Federal Trade Commission – MLM, Network Marketing, Direct Selling News, Videos, Articles, Legal Updates, and More. https://mlmlegal.com/MLMBlog From Multilevel Marketing Attorney and Business Consultant, Jeff Babener. Run, Learn & Get Lost at MLMLegal.com Sat, 07 Mar 2020 15:31:49 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.25 The New FTC Direct Selling Guidance… Imperfect, But a Good Start – New Article https://mlmlegal.com/MLMBlog/new-ftc-direct-selling-guidance-imperfect-good-start-new-article/ Mon, 29 Jan 2018 02:51:00 +0000 http://mlmlegal.com/MLMBlog/?p=1261 by 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 … Continue reading →

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]]> The New FTC Direct Selling Guidance...by 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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]]> FTC and Direct Selling Come to the Table as Stakeholders: H.R. 3409 https://mlmlegal.com/MLMBlog/ftc-direct-selling-come-table-stakeholders-h-r-3409/ Wed, 27 Dec 2017 19:20:29 +0000 http://mlmlegal.com/MLMBlog/?p=1250 by Jeffrey A Babener (First Published in World of Direct Selling) Everything dies baby, that’s a fact. But maybe everything that dies someday comes back. Bruce Springsteen, Atlantic City By Jeff Babener, Copyright 2017 What a difference a year makes. In a well-received … Continue reading →

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]]> And now...an opportunity for the FTC and direct selling Industry to work together for certainty that they both deserve. A bi-partisan bill, H.R. 3409, the Anti-Pyramid Promotional Scheme Act of 2017.by Jeffrey A Babener
(First Published in World of Direct Selling)

Everything dies baby, that’s a fact.

But maybe everything that dies someday comes back.

Bruce Springsteen, Atlantic City

By Jeff Babener, Copyright 2017

What a difference a year makes. In a well-received presentation to the November, 2017 DSA Regulatory Conference, FTC Acting Chairperson, Maureen Ohlhausen, struck a totally different tone in regard to forward looking FTC enforcement policy on direct selling, contrasted with the October, 2016 presentation of former FTC Chairperson, Edith Ramirez.

The contrasting messages:

2016: Ramirez: We are the regulator, new rules to live by, just live with it, it’s our way or the highway…

2017: Ohlhausen: We are all in this together…we are all stakeholders…let’s work together for the benefit of both, fostering the success of an entrepreneurial  and small business direct selling industry, and protecting the security of consumers.

Came floating on a lemon leaf

Flying in on a jasmine wind

The Band’s Visit, Broadway Show, 2017

What happened? Why the rapprochement? Why the goodwill? Will it take hold? Well, it’s a guess, but there are many factors:

(1)      The former chairperson “termed out.”

(2)      A presidential election swept in with an anti-regulatory, pro-growth, pro-entrepreneurial and small business message.

(3)      The going forward composition of the FTC Commission will be Republican and more likely to be sensitive to the concerns of the “regulated.”

(4)      Importantly, the previous FTC aggressive position pushed the industry to seek certainty in their business that could only be achieved by federal anti-pyramid legislation firmly rooted in long standing case authority rather than arbitrary administrative enforcement, i.e., the bi-partisan H.R. 3409 Anti-Pyramid bill was introduced and gaining momentum.

(5)      Finally, the FTC may have realized that it had been heavy handed in recently announced enforcement positions.

Point/Counter-Point: Contrasting Punch Lists

It is worthwhile to contrast the “punch lists” of presentations and positions by the 2016 Ramirez and the 2017 Ohlhausen:

Former Chairperson Ramirez’s presentation followed the successful FTC prosecution of FTC v. Vemma and the overly rigid terms of the FTC vs. Herbalife settlement. Although very well-articulated, the presentation warned of potential future FTC guidance that was not rooted in 50 years of case authority, but rather in the newly adopted positions of the Chairperson and FTC staff…… an enforcement policy that that would require a complete overhaul of the model of many leading direct selling companies:

(1)      She renounced use of the famous Amway Safeguards Standard, adopted in the landmark FTC case, In re Amway, 1979 as being irrelevant, overrated and not really relied on by courts in pyramid cases. (an unfortunate misinterpretation of case law).

(2)      She redefined the famous Koscot Standard to require compensation to upline to be based on sales to  nonparticipant retail customers rather than based upon Koscot’s language—ie., commissions must be based on sales to “ultimate users”, effectively reclassifying distributor users as “second class” “ultimate users.”

(3)      She pivoted away from a legal analysis in the most recent BurnLounge case, which demanded, in pyramid cases, a factual analysis of the “primary motivation” test in which a court asks “what is the primary motivation for distributors when they make purchases”…instead migrating to a punch list of inflexible operating restrictions imposed on Herbalife in its recent settlement.

(4)      She essentially attempted to create a new legal standard, the “percentages test”, an arbitrary new rule in which upline distributors would be limited to receive commission credit for only one-third of sales volume attributed to personal use by downline distributors, whether or not such purchases were reasonable in quantity and for actual use by the distributor “ultimate user.”

(5)      She announced that a long time practice of almost all leading direct selling companies, autoship to distributors, should, effectively, be prohibited.

(6)      She pivoted away from a well-established component of leading direct selling programs, stating that monthly activity volume requirements may not include any purchases by distributors.

(7)      She asserted that the long time practice of established direct selling companies, tracking of performance activity, connected to wholesale purchasing, should be banned.

 Acting Chairperson Ohlhausen, on the other hand took the train in a totally different direction, rooting a going forward FTC policy on long established case authority and principles of government/industry collaboration rather than top down directives.

As acting chairperson of the FTC, Chairperson Olhausen underscored her goals for the direct selling industry…Gone were threats to upend long standing direct selling models:

(1)      One of her overriding goals, she said, “was to increase the FTC’s support of small business and entrepreneurs.”

(2)      She noted: “I recognize that at the heart of the direct selling model are entrepreneurs—those men and women who are out there innovating, taking risks, and trying to generate value.”

(3)      She stressed that the direct selling model offers “a lot” to entrepreneurs:

(a)      Low startup costs;

(b)      Administrative and logistical support from their companies;

(c)      Promotion of efficiencies in the marketplace for friends and families and consumers;

(d)      Varied and diverse products and services;

(e)      Innovations in selling using internet and social media and technology.

(4)      She pointed out the importance of flexibility in regulation by the FTC and that it is important that the FTC stay away from rigid application of “one size fits all” regulatory enforcement, looking instead on “our case-by-case” enforcement process of “specific harm” in that particular case.

(5)      Consistent with the views of leading companies in the direct selling industry, she applauded industry self-regulation with government oversight as a backup, while at the same time emphasizing that government enforcement powers should be “robust and judicious.” Why judicious? Said Ohlhausen, “Over-zealous government involvement can diminish industry members’ participation in the self-regulatory system, which reduces the system’s effectiveness. Businesses that believe government action is inevitable will not participate or invest in self-regulation.”  How true, and what a great prelude to cooperation between the FTC and the direct selling industry.

(6)      Chairperson Ohlhausen took the time to lay out several “bright line” markers intended to serve as FTC’s down payment on a cooperative relationship with direct selling:

(a)      “The FTC and the DSA have a good working relationship, and for that, I thank you. We’ll continue to cultivate that relationship…”

(b)      The FTC took special care to understand the dynamics of direct selling, and exempted multilevel marketing programs from its recently updated Business Opportunity Rule.

(c)      Pivoting from Chairperson Ramirez’s comments that the Herbalife settlement terms may be the basis of future FTC guidance or rules, Chairperson Ohlhausen stated unequivocally that settlements and orders do not apply to the entire industry: “The answer to that question is no. Orders arising from FTC settlements are binding only on the entities and individuals identified in the order. The orders may of course, provide industry participants with additional data points on, for example, business structures that the FTC believes comply with the law. But that’s not to say the structures outlined in those orders are the only way the FTC believes companies can comply.”

(d)      Does the FTC assume or believe that every multi-level company is a pyramid scheme? Responded Ohlhausen, “The answer to that question is also no…we recognize the direct selling model has a lot to offer the marketplace and consumers.”

(e)      After hearing from Chairperson Ramirez in 2016, what the industry heard, or inferred, was that the FTC was abandoning longstanding case authority for its own “punch list” of what does or does not fit within legitimate multilevel marketing vs. pyramid scheme. Not so fast, declared Chairperson Ohlhausen, i.e., the FTC is going back to basics…a refreshing comment from the industry’s perspective and one that is the driving force behind H.R. 3409. Said the Chairperson, “At the risk of getting into too much legalese, the FTC described an unlawful pyramid scheme in our case against Koscot Interplanetary, Inc. back in 1975. Most courts have adopted that description and it’s the description we have used in our recent cases. (Author’s comment: many industry observers might take exception to the observation that this approach has been the guiding FTC enforcement position in recent cases.) Under that description, unlawful multi-level marketing structures are “characterized by the payment 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 participants into the program, rewards which are unrelated to the sale of the product to ultimate users.” (emphasis added)” Citing, In re Koscot Interplanetary, Inc., 86 F.T.C. 1106, 1180 (1975).

(f)       And realizing that “there are a lot of nuances” packed in the Koscot Standard and analysis of legitimacy vs. pyramid, Chairperson Ohlhausen, importantly, noted, “I have instructed the FTC staff to meet with the various stakeholders, including the DSA, to discuss those nuances. We anticipate applying the information we’ve gained to issue future guidance, as well as to guide future law enforcement decisions.”

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]]> Is the FTC ramping up regulation of the MLM Industry? https://mlmlegal.com/MLMBlog/ftc-ramping-regulation-mlm-industry/ Mon, 09 Jan 2017 01:39:41 +0000 http://mlmlegal.com/MLMBlog/?p=1196 Federal Trade Commission Chairwoman Edith Ramirez argued on October, 2016 at the DSA Policy Conference that it was time to ratchet up regulation of the direct selling industry, and not a time to “put the brakes” on more regulation of the … Continue reading →

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]]> Fact Checking the FTC’s New Legal GuidanceFederal Trade Commission Chairwoman Edith Ramirez argued on October, 2016 at the DSA Policy Conference that it was time to ratchet up regulation of the direct selling industry, and not a time to “put the brakes” on more regulation of the $36 billion industry and its 20 million strong sales force.

The FTC and the Direct Selling industry are clearly of the same opinion of the basic goal that the direct selling industry should prosper through effective and ethical practices. However, FTC Chairwoman Edith Ramirez emphasized new legal standards that would abandon a 40-year old gold standard, the Amway Safeguards Rule, and that would also upend and call into question decades of industry accepted business practices.

Briefly, the Chairwoman argued for:

  1. Abandonment of reliance on the Amway Safeguards Rule as a key test for legitimacy.
  2. Effectively creating a new legal standard patterned after those requested by the FTC in the FTC/Herbalife settlement that, in reality, may upend decades of industry accepted practices and rewrite 40 years of court legal standards.
  3. The existing Court standard derives from:

(1)  Koscot … Compensation to upline should be based on sales to the ultimate user.

(2)  Amway … A program that enforces the Amway Safeguards of a retailing mandate to qualify for MLM commissions, a 70% rule that prohibits ordering unless product is sold or used and a reasonable buyback policy for inventory for terminating distributors, if effectively enforced and in conjunction with avoidance of inventory loading, is indicative of legitimacy. (Also, Amway did not challenge recognition of distributor personal use purchases as legitimate sales to the “ultimate user”.)

(3)  BurnLounge … The primary motivation for distributor purchases should be the purchase of product in reasonable amounts for resale or use as opposed to mere qualification in the program for rewards. A pyramid analysis will be “fact driven.”

  1. On the FTC wish list for a new paradigm for legitimacy is:

(1)  Abandonment of the reliance on the Amway standard.

(2)  Redefining Koscot to require compensation to upline to be based on sales to the nonparticipant retail customer rather than the ultimate user.

(3)  Adopting the FTC/Herbalife settlement “punch list” of mandates in lieu of the factual analysis of “primary motivation,” called for in BurnLounge, including:

(a)    Only one-third of MLM compensation to upline should come from personal use by downline distributors, whether or not such purchases are reasonable in quantity for use by the distributor “ultimate user.”

(b)    Autoship to distributors should be prohibited.

(c)    Monthly activity volume requirements may not include any purchases by distributors.

(d)    Tracking of performance activity connected to wholesale purchasing should be banned.

Leading MLM industry expert Jeff Babener takes a closer look at what this means for the direct selling and multilevel marketing industry. Read the full article: Fact Checking the FTC’s New Legal Guidance

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]]> October 1st MLM News Global Newsletter by www.MLMLegal.com https://mlmlegal.com/MLMBlog/october-1st-mlm-news-global-newsletter-by-www-mlmlegal-com/ Thu, 01 Oct 2015 18:53:07 +0000 http://mlmlegal.com/MLMBlog/?p=1029 What’s hot in this week’s news machine e-newsletter? This week’s articles focus on Vemma, the FTC, and the future of MLM – to mention a few – in the articles “Vemma vs. FTC: Guidance for the Direct Selling Industry – … Continue reading →

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]]> What’s hot in this week’s news machine e-newsletter? What’s hot in this week’s news machine e-newsletter? This week’s articles focus on Vemma, the FTC, and the future of MLM – to mention a few – in the articles “Vemma vs. FTC: Guidance for the Direct Selling Industry – Welcome to the Future” and “The FTC Final Business Opportunity Rule: Still Work to do for MLM/Direct Selling/Network Marketing.”

Our huge newsletter subscriber list of MLM independent consultants will enjoy this week’s video that discusses ‘Do Incentives Increase Sales? How Worthwhile Are Consultant Incentives?’ Expert Business Consultant and MLM Attorney Jeff Babener answers this question. Do incentives help you increase your sales? Watch this video to find out and comment below!

The company profiled in this week’s newsletter is The Fuller Brush Company. With a celebrated history that reflects over a 100 years of excellence, the Fuller Brush Company is one of the iconic names in American business. Read more about this MLM company in this week’s newsletter archive.

Like all other weeks, there is the latest scam news as well. Check out the company names popping up on MLM scam alert sites:

What else is new in the direct selling industry this week? Check out all the top news stories that you are missing by not getting our newsletter in your inbox! Check out MLM News Global and sign up for our free e-newsletter! Cancel at any time. NO SPAM!

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

Our next Starting and Running the Successful MLM Company Conference takes place October 22 and 23, 2015 in Las Vegas. View our conference flyer and speaker list online. Participate in our Innovation Campaign for your chance to receive TWO FREE TICKETS to attend our next conference.

If you’re reading this blog post and the conference dates above have passed, check our website for the current conference dates.

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]]> Top MLM Headlines, Scam Reports, Videos, Articles, and More – September, 2015 Issue of MLM News Global https://mlmlegal.com/MLMBlog/top-mlm-headlines-scam-reports-videos-articles-and-more-september-2015-issue-of-mlm-news-global/ Thu, 03 Sep 2015 17:14:40 +0000 http://mlmlegal.com/MLMBlog/?p=1003 The MLM News Global E-Newsletter offers top MLM news, recent scams, videos, company profiles, and timely articles delivered to your inbox on a bi-monthly basis. The e-newsletter contains top news stories in the network marketing industry, the most recent MLM … Continue reading →

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]]> The MLM News Global E-Newsletter offers top MLM news, recent scams, videos, company profiles, and timely articles delivered to your inbox on a bi-monthly basis. The e-newsletter contains top news stories in the network marketing industry, the most recent MLM scam alerts, timely articles on the direct selling industry, and so much more. Make sure that you’re not the last to know about top MLM news stories, or to hear about the latest MLM scam reports. Our timely headline reporting will keep you 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, will keep you current on trends and direct selling company developments in the industry.

Top News Stories in this Newsletter:

  • Medifast, Inc. Announces Second Quarter 2015 Financial Results
  • Vemma vs. FTC: 10 Quick Bullet Points
  • Herbalife: The 10/70 Rule Could Be The Sticking Point
  • Amway receiving the Direct Selling News 2012 Bravo Leadership Award
  • Traders’ body wants law to regulate direct selling business
  • Avon Products Receives $9.48 Average Target Price from Analysts (NYSE:AVP)
  • Cosmetics firm sues eBay seller for selling products obtained before debut
  • Trade associations call for federal office of supplements
  • CVSL To Ring Closing Bell At New York Stock Exchange Today
  • Five indicted in alleged pyramid scheme targeting Chinese Americans
  • @USANAInc Makes Fast 50 List Once Again
  • LifeVantage Appoints Mark Jaggi New Chief Financial Officer
  • Take Shape For Life President Appointed as Direct Selling Association Leader
  • USANA Board of Directors Appoints Dave Wentz and Kevin Guest as Co-Chief Executive Officers
  • Vemma vs. FTC: Guidance for the Direct Selling Industry-Welcome to the Future
  • Vemma Has Requested 1 week Additional Time For the Hearing And 10 Legal Bullet Points
  • Large Inflow of Money Witnessed in Tupperware Brands Corporation
  • Company Shares of USANA Health Sciences, Inc. (NYSE:USNA) Drops by -4.98%
  • FTC: Vemma shut down for running pyramid scheme
  • Leading Relationship Marketing Company, Nerium International, Achieves $1 Billion in Cumulative Revenue in Just Four Years

View the newsletter archive to read these news stories. Better yet, sign up for the MLM News Global Newsletter for free and get your bi-monthly copy delivered to your inbox.

  • In the Scam Alerts this Week:
  • Babener weighs in on FTC Vemma lawsuit
  • Global Success 365 Review: 8-11 month Ponzi investment
  • Protesters cancel USFIA GemCoin gala in Ontario, California
  • Average Joe Profit System Review: $5 Ponzi gifting hybrid
  • Unascos to scam US investors (again)?
  • iGrow Network Review: $50 a month recruitment scheme

Video: In an Absolute Nutshell, What Are the Two Main Causes of a MLM Company Failing?

Company Profile of the Week: Nikken, Inc.

Articles this Week “MLM Consulting: How to Build a Successful Direct Selling Company” and “MLM and Identity Theft.” http://www.mlmnewsglobal.com/

Sign up for free! Keep up-to-date on network marketing news, scams, articles, videos, and more, a necessity for anyone in the MLM industry. Sign up for FREE. Visit: http://www.mlmnewsglobal.com/.

Brought to you by industry leader, MLM Attorney, Jeff Babener.

Your best educational resource on the web: check out the hundreds of articles, videos, company profiles, and more at MLMLegal.com.

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

Our next Starting and Running the Successful MLM Company Conference takes place October 22 and 23, 2015 in Las Vegas. View our conference flyer and speaker list online. Participate in our Innovation Campaign for your chance to receive TWO FREE TICKETS to attend our next conference.

If you’re reading this blog post and the conference dates above have passed, check our website for the current conference dates.

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]]> What is the Purpose of the “Cancellation” Language on Retail Customer Purchase Forms? https://mlmlegal.com/MLMBlog/what-is-the-purpose-of-the-cancelation-language-on-retail-customer-purchase-forms/ Tue, 12 Aug 2014 17:53:38 +0000 http://mlmlegal.com/MLMBlog/?p=890 The language on the front and back of a retail customer product form is FTC mandated statutory language for person-to-person sales away from a fixed place of business, of goods or services for household use, of more than $25. It is … Continue reading →

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]]> The fact is that there is a de minimis return percentage makes it so any customer satisfaction policy just looks good and is good customer relations.

The fact is that there is a de minimis return percentage makes it so any customer satisfaction policy just looks good and is good customer relations.

The language on the front and back of a retail customer product form is FTC mandated statutory language for person-to-person sales away from a fixed place of business, of goods or services for household use, of more than $25. It is inapplicable to mail order or internet sales, but can be used at the discretion of the seller.

It is not a refund or return policy. Rather, it is designated as a right to rescind a contract or order. It is often referred to as the “Cooling Off Rule,” which is intended to address any high pressure tactics in person-to-person sales and to offer an “out” to “buyer’s remorse.” The notice of cancelation gives the purchaser three days to cancel the transaction, and if they have taken possession, then they must return the goods to the seller. It is a transaction by transaction right of cancelation. It does not apply to previous transactions. Since the language is FTC statutory, companies should stick with the language.

Most companies go far beyond the three day right of cancelation, and further offer customers a 30 days customer satisfaction policy in which the customer has 30 days to notify the company that they are not satisfied and return merchandise for a complete refund. This is not statutorily mandated. It is just good business!

In actuality, it is rare to ever see anyone exercise the three day cooling off opportunity, or for that matter, a 30 day refund offer. And if they do return merchandise, it is often just destroyed for safety purposes. The fact is that there is a de minimis return percentage makes it so any customer satisfaction policy just looks good and is good customer relations.

And, if it may provide comfort to companies, it is rare that direct selling companies have seen any regulatory challenge on this compliance issue.

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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.

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]]> What It Means When Network Marketers Say “Opportunity” https://mlmlegal.com/MLMBlog/what-it-means-when-network-marketers-say-opportunity/ Tue, 29 Jul 2014 17:34:47 +0000 http://mlmlegal.com/MLMBlog/?p=883 The word “opportunity” is a generic term for the chance to advance, better one’s economic state, health, social position, etc. However, in the context of direct selling, “opportunity,” in addition to the chance to make money, is a reference to … Continue reading →

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]]> In the context of direct selling, “opportunity,” in addition to the chance to make money, is a reference to the “business opportunity” of a direct selling/MLM marketing program.

In the context of direct selling, “opportunity,” in addition to the chance to make money, is a reference to the “business opportunity” of a direct selling/MLM marketing program.

The word “opportunity” is a generic term for the chance to advance, better one’s economic state, health, social position, etc. However, in the context of direct selling, “opportunity,” in addition to the chance to make money, is a reference to the “business opportunity” of a direct selling/MLM marketing program.

Two dozen states and the FTC regulate the offering of business opportunities in a parallel fashion to their regulation of franchise opportunities. Because of the low threshold of entry fees, typically, modestly-priced at-cost sales kits, the business opportunity of MLM companies is generally exempt from state business opportunity laws. In addition, the FTC has indicated that it generally does not view the offering of an MLM opportunity to trigger the FTC Business Opportunity Rule. Of course, multiple states have adopted specific MLM statutes to provide guidelines for the offering of a MLM opportunity. All of these statutes can be found in the statutes library at www.mlmlegal.com.

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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.

 

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]]> BurnLounge Appeal Decision: Guidance on Pyramid v. Legitimate MLM and the Role of Personal Use in Pyramid Analysis- New Article at MLMLegal.com https://mlmlegal.com/MLMBlog/burnlounge-appeal-decision-guidance-on-pyramid-v-legitimate-mlm-and-the-role-of-personal-use-in-pyramid-analysis-new-article-at-mlmlegal-com/ Tue, 24 Jun 2014 19:36:02 +0000 http://mlmlegal.com/MLMBlog/?p=865 BurnLounge Appeal Decision: Guidance on Pyramid v. Legitimate MLM and the Role of Personal Use in Pyramid Analysis By Jeffrey A. Babener © 2016 On June 2, 2014, in the case of FTC v. BurnLounge, the U.S. Court of Appeals … Continue reading →

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]]> BurnLounge Appeal Decision:
Guidance on Pyramid v. Legitimate MLM and the Role of Personal Use in Pyramid Analysis

By Jeffrey A. Babener
© 2016

On June 2, 2014, in the case of FTC v. BurnLounge, the U.S. Court of Appeals for the Ninth Circuit issued a seminal decision, affirming a lower court finding that the BurnLounge MLM (multilevel marketing) program was an illegal pyramid scheme, in violation of section 5(a) of the Federal Trade Commission Act, a decision that will dramatically impact the landscape of direct selling to provide guidance on two fundamental legal issues:

(1) What activity constitutes a “pyramid scheme?”

(2) What is the role of “personal use” (by distributors) in pyramid case analysis?

Stakeholders: “We Won!!” Proxy Wars…….

Victory has 100 fathers and defeat is an orphan. John Kennedy (1961)

As with any inconclusive war, the stakeholders offered immediate statements of victory or vindication.

That is, other than BurnLounge. BurnLounge lost, and a permanent injunction was affirmed.

However, BurnLounge was a proxy war on the tests for “pyramid” and the role of “personal use” in pyramid analysis, among the interested parties, short sellers of publicly traded direct selling companies, publicly traded direct selling companies, industry spokespersons such as the DSA, the FTC, MLM critics, etc.

Each, in turn, issued press releases or statements claiming victory and validation of their respective positions.

The BurnLounge decision offered guidance for all stakeholders and a clear message for “going forward.”

To Short Sellers:

Rethink your criticism of direct selling companies. Distributors’ personal use is a legitimate end destination for product sales. Criticism of personal use is not a valid criticism. So long as distributor purchases are not merely incidental to the business opportunity, such purchases in reasonable amounts for personal use, coupled with rewards for one’s own purchases, as well as use by non-distributors and other distributors is as legitimate as a sale to a non-distributor customer, and is not a basis for a pyramid.

To the FTC:

Congratulations, you won this case on the facts presented. However, since the Omnitrition case (1996), you have been arguing the wrong legal standard on personal use for more than 15 years, albeit a slight diversion in a 2004 FTC Advisory Opinion that recognized legitimacy of personal use. The court pointed out: “The FTC counters that ‘internal sales to other Moguls cannot be sales to ultimate users consistent with Koscot.'” The court proceeded to roundly reject this contention noting that this argument is not “supported by the case law.” And so the message to the FTC is that personal use criticism will not be accepted in the future and the FTC should look back to its 2004 Advisory Opinion position.

To the Industry:

Accept your victory on recognition of personal use as a legitimate destination for product and representative of “sales to ultimate users.” However, “get your act together,” and adopt “best practices” methods and rules that promote product use over mere recruiting. The presence of personal use is not “a free ticket out of trouble.” It will be viewed as part of a legitimate MLM, but it is only one factor for the case by case fact based analysis of the “economic reality” of an entire program in which the acid test will be that the predominant and primary motivation of distributor purchases is for personal use or resale and not merely to qualify for rewards in the program by personal purchases and recruitment of others to do the same.

Major Impact of the BurnLounge Case…

To read the full article, visit MLMLegal.com.

For more information on the network marketing industry visit www.mlmlegal.com and www.mlmattorney.com.

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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.

]]> What Regulatory Changes are Affecting Network Marketing Companies? Part One https://mlmlegal.com/MLMBlog/what-regulatory-changes-are-affecting-network-marketing-companies-part-one/ Tue, 13 May 2014 17:40:59 +0000 http://mlmlegal.com/MLMBlog/?p=840 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 … Continue reading →

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.

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.

No legal ruling has been more impactful on the direct sales industry than the Landmark Amway Case.

Afterwards, regulatory agencies and the industry went quiet until the 1990s. It was then questioned whether or not product-using consultants were a legitimate end-destination for products or whether consultants were simply retail customers. There has been an ongoing tug of war between the MLM industry and the FTC in terms of determining whether or not personal use should have an impact on a company’s legitimate operations. The industry, with the cooperation of attorneys generals in more than a dozen states, were able to amend legislation in those states to recognize that personal use of product by distributors is a legitimate end-destination, just as if it were a retail sale.

More recently, about four years ago, the FTC decided to update its Business Opportunity Rule (which is more oriented toward franchises or programs that require substantial investments). The proposed draft would have completely encompassed direct selling companies to the point that it would have been onerous to offer a MLM, network marketing, direct selling opportunity in the marketplace.

Read the article “FTC Exempts MLM/Direct Selling from FTC Revised Proposed Business Opportunity Rule”

For instance, one of the proposed rules would have stated that if you approached your neighbor about joining a network marketing company then you would have to wait a week before returning to follow up with them on their decision. This waiting period would not have been very conducive to offering a business opportunity, and therefore, not very practical for the network marketing industry. The industry responded to the proposed rule. Over 17,000 comments poured into the FTC from MLMLegal.com, the DSWA, the DSA, distributor associations, and direct selling companies indicating that they thought the rule was overreaching.

These blog posts are paraphrased from the DSWA interview with Nikki Keohohou. Visit our website to view the entire interview: Executive Interview by the DSWA – “Legal Hotspots for Direct Selling Companies” with Jeff Babener.

Click here to read Part Two.

For more information on the network marketing industry visit www.mlmlegal.com and www.mlmattorney.com.

Find us on our social networks:

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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.

]]> New Video – Interview by the DSWA of Jeff Babener – “Legal Hotspots for Direct Selling Companies” https://mlmlegal.com/MLMBlog/new-video-interview-by-the-dswa-of-jeff-babener-legal-hotspots-for-direct-selling-companies/ Tue, 15 Apr 2014 18:08:01 +0000 http://mlmlegal.com/MLMBlog/?p=820 Nikki Keohohou with the Direct Selling Women’s Alliance (DSWA) hosts the Executive Interview Forum titled “Legal Hotspots for Direct Selling Companies.” The interviewee for this hour is Network Marketing Attorney, Jeff Babener, Editor of www.mlmlegal.com. View the video on our … Continue reading →

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

]]> MLM_SCREENSHOTS1_2-159x300Nikki Keohohou with the Direct Selling Women’s Alliance (DSWA) hosts the Executive Interview Forum titled “Legal Hotspots for Direct Selling Companies.” The interviewee for this hour is Network Marketing Attorney, Jeff Babener, Editor of www.mlmlegal.com.

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 download the entire audio file visit http://dswa-org.s3.amazonaws.com/audio/2014-03-19_InterviewWithNickiAndJeffreyBabener.mp3, or visit our blogs to read more: www.mlmlegal.com and www.mlmattorney.com.

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 May 15th & 16th, 2014 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.

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