Diet and Health Care Products

Multi-level Marketing and Pyramid Selling

A multi-level marketing company distributing diet and health-care products sought an advisory opinion in February 2004 on whether a proposed multi-level marketing plan would raise concerns under the Competition Act.

The Competition Bureau examined the proposal under the multi-level marketing and pyramid selling provisions of the Act, sections 55 and 55.1.

Participants in this multi-level marketing plan were required to ensure that 70% of their purchases had been sold to retail customers or personally consumed.

• Although, this requirement somewhat addressed potential concerns under paragraph 55.1(1)(c) of the Act, it needed to be considered within the context of the entire marketing plan.
• The plan also required active policing of this requirement on the part of the operators to ensure that participants were not encouraged to over-purchase for personal use simply to meet sales targets. In this case, participants in the plan were asked to agree in writing that they would not purchase products solely in order to meet sales volumes goals, receive compensation under the plan, or maintain unwarranted inventory.

For the above reasons, the Bureau provided the opinion on March 18, 2004, that the proposed plan if implemented would not give the Commissioner grounds to commence an inquiry under either the multi-level marketing and pyramid selling scheme provisions of the Act.

(3082093)