The question of “rights in the downline” is one which is clearly headed for the courts within the next few years. Many MLM companies take the position that they are the sole owners of “downlines.” Many key distributors market their “downline structures” from one MLM company to another as if downline structure was a piece of property which could be marketed at will. When the “process” of multilevel, as a form of marketing is closely examined, the better argument is probably that neither of these positions is correct.

Multilevel marketing is a form of one-on-one direct selling by which companies contract with independent distributors to market products and compensate those distributors through sales commissions on sale of product produced by their sales organization, as well as offering distributors the opportunity to profit through the differential between wholesale and retail price. A downline is, in reality, a sales organization made up of independent distributors. It is not owned by key distributors, nor is it owned by an MLM company. Independent distributors are free to cancel participation at any time. In fact, those states that have adopted multilevel distribution statutes require that distributors be permitted to cancel participation at any time, for any reason upon notice to the company.

Most companies have adopted sophisticated data processing which provides detailed information on downline sales organizations. In the event a distributor leaves an organization, a company is obviously free to continue marketing through its system of independent distributors. Modern thinking MLM companies also provide availability of data processing information on the sales organization in the distributor’s downline. In fact, providing such information is tangible evidence a company may offer to regulatory authorities that its distributors are well informed as to their downline sales organizations. This indicates that the distributor plays a bona fide supervisory selling soliciting function in moving product to consumers. Many statutes now require this bona fide supervisory function as a precondition to receipt of commissions or overrides by distributors. Distributors are free to use information as to their own sales organization as they deem appropriate subject to restrictions regarding confidential information. Companies which attempt to restrict distributors after termination from working with other MLM organizations should seriously consider the federal and state antitrust implications of such restrictions. In California, for instance, noncompete agreements are unenforceable unless based on confidential information.

Companies may not arbitrarily terminate distributors without facing liability. Distributors enter into contracts with companies in reliance on the fact that they will be compensated for building sales organizations. Although many MLM companies adopt one year contracts with distributors, arbitrary or capricious termination of the distributor may clearly subject companies to contract claims as well as possible claims under various state dealer termination statutes. It should also be noted that, in recent years, many state courts have gone so far as to even award damages to “at will” employees, i.e., employees who are not under contract with the company. This line of cases, which has developed claims for “wrongful termination,” has produced sizeable awards of both compensatory and punitive damages. Such cases involving MLM companies are still in developmental stages.

For more information, visit our websites at www.mlmlegal.com and www.mlmattorney.com. Or, visit our blogs at http://mlmlegal.com/MLMBlog/ and http://mlmattorney.com/blog/.

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Parts of this article are borrowed from http://www.mlmconsultantadvice.com/babener_12.html, written by Jeff Babener in 2011.

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

PART 101 — FOOD LABELING

Subpart F–Specific Requirements for Descriptive Claims That Are Neither Nutrient Content Claims nor Health Claims

For additional information on FDA Rules and Regulations, visit the following links:

What is the Relationship between MLM and the FDA? Video

The FDA and Health Claims Article

FDA Health Claims: The Final Rules Article

FDA: New Health Claim Rules:

• Introduction
• A Historic Act
• The President Speaks
• And Congress Speaks Out
• The Impact on the Network Marketing Industry
• Why and How They Work
• Abuses Lead to Legislation
• Rules You Don’t Want to Break
• The Disclosure Issue

Choosing the Right Product for Your Direct Selling Company

Distributor Training – Two Common Questions

MLM and the FDA

MLM’s History with the Government

New Video – Unauthorized Medical Claims and FDA Issues

FDA to Issue Revised NDI Guidance – Nutraceuticals World Reports

Nutritional Supplements, Health Claims and MLM

MLM Attorney – How a MLM Lawyer Can Help Your Direct Selling Business

FDA to Issue Revised NDI Guidance – Nutraceuticals World Reports

For more information, visit our websites at www.mlmlegal.com and www.mlmattorney.com. Or, visit our blogs at http://mlmlegal.com/MLMBlog/ and http://mlmattorney.com/blog/.

Find us on our social networks:

Google+

LinkedIn

Twitter

Myspace

Facebook

And, as always, visit MLMLegal.com, the best MLM resource on the web. The next Starting and Running the Successful MLM Company Conference will be here before you know it! On May 16^th and 17^th, 2013 we are hosting the MLM Conference for the 25^th year! This is now our 64^th annual conference (held almost consistently three times per year over the last 24 years). All executives/owners of MLM, direct selling, network marking, and party plan companies are welcome to attend. This is the original MLM Startup Conference, hosted and perfected by direct selling industry expert, MLM Attorney Jeff Babener. Call 503-226-6600 or 800-231-2162 to register. (Can’t make this event? Keep an eye out for our October and February conferences as well.)

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

Hi. I’m Jeff Babener, Chair of the Law Firm of Babener & Associates. Since I lecture and publish extensively, you have likely already visited our website: www.mlmlegal.com, which is one of the most frequently-visited websites on network marketing and one which we hope you find extremely helpful in starting your MLM or direct selling company. For the past 25 years, our law office has served as a key legal and business advisor to major companies like Avon, Shaklee, New Skin, ACM, Prepaid Legal, Longaberger, and Tupperware.

In fact, we’ve been right there at the beginning and actively involved in the creation of companies like Nikken, Excel, USANA, Melaleuca, and Legacy.

In addition, we have been actively involved in providing resources and support to companies like Quixtar, Creative Memories, and Mannatech. We represent many members of the DSA, and in fact, we even incorporated the MLMIA and served as their general counsel.

Although we are a full-service firm for MLM companies, we are direct selling specialists. We limit our clients strictly to MLM, direct sales, network marketing, and party planning companies. Much of our work is referred to us by small and large corporate law firms throughout the U.S. and other countries. We are an ultra-niche law firm and we have chosen to focus like a laser strictly on advising direct selling companies.

Although we have involvement with some well-established companies, which I’ve explained, our specialty is MLM startup.

Actually, all of the companies we helped to establish started with me on one side of a conference table and one of the individual founders – with high hopes – on the other. It may have been at our office. It may have been at one of the approximately 60 national conferences we have sponsored over the last two decades, entitled The Starting and Running the Successful MLM Company Conference. Or, it might have been after hearing me lecture at the University of Texas, the University of Illinois, or the University of Houston.

In the beginning, it was me sitting across the table from Frank VanderSloot of Melaleuca, or Tom Watanabe of Nikken, or Steve Smith and Kenny Troutt of Excel.

And, we are long term players. We brought Nikken to the U.S. from Fukuoka, Japan in 1990 and we have served as general counsel and their most trusted business advisor for 20 years, growing to represent the company in more than 40 countries.

Twenty years after Excel was sold to Wall Street for $1 billion, Steve Smith came back to us and said, “Jeff, let’s do this all over again. Let’s start another.” And we did.

Entrepreneurs come to us because we are far more than a law firm to them. We know this business. In fact, we probably know the business better than most of our clients. Over time, even though we are their lawyers, we tend to become their most trusted business advisors and member of their business team (via martin). And, usually more than 50% of our discussions are about successful operations and growth of their network marketing businesses, as opposed to mere legal issues.

As a courtesy, we often serve as their Keynote Speaker in support of our clients at major conventions. And, we have done so from Los Angeles to Nashville to Honolulu, and around the world, from Russia to China to Thailand. Our clients have used our credibility and reputation as a key asset in their growth.

We play an integral role on the legal and business front. For the startup company, we create all the documentation, agreements, policies, form language, etc. More importantly, we are intimately involved in the structure of the marketing program and the development of the compensation plan.

Our services involve trademarks, vendor agreements, labeling, FDA, sales tax; key relationships with founding distributors, medical or celebrity endorsements; administration of the distributor sales force in areas such as advertising, discipline, and communication; MLM registrations, regulatory compliance with the FTC, FDA, MLM statutes, postal, attorney general, and state consumer protection legislation.

In fact, both at the startup level and on an ongoing basis, not one piece of marketing material goes out that we don’t review and offer input. That includes all web and HTML copy, scripting, audio and video scripting, PowerPoint presentations, all hard copy and printed materials, web communication, and every other type of media.

Anything that will make its way to distributors, prospects, customers, and the public we’re involved in, and when we have created a great model, we help take our clients into international markets and around the world.

Everything we do in startup and long-term representation is driven by our number one goal, helping our clients be successful and stay in business. Our clients have our office number, home numbers, cell phone numbers, and private email addresses.

Unless we’re on a raft in a river canyon, we try to make ourselves always available. Expect to talk to us whether it is nighttime, or a weekend, or whether we are in Tokyo or Moscow or Beijing. As mentioned, we are long term members of a business team. We don’t know the meaning of “short term” relationships. We are looking for companies that intend to be successful and we intend to help make them successful.

If an MLM startup company is looking for this type of support then Babener & Associates is the right team partner for them. Please visit us at www.mlmlegal.com or call us at 503-226-6600.

For more information about the Law Office of Babener & Associates, visit our websites: www.mlmlegal.com and www.mlmattorney.com.

Or, visit these links for more information:

MLMlegal Releases New Film on MLM Startup Conference – Produced by Networkingstar.com Video

The MLM Startup Conference in Las Vegas Video

The Legal Issues of Starting and Running a MLM Company Video

What is the role of an Experienced MLM Legal Counsel? Video

Is a MLM Lawyer a Typical Lawyer? Video

How Does a Business Lawyer become a MLM Lawyer? Video

Jeffrey Babener’s Youtube Channel Reaches 60,000 Views Blog Post

CNBC.com Cites Legal Expert, Jeffrey Babener on FTC Business Opportunity Rule Blog Post

NEW PRESS RELEASE – 63rd Annual MLM Startup Conference! Blog Post

The Role of MLM Legal Counsel – Why Hire a MLM Attorney Blog Post

The Nine Basics You Need to Understand in Order to Succeed in MLM – Interview with Jeff Babener Blog Post

Interview with Expert MLM Attorney – How to Handle Compliance Discussions with your Distributors Blog Post

An Interview with Industry Expert and Advocate, Jeffrey Babener Blog Post

The First Essential Hire for MLM Startup Companies Blog Post

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

MLMLegal on Google+ Blog Post

MLM Legal Cases Page – New Page Blog Post

Do I Need to Register my Company in all 50 States? Blog Post

Make sure to visit our blogs for the latest information on the direct selling industry: MLMLegal Blog Home and MLM Attorney Blog Home. HINT: Chose a category to narrow your search for discussion topics!

Find us on our social networks:

Google Plus: http://plus.google.com/u/0/115279960045099999909#115279960045099999909/posts

LinkedIn: http://www.linkedin.com/in/mlmlegal

Twitter: http://www.twitter.com/BabenerLawFirm

Myspace: http://www.myspace.com/mlmlegal

Facebook: http://www.facebook.com/profile.php?id=696968133

And, as always, visit MLMLegal.com, the best MLM resource on the web.The next Starting and Running the Successful MLM Company Conference is quickly approaching! On February 21^st and 22^nd, 2013 we are hosting the MLM Conference for the 25^th year! This is now our 63nd annual conference (held almost consistently three times per year over the last 24 years). All executives/owners of MLM, direct selling, network marking, and party plan companies are welcome to attend. This is the original MLM Startup Conference, hosted and perfected by direct selling industry expert, MLM Attorney Jeff Babener. Call 503-226-6600 or 800-231-2162 to register. (Can’t make this event? Keep an eye out for our May and October conferences as well.)

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

That was the last the industry heard from the FTC, for the most part, other than various product-related issues. That is, until the mid-1990s when the FTC started to revisit the question of personal use by distributors. Some of the consent decrees with companies that were really egregious violators, were not in adjudicated rulings, but consent decrees, the FTC’s position was that at least 50 percent of product needs to be sold outside of the distributor network for a company to be legitimate. This put a lot of tension on a lot of companies, particularly health products companies that have a lot of personal use. There has been a lot of debate back-and-forth and a number of states, at the request of the industry, have changed their pyramid statutes to recognize personal use as a legitimate end-destination and an ongoing dialogue still occurs with the FTC.  In fact, in a 2004 FTC Staff Advisory Opinion, the FTC actually recognized the validity of personal use by distributors so long as the purchases of product are founded on the actual desire for the product as opposed to pyramid schemes in which distributor purchases are often primarily to merely qualify in the business opportunity.  Said the FTC, “..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.”

Today, at industry conferences, the FTC is a participant and it always tends to assure the industry it recognizes its industry. As a matter of fact, just a couple of years ago, the FTC sought to modify its Business Opportunity Rule and considered some options that would have made it much more restrictive for MLM companies to recruit. After an onslaught of letters and comments to the FTC, the FTC modified its position on the Business Opportunity Rule and came into agreement for the most part with the industry on how things should go.

There will always be tension between the FTC and the industry on the issue of personal use, and overall, there seems to be a consensus. It is the observation in the industry that the FTC chases after egregious companies and does not chase after what we would normally consider legitimate companies.

For more information about network marketing and the FTC, watch the companion video to this blog post: What is the Relationship between MLM and the FTC?

Or, read one of our many articles on the Federal Trade Commission:

FTC Guidelines on Endorsements and Testimonials
FTC Guidelines Resource Center
FTC Guidelines Endorsements and Testimonials: Detailed Analysis
FTC News Release on Endorsements and Testimonials
FTC Complete Guidelines Release
FTC Short Version Guidelines Release
FTC Examples of Material Connection
FTC Regulation of Advertising

FTC Proposed Business Opportunity Rule: Analysis and Updates:
New! The FTC Final Business Opportunity Rule: Still Work to Do
FTC Exemption Draft Falls Short … MLMLegal.com and DSA Suggest Revisions
FTC Exempts MLM from Proposed Business Opportunity Rule
DSA Position on FTC MLM Exemption Proposed Business Opportunity Rule
Analysis and Industry Response
Actual Text of Proposed Rule
FTC Speaks Out
DSA Speaks Out
DSWA Speaks Out
MLMIA Speaks Out
DRA Speaks Out
MLMLegal.Com Speaks Out

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

For more information on the direct selling industry, visit www.mlmlegal.com or www.mlmattorney.com.

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

Mona Ameli with Belcorp

Dr. Oi-Lin Chen with Sunrider

Angela Loehr Chrysler with Team National

Kathy Coover with Isagenix

Marjorie Fine with Shaklee

Shelli Gardner with Stampin’ Up!

Marla Gottschalk with The Pampered Chef

Jessica Herrin with Stella & Dot

Andrea Jung with Avon

Bonnie Kelly and Teresa Walsh with Silpada Designs

Wendy Lewis with Jeunesse Global

Tami Longaberger with Longaberger

Candace Matthews with Amway

Cindy Monroe with Thirty-One Gifts

Kay Napier with Arbonne

Joani Nielson and Jill Blashack Strahan with Tastefully Simple

Connie Tang with Princess House

Heidi Thompson with Scentsy

Direct Selling News also mentioned the trailblazers of the industry, who include:

Mrs. P.F.E. Albee (1836-1914)

Mary Kay Ash (1918-2001)

Doris Christopher

Mary Crowley (1915-1987)

Jan Day (1920-1997)

Jinger Heath

Joan Horner (1925-2010)

Cheryl Lightle and Rhonda Anderson

Brownie Wise (1913-1992)

Read the full article here. And tell us which women were influential to you in the direct selling industry. For more information on the direct selling industry, visit mlmlegal.com.

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