The New FTC Direct Selling Guidance… Imperfect, But a Good Start – New Article

The New FTC Direct Selling Jeffrey A Babener
(First Published in World of Direct Selling)

Ring the bells that still can ring

Forget your perfect offering

There is a crack in everything

That’s how the light gets in

Leonard Cohen… Anthem

The new FTC Direct Selling Guidance arrived in January, 2018. It built on the goodwill dialogue between the FTC and the direct selling industry that was ushered in by a well-received DSA presentation of acting Chairperson Maureen Ohlhausen in November, 2017.

Was it helpful to the conversation on “personal use” and “pyramid?” Yes. Was it perfect? No. There are two major ambiguity flaws (likely inadvertent) in the Guidance that must be discussed. Are these “cracks” in this Faberge Egg? Yes, but, that’s how the light gets in.

1. Did the FTC recognize that this area should be governed by 40 years of case authority rather than FTC administrative fiat? Absolutely. Did it miss a major characteristic of this well established industry? Yes. Even in this friendly guidance, the FTC was tone deaf to the reward tracking model used by leading direct selling companies (including Amway, Mary Kay, Shaklee, Tupperware) for more than 50 years, and never questioned by the courts, that follows wholesalemovement of product with an underlying assumption that companies are capable of mandating, incentivizing and encouraging that product is accounted for: resold to ultimate users, personally used by distributors as ultimate users or returned under liberal one year buyback/refund programs. Should a successful half century model be upended…if the idea is to support an established industry, probably not.
2. The Guidance employs the term “driven by consumer demand” multiple times. The inadvertent implication is “driven by retail sales.” This semantic term is at odds with actual detailed Guidance discussion that concurs with the industry position that the pyramid test is “driven by sales to the ultimate user,” meaning that sales to distributors in reasonable amounts, for either personal use or resale, should be placed in the category of “sales to the ultimate user.” Perhaps the simple fix is a document global search and replace of “driven by consumer demand” with “driven by ultimate user demand.”


Is more FTC/Industry dialogue and adoption of H.R. 3409 (anti-pyramid bill) a good next step? For sure.

How we arrived at this dialogue…

The direct selling industry search for certainty in proposed H.R. 3409 has some real basis in the vacillating positions of the FTC. After the initial success of a MLM structure, by Amway, Mary Kay and Shaklee, in the 1950’s and 1960’s, the appearance of a true pyramid in Koscot and Dare to be Great, prompted the FTC to challenge the entire MLM concept, and specifically Amway, as being a pyramid. In 1979, an FTC administrative law judge rebuked the FTC, holding that Amway was a legitimate business opportunity, principally because it adopted what has come to be known, in all subsequent cases, as the Amway Safeguards:

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