation. All we have is the uncontested FTC Complaint allegations. And history suggests that this “neither admit nor deny” stipulated order will morph into a “de facto” FTC guidance in the future.

The big picture said the FTC is that the facts support that AdvoCare crossed the line from operating a legitimate MLM program to a program that was instead an illegal pyramid scheme.

For the uncertainty created by no clear adjudication of such important issues, the industry owes “no thanks” to AdvoCare for its decision to merely “roll over,” despite contending after the settlement order that it had forcefully rebutted the pyramid charge in pre-settlement discussions with the FTC. Unfortunately, the “game over buzzer” had already sounded.

History Repeats Itself: Omnitrition Déjà Vu…

Other than ramped up aggressive enforcement and penalties (life time MLM bans for the CEO and lead distributors and forcing AdvoCare to abandon the MLM model), those looking for new insight in the AdvoCare prosecution, will not find it.

This was the opinion of the FTC and its Director of the Bureau of Consumer Protection, Andrew Smith, and a historical legal perspective would come to the same conclusion.

The AdvoCare prosecution can be summed up in a few words:

1. Inventory Loading. In other words, “pay to play,” “buy in to active qualification for “active” rank commissions and rank advancement commissions; purchasing far more product than realistically needed for either personal use or to meet resale demand to customers, focusing on recruiting business builders who buy inventory and encourage others to do the same.
2. Exaggerated Earnings Claims. It is eerie, but this is a “history repeats itself” moment. In 1996, in Webster v. Omnitrition, (79 F.3d 776) the U.S. Court of Appeals for the 9^th Circuit, held Omnitrition to be a pyramid scheme based on the company recruitment of business builders qualified with  inventory loading, who in turn, did the same. Omnitrition was co-founded by Charlie Ragus. In 1993, Ragus founded AdvoCare. It is a sad irony that 26 years later, the Ragus founded AdvoCare MLM program would be shuttered by similar inventory loading accusations as in Omnitrition.

The Omnitrition Court held that the well venerated Amway safeguards meant nothing if not enforced and if, in the presence of inventory loading.

The promise of lucrative rewards for recruiting others tends to induce participants to focus on the recruitment side of the business at the expense of their retail marketing efforts, making it unlikely that meaningful opportunities for retail sales will occur. Koscot, 86 F.T.C. at 1181. The danger of such “recruitment focus” is present in Omnitrition’s program. For example, Webster testified that Omnitrition encouraged him to “get to supervisor as quick as [he] could.” Ligon states:

[T]he product sales are driven by enrolling people. In other words, the people buy exorbitant amounts of products that normally would not be sold in an average market by virtue of the fact that they enroll, get caught up in the process, in the enthusiasm, the words of people like Charlie Ragus, president, by buying exorbitant amounts of products, giving products away and get[ting] involved in their proven plan of success, their marketing plan. It has nothing to do with the normal supply and demand in this world. It has to do with getting people enrolled, enrolling people, getting them on the bandwagon and getting them to sell product…

FN3…First, Omnitrition produced evidence of enforcement only for its ten customer rule. Even assuming that Omnitrition’s enforcement measures are effective, it is not clear that these measures serve to tie the amount of “Royalty Overrides” to retail sales. The overrides are paid based on purchases by supervisors. In order to be a supervisor, one must purchase several thousand dollars’ worth of product each month. That some amount of product was sold by each supervisor to only ten consumers each month does not insure that overrides are being paid as a result of actual retail sales.

Fast Forward 23 years and it all sounds the same. Said the FTC in its Press Release and Blog about AdvoCare:

Press Release:

AdvoCare operated an illegal pyramid scheme that pushed distributors to focus on recruiting new distributors rather than retail sales to customers. The compensation structure also incentivized distributors to purchase large quantities of AdvoCare products to participate in the business and to recruit a downline of other participants with the same incentives. The clear directive of this structure was, as one AdvoCare distributor explained during the company’s Success School training, to “recruit business builders who recruit business builders who recruit business builders…”

The FTC alleged that under the AdvoCare compensation plan, participants were charged $59 to become a distributor, making them eligible to receive discounts on products, and to sell products to the public. To earn all possible forms of compensation, however, participants had to become “advisors,” which typically required them to spend between $1,200 and $2,400 purchasing AdvoCare products and accumulate thousands of dollars of product purchase volume each year, according to the complaint. The FTC alleged that the income of AdvoCare advisors was based on their success at recruiting, with the highest rewards going to those who recruited the most advisors and generated the most purchase volume from their downline.

To recruit people, the FTC alleged, AdvoCare and the other defendants told distributors to make exaggerated claims about how much money average people could make—as much as hundreds of thousands or millions of dollars a year. The FTC alleged that distributors were told to create emotional narratives in which they struggled financially before they joined AdvoCare, but obtained financial success through AdvoCare. Distributors were also allegedly told to instill fears in potential recruits that they would suffer from regrets later if they declined to invest in AdvoCare.

The FTC alleged that the defendants told consumers that they could realize large incomes by promoting AdvoCare and that their earning capacity was limited only by their effort. For example, AdvoCare promoter Diane McDaniel told consumers that “the sky is the limit. I’m the variable. I get to decide what I truly want according to the effort I put forth” and that “there is incredible profit that can be made through infinity.”

In reality, the FTC alleged, AdvoCare did not offer consumers a viable path to financial freedom. In 2016, 72.3 percent of distributors did not earn any compensation from AdvoCare; another 18 percent earned between one cent and $250; and another 6 percent earned between $250 and $1,000. The annual earnings distribution was nearly identical for 2012 through 2015.

FTC Blog:

…people paid AdvoCare thousands of dollars to become “distributors,” buy inventory, and become eligible for cash bonuses and other rewards. But, the FTC says, AdvoCare rewarded distributors not for selling product but for recruiting other distributors to spend large sums of money pursuing the business opportunity. That push to recruit is a classic sign of a pyramid scheme.

On the earnings front, the FTC also alleged that AdvoCare earnings disclosures played fast and loose with earnings averages by extrapolating data of one month’s earnings into an annual earnings average, when in fact, the month chosen might not be a recurring event.

Legal observers are perplexed how it could happen after Omnitrition litigation that the same “front loading” fact pattern might occur again in a related successor company. Probably, the answer is that, unless one is extremely careful, these things just “creep up on you.

Unfortunately, the cultural problem was not new and was a bit of a “tiger by the tail.” The focus on recruiting and duplicating “front loading” business builders was suggested by a legal expert, who was also a former insider knowledgeable observer, to predate the FTC Order by more than a dozen years:

AdvoCare leaders encouraged new distributors to “buy their Advisor order” ($2,000) so they could begin earning commissions sooner. This was ingrained in the distributor culture… there were efforts made to discourage this and ensure that products purchased through “advisor orders” were sold to retail customers. …AdvoCare was a victim of its own success and it was unable to reign in leaders… Existing problems only become magnified when you go through a period of hyper-growth similar to what AdvoCare experienced.

Based on the “uncontested” alleged facts set forth by the FTC, serious pyramiding issues are raised. And that is all we have. Without a vigorous defense by AdvoCare, or, in fact, any defense at all, and based on the FTC Settlement Order providing that “facts alleged will be deemed to be true,” it is far more than a challenge for industry supporters to come to the support of AdvoCare in this dispute. This is a true loss for the direct selling industry. The silence of AdvoCare left the industry in an awkward uninformed position with no arrows in its quiver, akin to a performer on stage pleading, “throw me a bone, I’m dying up here.”

State of the Law

The FTC and the direct selling Industry are totally in sync on one point:

Nothing about the FTC/AdvoCare settlement changes the existing legal standards for pyramid vs. legitimate direct selling. Those case law standards weave their way in FTC cases from the Koscot case through Amway through Burnlounge:

Koscot: Multilevel commissions must be based on sales to ultimate users.

Amway: Multilevel companies must adopt procedures that encourage retail selling.

Omnitrition (9^th Circuit Class Action): In the presence of front-loading and lack of enforcement of the Amway standards, companies can expect pyramid challenges.

Burnlounge: The primary incentive to distributor purchases or payments should be a genuine need, whether for resale or personal use, as opposed to qualification in the compensation plan. Are distributor payments and commissions driven by recruitment and qualification in the plan, on the one hand, or sales to ultimate users?

Andrew Smith, FTC Director of the Bureau of Consumer Protection, was in total agreement, in his presentation to the October, 2019 Washington D.C. DSA Legal and Regulatory Conference.

In a well-received presentation, and to the surprise of many attendees, he emphasized multiple times that the FTC is supportive of the MLM model. He went out of his way to express his opinion that, in some ways, MLM is a superior business model because:

1. It provides flexibility and opportunity to individuals to earn extra income.
2. It provides a warm and attentive experience, and qualify products, to retail consumers.

He stated that the FTC welcomes compliant MLM companies. And his standards were not measurably different than existing case law.

The FTC seems to have retreated from its all-out assault on recognition of personal use, as argued and rejected by the BurnLounge court. Its attention is now turned to the basic question of whether a MLM program is placing its focus on sales to ultimate users, which includes personal use purchases in reasonable amounts and wholesale purchases for resale, in amounts reasonably calculated to fulfill retail consumer demand and for which the company can track the flow of product to ultimate users such that compensation reasonable relates to sales to ultimate users.

Overall, Director Smith’s description of the state of the law seemed consistent with case law. He suggested this analysis:

1. Does the scheme emphasize recruiting over sales to consumers? Are compensation results driven by recruiting others? Are distributors focused on recruitment and duplication rewards arising from recruiting other distributors to “buy?” Does that plan have a qualifier relating to recruitment?
2. Does the program have incentives to buy goods that are not based on satisfying a distributor’s own personal needs or reasonable inventory to supply retail customers? A telltale pattern would be monthly purchases just enough to meet compensation qualification activity requirements. Another would be front-loading which Director Smith indicated as an attribute of pyramid schemes. His observation of AdvoCare was that distributors were encouraged to buy and did buy for more than they reasonably needed or could use.

He stated that the FTC key questions are:

1. How do distributors really make money in the plan?
2. Does the company have incentives that promote recruiting and purchasing over sales?
3. Is the company gathering data to track product sales to end consumers?

Director Smith stressed:

1. At the FTC, we want you to be successful as a MLM.
2. However, we also want you to be in compliance as an MLM.
3. Effectively, he said, “we are not looking for a fight, and we want you to stay off our radar,” and he implored companies to examine and reexamine their programs to remove any practices that would put a company on the FTC radar.
4. He stated the FTC position, which no one in the industry disputes, is that a pyramid headhunting inventory loading recruitment scheme is unsustainable as a business model.

Unless completely cynical, given the tenor of his presentation, it seems fair to take Director Smith at his word. Refreshing! The industry can live with this going forward.

Guidance for Radar Avoidance in a Post AdvoCare World

Every breath you take

Every move you make…

I’ll be watching you

Every Breath You Take, Sting, The Police

If you are looking for life in a post FTC vs. AdvoCare/Herbalife/Vemma world, here are some common sense guidelines to create the strongest defense to your MLM program and for promoting anti-pyramid practices aimed at staying off the FTC radar:

1. Overriding Goal…The Big Picture.

The compliant MLM “acid test” will be a mandate and demonstration of significant sales to non-participant retail customers.

Bottom line analysis by FTC and state AGs:

A product or service with real retail customers and a good ratio of retail customers to distributors to demonstrate that people buy the product because they want it, and not just to qualify in the marketing plan.

Upline commissions must derive from sale of product to ultimate end users.

With a high retail customer to distributor ratio, experience suggests that most other legal issues (assuming no outrageous earnings or product claims) tend to recede into the background.

2. Track. Track…Flow of Product to and Use by the Ultimate User.

After Vemma, Herbalife and AdvoCare, few priorities are as important as tracking and verifying the flow of product to and use by the ultimate user, whether it be a nonparticipant retail customer or distributor for personal/family use. The short answer: Track the flow and use of product to both nonparticipant retail customers and distributor personal/family use. In fact every company and the DSA should launch a joint initiative with leading direct selling software companies to develop software which accurately tracks the flow of product such that a company can demonstrate that distributor purchases are, in fact, in reasonable amounts for distributor personal use and reasonable inventory quantities for resale, calculated to meet the ordering needs of retail customers. And software should track that every product sold is used by the ultimate user, whether for personal use by distributors or use by non-participant retail customers.

3. Promote Non-participant Retail Sales and a Preferred Customer Program.

It is in everyone’s interest, the company, distributors, the industry and regulators, to place an emphasis on retail sales to non-participant customers. After all, the business is called “direct selling,” and not “direct consumption.” The promotion of retailing should find a thread through every piece of company literature and advertising.

In addition the gold standard of retailing is the presence of non-participant preferred customers, i.e., those retail customers that are provided incentives and discounts to commit to monthly or orderly product purchases. From a legal standpoint, a robust preferred customer program makes the statement that there is a real market for the product and purchasers are purchasing because they want the product as opposed to being motivated by qualifying in the business opportunity.

4. Time to Rethink Personal/Group Volume Qualification Requirements for Active Status, Rank Status, Rank Advancement Commission Payout if the Volume is Based on Distributor Purchases that are Not Clearly Documented as End User Personal Use of Distributors or Retail Customers.

In fact, some leading direct selling companies have already initiated elimination of volume requirements for active status, fast start commissions, rank status, rank advancement and payment of enhanced commissions. The FTC has long expressed a deep concern for volume requirements that tend to trigger inventory loading or distributor purchases that are not driven by consumer demand, but instead for purposes of qualification.

Said Former FTC Commissioner Edith Ramirez in her remarks at the DSA Business and Policy Conference in September, 2016:

Any requirements or incentives that participants purchase product for reasons other than satisfying genuine consumer demand—such as to join the business opportunity, maintain or advance their status, or qualify for compensation payments—are problematic.

In Vemma and Herbalife, companies were restricted on credit that could be accorded to distributor purchases, whether for personal use or resale. Many companies are reconsidering volume requirements that are documented as reasonable personal use or retail sales. Unless a company is prepared to track end destination of product, it should reconsider volume requirements that cause suspicion that the products are purchased to qualify and not driven by consumer need.

Above all, rewards should reasonably relate to sales to end users (personal use plus retail customers.

There are multiple approaches to compensation for multilevel payments on downline purchases.

(a)      The Herbalife settlement limited credit to downline distributor purchases (only about one-third of distributor purchases qualified for credit for MLM commissions.)

(b)      Pay MLM commissions only after verification of personal use or sale.

(c)      Pay MLM commissions at time of purchase, but absolutely track and verify personal use and sale of product purchased for resale.

5. Rethink Distributor Ordering Methods that Produce “Inventory Loading” Accusations. Use a Ramp-Up Authorization Approach that Authorizes Increasing Wholesale Orders Based on Demonstration of Retail Sales.

Above all: Do not allow distributors to purchase more than they can use for reasonable personal use and/or quantities for there is a realistic resale to retail consumer need.

Actually, in today’s world of next day UPS and FedEx, online ordering and direct to consumer shipping, there really is no need any more for large inventory purchases or stocking distributors.

Approaches for Avoiding Inventory Loading:

(a)      Eliminate or reduce volume requirements for active, rank, rank advancement.

(b)      Allow volume, but track and pay only on personal use level of volume or wholesale for resale volume that is verified sold to retail customers.

(c)      Limit amount of inventory or, at least, install a ramp-up authorization based on demonstrated sale and/or personal use.

6. Bulletproof Yourself on Earnings Claims. Don’t be the Nail that Sticks Up and Gets Hammered Down.

Avoid earnings hype in advertising, testimonials and lifestyle presentations. Scuttle the Maserati and the Tuscan villa images. Be realistic… this is the anomaly and not the norm. Take the bullseye off your forehead. In almost every FTC case, the first invitation to regulators is unrealistic earnings claims. The hype “opens” the door or lifts the canopy of the tent. And, as they say, “Once the camel has his nose in the tent, you can be assured that his ‘body’ will soon follow.”

In other words, don’t be the low-lying fruit. Don’t effectively, and unintentionally, “bait” the FTC to initiate an enforcement action by over-aggressive hype and promises. 

Absolutely do not make claims of wealth, fast wealth, easy money or sure-fire systems, nor effectively invite the FTC to inquire into a program based on earnings hype and systems based on distributor “purchasing” rather than distributor “selling” and “using.”

And whether legal or not, now is the time to “ditch” the pictures and videos of distributor mansions and luxury cars. Since such MLM driven lifestyles are clearly the exception to the rule, why wear a red flag in front of a “bull.”

7. Post a Transparent Earnings Disclosure.

As a general matter, the FTC is all about disclosure so that consumers can make informed decisions. Once you have a track record, post a simple and transparent average earnings disclosure. At a minimum, you should disclose:

(a)      What percentage of distributors who have signed up are active, i.e., earning any income?

(b)      Of those that are active, what is the average earnings?           (c)      If any example, testimonial or illustration of a particular income, bonus or lifestyle award is presented, what percentage of active distributors earn at least that amount or above?

(d)      Unless the company surveys average costs of doing business by distributors, earnings averages should be represented as “gross earnings” and that they are not “net earnings.”

(e)      Absolutely disclaim that any earnings illustrations are representations of an expectation of earnings.

(f)       “Pepper” promotional material with average earnings disclosures and disclaimers at every instance that an illustration/testimonial of earnings potential is provided.

(g)      Either calculate average business costs to disclose net earnings or specifically disclose that average earnings are presented as “gross,” as opposed to “net” and do not take into account distributor business costs.

Irrespective of the depth of the earnings disclosure, do not ever play fast and loose with earnings disclosures, nor “parse” to exaggerate the opportunity.

During his presentation to the DSA Legal and Regulatory Conference, FTC Director raised a new “ask” by the FTC. He suggested that companies should not only present gross earnings, but should also present net earnings which take into account costs of doing business by distributors. Upon questioning, he recognized that this may be a daunting task. At the very least, he suggested that companies should disclose that their typical average earnings disclosures are “gross earnings” and, not net earnings, i.e., they do not take into account distributor costs of doing business. Look for more of this “ask” in the future.

8.  Adopt, Follow and Enforce the Amway Safeguards.

The Amway safeguards have been the gold standard and been honored in case after case going on 40 years. Although the FTC may wish to pivot away from the Amway safeguards, the courts have not done so.

(a)      70% rule to avoid inventory loading … no ordering unless 70% of previous orders have been sold or used for personal/family use. Place lids on initial orders and allow a ramp up of size of order over time. Never mandate monthly autoship to qualify for commissions. And avoid front-loading. In the famous Omnitrition case, the court noted that the Amway safeguards are rendered ineffectual as a defense to pyramiding if a company encourages or allows front-loading of product because it becomes clear that commissions are not related to sales to ultimate users when distributors are incentivized to buy huge amounts of inventory that are out of proportion to needs for resale or the needs of personal and family use.

(b)      Adopt and enforce an actual nonparticipant retail sales mandate to qualify to receive commissions. Over the years, that number has been expressed in numbers from five to ten or in sales volume … often with an allowable ramp up over time.

(c)      Honor a buyback policy on inventory and sales support materials for terminating distributors…no less than 90% for 12 months.

9. Consider a Reclassification Program to Convert Non-Earning Distributors to Preferred Customers.

In a new FTC enforcement era, the “name of the game” is demonstrating high ratios of non-participant retail customers to active distributors. In the retailing analysis, non-participant retail customers, who are provided discounts or other incentives in exchange for signing up as “preferred customers,” are like “gold” in “upping” the ratios. Watch for direct selling companies to use major initiatives to convert to preferred customers distributors who are loyal product purchasers, but who are not really “working the opportunity,” i.e., low or no earning in the direct selling opportunity.

The conversion can be voluntary or non-voluntary.

1. Voluntary.

For instance, in the Herbalife settlement, Herbalife was given nine months to work on a reclassification of brand loyal, but low earning distributors, to preferred customers so that the non-participant retailing ratios would be increased for personal use purchases. Other leading companies, such as USANA, followed suit, substantially increasing retailing ratios.

2. Involuntary.

Another path that companies may wish to consider is automatic involuntary conversion. Under this approach a company would adopt an automatic reclassification program that automatically reclassifies non-earning independent representatives to preferred retail customers, all the while providing superb discount pricing, special customer benefits, generous customer appreciation referral rewards. If the converted preferred customer later decides to reactivate, the company might even consider providing an option for the right, after a waiting period or based on customer referral activity, to re-sign up as an active independent representative in a reserved genealogical downline position.

10. Promote Industry Guidance on Compliant Compensation Plans.

Similar to the DSA initiative on earnings claims compliance of the Direct Selling Self-Regulatory Council (DSSRC), support the launch of a DSA task force to develop best practices compensation plan guidelines and to continuously audit and constructively advise member DSA companies for avoiding pyramiding accusations of the sort raised by the FTC in Vemma, Herbalife and AdvoCare.

11. Support Clear Federal Legislation on Direct Selling.

Companies should actively support DSA federal legislative action to set forth clear anti-pyramiding guidelines so that the FTC, states and companies are playing on the same field with the same rules and goalpost settings.

See Original FTC Advocare Documents:

FTC v. Advocare Complaint

FTC v. Advocare Stipulated Order for Permanent Injunction and Monetary Judgment

FTC v. Advocare Press Release and Blog Announcement

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 and many of his writings will be found at 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. He is an active member of the State Bars of California and Oregon.

Read the article and supplemental material at www.mlmlegal.com.

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

Portland, Oregon (PRWEB)April 15, 2016

MLM News Global newsletter offers recent news, videos, company profiles, and timely articles. The e-newsletter contains the top news stories from the network marketing industry, the most recent MLM scam alerts, timely articles on the direct selling industry, and so much more. Keep up-to-date on top MLM news headlines or to hear about the latest MLM scam alerts and pyramid scheme accusations. The timely headline reporting will keep subscribers up-to-date on stories that affect everyone in the network marketing industry. In addition, important press releases, directly from MLM/network marketing/direct selling, party plan companies, keep subscribers current on trends and direct selling company developments.

Subscribe and look forward to exclusive videos that laser-focus on industry-educational topics, such as distributor education, industry Q&A, direct selling executive interviews, MLM startup, and pyramid schemes.

The MLM News Global newsletter features industry-related articles in every issue, featuring MLMLegal.com’s perspective on FTC rulings, Burnlounge, Herbalife, Vemma cases, and more.

MLM News Global also highlights featured articles, from industry experts, on MLM industry-related topics, such as pyramid schemes, compensation plans, recruiting, lead generation, consulting, legal analysis, software, and more.

The MLM News Global Newsletter is presented by industry educator, MLM legal expert, and network marketing business consultant and lawyer, Attorney Jeff Babener.

Sign up today to receive valuable MLM, network marketing, direct selling content, an imperative to anyone in the direct selling industry.

Unsubscribe at any time. We guarantee a NO SPAM POLICY!

Check out our Archives for past issues.

The Starting and Running the Successful MLM Company conference will be held May 20, 2016.

How do you find out more information?

Visit the new website:

http://www.mlmlegal.com

Visit the blogs:

http://mlmlegal.com/MLMBlog/

http://mlmattorney.com/blog/

Contact MLMLegal.com: 503-226-6600 or 800-231-2162

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 http://www.mlmlegal.com.
About Attorney Jeffrey Babener: Conference Host and Chairman, Editor of http://www.mlmlegal.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.

View the press release at PRWeb.

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

Portland, Oregon (PRWEB)April 14, 2016

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.

A new and easy-to-use navigation bar helps visitors easily find what they are looking for, whether it is the blog, articles, videos, MLM resources, conference pages, or one of the many other resources available on the website for network marketers.

The main homepage image was provided by expert MLM Attorney himself, Jeff Babener, while on a trip to Europe. These beautiful mountains provide the metaphor “Let Us Be Your Guide.” Let the Law Office of Babener and Associates, MLMLegal.com, guide clients through the sometimes difficult MLM industry and its legal climate. As experienced network marketing attorneys, who have been in the industry for over three decades, and who represent companies such as Melaleuca, Avon, Herbalife, NuSkin, USANA, Nerium, Excel, and Team National, our firm has the experience and credibility to help direct selling companies navigate the direct selling industry.

“Let us be your guide” through education provided throughout the website in the form of articles, videos, books, and MLM resources. Or,” let us be your guide” in helping to startup or run your direct selling company; Babener & Associates advises in all of the legal aspects of starting up or running MLM, network marketing, direct selling companies.

The new homepage offers quick and easy-to-find links so that visitors can easily contact Babener & Associates, request a Complimentary MLM Startup Manual, gather information regarding the next MLM Startup Conference, or subscribe to the newsletter, MLM News Global.

The new MLMLegal.com homepage still features new content, such as headline news and relevant articles, this time under their own, clearly-outlined sections.

Scroll down the homepage to find more educational video content and request a complimentary copy of the MLM Startup Manual.

What else is important?

A scrolling carousal provides visitors with images taken of past conferences and directs the eye and mouse directly to the page where one can find out when the next conference takes place and who will be included as expert speakers.

And now, visitors can find all of Jeff Babener’s educational MLM videos (over 140 videos) in one location, the homepage. …Right along with Mr. Babener’s most popular industry articles.

And don’t forget about the rest of the MLM, network marketing, direct selling content on MLMLegal.com. Use the Law Library to find all of Mr. Babener’s articles, federal and state cases, MLM law in 50 states, MLM business articles, IRS 911 Publication, and so many more article index pages that can be easily navigated.

Hint: Each new webpage now has related video and page content at the end of each webpage.

As does the new homepage. The end of each page has links to related material/videos, or other related pages that we suggest visitors look also to enjoy while at MLMLegal.com.

And finally, at the bottom of each webpage are links to social networking sites. Follow MLMLegal on Twitter. Friend MLMLegal.com on Facebook. Like the Babener & Associates Facebook page. Visit Babener & Associates on LinkedIn or Google+. There are lots of easy ways to stay in touch and now it’s made it easy to find and follow Babener & Associates/MLMLegal.com online.

MLMLegal.com and Babener & Associates thought a lot about visitors when redesigning the new website. MLMlegal.com is now more manageable yet still famous for being full of lots of useful content.

Potential attendees to the Starting and Running the Successful MLM Company conference are welcome to visit the conference page, view the speaker list, or get more details online. All executives/owners of direct selling companies are welcome to attend. Call 800-231-2162 to register.

The next Starting and Running the Successful MLM Company Conference takes place May 20, 2016 in Las Vegas. View the conference flyer and speaker list online. Participate in the Innovation Campaign for a chance to receive TWO COMPLIMENTARY TICKETS to attend the next conference.

Sign up for the MLM News Global newsletter for top headline news stories, videos, articles, and more valuable MLM, network marketing, direct selling content, an imperative to anyone in the direct selling industry.

The Starting and Running the Successful MLM Company conference will be held May 20, 2016.

How do you find out more information?

Visit the new website:

http://www.mlmlegal.com

Visit the blogs:

http://mlmlegal.com/MLMBlog/

http://mlmattorney.com/blog/

Contact MLMLegal.com: 503-226-6600 or 800-231-2162

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.

Join us for the first MLM Startup Conference of 2015!

LAS VEGAS, NV — (Marketwired) — 01/06/15 — For more than 28 years, leading industry experts have educated the executives of starting and existing MLM, direct selling, network marketing, and party plan companies on how to structure their compensation plans, legalize their companies, recruit key employees and top-ranking distributors, develop business models, generate leads, fund their business, establish their website and technology platforms, better understand the direct selling industry, and so much more.

The next MLM Startup Conference takes place February 26 & 27, 2015 in Las Vegas. View the conference flyer page at http://www.mlmlegal.com/srs2.html to learn more. 

This is the original MLM Startup Conference — responsible for launching many industry-leading companies — perfected over the course of a quarter of a century to ensure the highest quality of information, the most knowledgeable experts, and the most practical advice from qualified experts.

Over the course of two days, attendees will hear from scores of industry experts, and if they choose, can sign up to meet with the speakers for individual one-on-one time. A full list of speakers and their biographies/credentials can be found at http://www.mlmlegal.com/bio.html.

The educational information gained by attending this event is invaluable. Here are just a few of the testimonials from past attendees:

“We have a traditional business at the moment and we are looking to take it into the realm where it’s more personalized, it’s more about building people and an experience. It has been absolutely worth our trip. We are looking to take our business to the next level and build relationships.”

“The reason I came to the show was to learn more about how to launch my direct sales company (via james). I’m very comfortable and accustomed to selling through more traditional networks; however, I believe that the product that I’m launching is more suitable for direct sales; to get direct-to-consumer faster and in greater sales.”

“[I’ve] been in network marking for 30 years [but] we are learning a lot of things about how to launch, how to reach the people we need to have, and again, the things that are required to make a successful company, not only for us but especially for our customers and for our affiliates.”

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

Each attendee will receive a FREE copy of the Starting and Running the Successful MLM Company Manual.

How do you find out more information?

Visit our website:

www.mlmlegal.com

Visit our blogs:

http://mlmlegal.com/MLMBlog/

http://mlmattorney.com/blog/

Watch the 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

Contact Us: REGISTER TODAY! 503-226-6600 or 800-231-2162

Each day will begin at 9:00AM and end at 4:00PM, when the one-on-time will begin and end around 7:00PM. For more information visit: http://www.mlmlegal.com/srs2.html or call 800-231-2162/503-226-6600. Registrations are taken by phone and questions are always welcome.

Presented by one of the most trusted individuals in direct selling and MLM, Jeffrey Babener, Editor of www.mlmlegal.com.

About Attorney Jeffrey Babener: Conference Host and Chairman, Editor of www.mlmlegal.com, as well as the leading direct selling attorney in the United States — With over 25 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, plus many more. He’s 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 64 national conferences on direct selling.

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

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

The MLM Startup Conference for Executives of Startup and Existing Direct Selling Companies takes place February 26 & 27 in Las Vegas. This is the 70th annual, two-day conference, featuring industry experts and invaluable tools for the MLM startup entrepreneur. Call our office to register or for additional information: 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 Startup 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.

Jeff Babener speaking at the MLM Startup Conference in Las Vegas.

MLMLegal.com Launches the Innovation Campaign for the October 23rd & 24th, 2014 MLM Startup Conference in Las Vegas!

Fill out the short survey here to receive two free tickets (worth $345.00!) to the next MLM Startup Conference in Las Vegas!**

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. In celebration of our 69^th conference, we are offering two complimentary tickets* – worth $345.00! – to attend the esteemed event in Las Vegas, Nevada.

In our ongoing effort to offer the absolute best network marketing conference available, we invite you to participate in our October 2014 Innovation Campaign. To receive your two free tickets, fill out our Innovation Campaign form below.

We invite the input, ideas and innovation from the very MLM company owners who are in the startup and launch phases of their companies. We strive to offer the best conference in the United States. MLMLegal.com always covers current issues and events at all of our conferences, but this time it is different! We want your input in the Innovation Campaign!

Are you an owner or executive of a startup of existing direct selling company? Do you want to attend the 69^th Starting and Running the Successful MLM Company Conference for FREE?! Fill out our short survey below! Share with us your experience as a network marketing entrepreneur!

Fill out our Innovation Campaign form to receive your two free tickets today! Also visit this page for additional information on the October 23rd & 24th, 2014 MLM Startup Conference.

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

Myspace

Facebook

Our next Starting and Running the Successful MLM Company Conference takes place October 23rd & 24th, 2014 in Las Vegas. Call 503-226-6600 or 800-231-2162 to register.

*Innovation Campaign Survey Participants will receive two free tickets to attend the October 2014 Starting and Running the Successful MLM Company Conference in Las Vegas, Nevada. This offer does not include hotel, flight or other travel expenses.

***This offer is only available to potential attendees who are eligible to attend the Conference, i.e., executives of a startup or existing MLM/Direct Selling/Network Marketing/Party Plan companies.

Click Here to fill out the Innovation Campaign Form.

______________________________________________________________________________

Information About the Original MLM Startup Conference – Starting and Running the Successful MLM Company Conference in Las Vegas is Available HERE.

WHAT ELSE DO I NEED TO KNOW?

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

Each attendee will receive a FREE copy of the Starting and Running the Successful MLM Company Manual. Some of the chapters include:

Legal Issues
MLM Law in 50 States
FDA Health Claims: The Final Rules
The Snail that got Mugged: FTC v. Direct Selling
Start-up  Issues
Incorporating the Network Marketer
Five Dynamics that Drive An MLM Company
Product
Creating Your Next Million Dollar Product
Treasure Hunting for New Products
Compensation Plans
Comp. Plan Conversion: Direct Sales to MLM
Your Compensation Plan’s Competitive Edge
Communications and Media
Focus on the Mission…Not the Commission!
When the Media Calls… Who Answers the Phone?

Attendees receive over 30 consulting hours with an array of industry experts – all in one location.

HOW CAN I FIND OUT MORE INFORMATION?

Visit our main website:
www.mlmlegal.com

Read our blogs:
http://mlmlegal.com/MLMBlog/ and http://mlmattorney.com/blog/

Watch the 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 us to register: 503-226-6600 or 800-231-2162

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.

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. 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.

View the video on our website: mlmattorney.com or mlmlegal.com; or view it on Youtube.

In this hour-long video, Jeff Babener addresses network marketing industry topics such as:

– Distributor raiding

– Pyramid scheme

– Personal Use

– Legal

– Social media

– Recruiting and communication

– Noncompete agreements

– Distributorships with multiple companies

– Company and consultant responsibility

– Startup

– Trademark

– Regulatory

– Compliance

– Funding startups

– Training and education

– Federal Trade Commission

– Keys to startup success

– Passion for company vision and products

– Determination

– Success strategies

– Regulatory environment

– Legal services

To watch the video visit: https://www.youtube.com/watch?v=rzX1sXgTg_Q&feature=youtu.be or visit our blogs to read more: www.mlmlegal.com and www.mlmattorney.com.

The conference will be held May 15th & 16th 2014, which is quickly approaching!

MLMLegal.com Launches the  Innovation Campaign  for the May 15 & 16, 2014 MLM Startup Conference!

Fill out the short survey here to receive two free tickets (worth $345.00!) to the next MLM Startup Conference in Las Vegas!**

For over 26 years MLMLegal.com and Babener & Associates has hosted the most prestigious MLM conference for executives of startup and existing direct selling companies. In celebration of our 67th conference, we are offering two complimentary tickets* — worth $345.00! — to attend the esteemed event in Las Vegas, Nevada.

In our ongoing effort to offer the absolute best network marketing conference available, we invite you to participate in our May 2014 Innovation Campaign. To receive your two free tickets, fill out our Innovation Campaign form by following the link below.

We invite the input, ideas and innovation from the very MLM company owners who are in the startup and launch phases of their companies. We strive to offer the best conference in the United States. MLMLegal.com always covers current issues and events at all of our conferences, but this time it is different! We want your input in the Innovation Campaign!

Are you an owner or executive of a startup of existing direct selling company? Do you want to attend the 67th Starting and Running the Successful MLM Company Conference for FREE?! Fill out our short survey below! Share with us your experience as a network marketing entrepreneur!

Fill out our  Innovation Campaign  form to receive your two free tickets today! Also visit this page for additional information on the May 15 & 16, 2014 MLM Startup Conference

Each attendee will receive a FREE copy of the Starting and Running the Successful MLM Company Manual.

How do you find out more information?

Visit our website:

www.mlmlegal.com

Visit our blogs:

http://mlmlegal.com/MLMBlog/

http://mlmattorney.com/blog/

Watch the 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

Contact Us: REGISTER TODAY! 503-226-6600 or 800-231-2162

The next MLM conference will be held May 2014 in Las Vegas (keep a look out for the October and February conferences as well). Each day will begin at 9:00AM and end at 4:00PM, when the one-on-time will begin and end around 7:00PM. For more information visit: http://www.mlmlegal.com/srs2.html or call 800-231-2162/503-226-6600. Registrations are taken by phone and questions are always welcome.

Presented by one of the most trusted individuals in direct selling and MLM, Jeffrey Babener, Editor of www.mlmlegal.com.

About Attorney Jeffrey Babener: Conference Host and Chairman, Editor of www.mlmlegal.com, as well as the leading direct selling attorney in the United States — With over 25 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, plus many more. He’s 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 64 national conferences on direct selling.

View the Press Release HERE.

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

Next MLM Startup Conference takes place February 27 & 28, 2014 in Las Vegas.

Herbalife Belgium:

In a dramatic turn, a Belgian appeals courts reverses a lower court ruling and hold that Hebalife is no pyramid, but is in fact a legitimate direct selling business opportunity. The court validates “personal use” by distributors in pyramid analysis.

Herbalife: Belgian Appeal Court: Herbalife is No Pyramid, Validates Legitimacy – The Next Chapter in Personal Use

Herbalife: What the Short Sellers Missed:

This article tracks major regulatory actions over two decades to suggest that short sellers reliance on criticism of “personal use” may be misplaced.

Herbalife: What Short Sellers Missed on the Way to the Press Conference…

BurnLounge: Personal Use Recognized

In this case, a federal court expresses validity to distributor personal use, but rejects purchases of packages and sales tools where the predominant reason for purchase is merely to qualify for recruiting commissions in the opportunity.

FTC v. BurnLounge: Lessons Learned for MLM/Direct Selling

Editor and direct selling attorney, Jeff Babener of Babener & Associates, discusses these issues in his trilogy of articles on personal use and network marketing.

The pivotal issue of “personal use” will be thoroughly covered in the next  Starting and Running the Successful MLM Company Conference taking place February 2014.

The conference will be held February 27th & 28th, 2014, which is quickly approaching!

For more than 26 years, leading industry experts have educated the executives of starting and existing MLM, direct selling, network marketing, and party plan companies on how to structure their compensation plans, legalize their companies, recruit key employees and top-ranking distributors, develop business models, generate leads, fund their business, establish their website and technology platforms, better understand the direct selling industry, and so much more.

The next MLM Startup Conference takes place February 27th & 28th, 2014 in Las Vegas. View the conference flyer page at  http://www.mlmlegal.com/srs2.html  to learn more.

This is the  original  MLM Startup Conference – responsible for launching many industry-leading companies – perfected over the course of a quarter of a century to ensure the highest quality of information, the most knowledgeable experts, and the most practical advice from qualified experts.

Over the course of two days, attendees will hear from scores of industry experts, and if they choose, can sign up to meet with the speakers for individual one-on-one time. A full list of speakers and their biographies/credentials can be found at  http://www.mlmlegal.com/bio.html .

The educational information gained by attending this event is invaluable. Here are just a few of the testimonials from past attendees:

“We have a traditional business at the moment and we are looking to take it into the realm where it’s more personalized, it’s more about building people and an experience. It has been absolutely worth our trip. We are looking to take our business to the next level and build relationships.”

“The reason I came to the show was to learn more about how to launch my direct sales company. I’m very comfortable and accustomed to selling through more traditional networks; however, I believe that the product that I’m launching is more suitable for direct sales; to get direct-to-consumer faster and in greater sales.”

“[I’ve] been in network marking for 30 years [but] we are learning a lot of things about how to launch, how to reach the people we need to have, and again, the things that are required to make a successful company, not only for us but especially for our customers and for our affiliates.”

Each attendee will receive a FREE copy of the  Starting and Running the Successful MLM Company Manual .

How do you find out more information?

Visit our website:

www.mlmlegal.com

Visit our blogs:

http://mlmlegal.com/MLMBlog/

http://mlmattorney.com/blog/

Watch the 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

Contact Us : REGISTER TODAY!  503-226-6600  or  800-231-2162

The next MLM conference will be held February 2014 in Las Vegas (keep a look out for the May and October conferences as well). Each day will begin at 9:00AM and end at 4:00PM, when the one-on-time will begin and end around 7:00PM. For more information visit: http://www.mlmlegal.com/srs2.html  or call 800-231-2162/503-226-6600. Registrations are taken by phone and questions are always welcome.

Visit our website to find out how to receive two free tickets to the event by participating in our February 2014  Innovation Campaign :  http://www.mlmattorney.com/innovationcampaign.html .

Presented by one of the most trusted individuals in direct selling and MLM, Jeffrey Babener, Editor of  www.mlmlegal.com .

About Attorney Jeffrey Babener : Conference Host and Chairman, Editor of  www.mlmlegal.com , as well as the leading direct selling attorney in the United States – With over 25 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, plus many more. He’s 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 64 national conferences on direct selling.

Contact: Babener & Associates/MLMLegal.com
Telephone: 503-226-6600/800-231-2162
http://www.mlmlegal.com

View the Press Release HERE.

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

© 2013

http://www.mlmlegal.com

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.

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

Myspace

Facebook

Our next Starting and Running the Successful MLM Company Conference takes place February 27th & 28th, 2014 in Las Vegas. Call 503-226-6600 or 800-231-2162 to register.

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