Travel Certificate Products - Multi-level Marketing, Pyramid Selling

A company that distributes and sells travel certificate products sought an initial advisory opinion in November 2004 on whether a proposed multi-level marketing plan would raise concerns under the Competition Act. Following an initial negative opinion by the Bureau, the company made certain changes to their marketing plan and then sought a second opinion in January 2005.

The Competition Bureau examined the proposal under the multi-level marketing and scheme of pyramid selling provisions of the Act, sections 55 and 55.1. In April 2005, the Bureau provided a positive opinion on the basis that the plan as provided appeared to comply with the requirements of the Act.

Based on the Bureau’s understanding of the marketing plan, it felt that since the company had previously operated a plan selling the same products, the company could use the typical earnings from the previous plan to determine their typical earnings statement.

Using the criteria, “Where no single level of earnings accounts for the majority of participants, reference must be made to the fewest levels containing the largest number of participants which, together, constituted a majority of the participants,” the company determined that participants earning between $1,600 and $3,200 accounted for the largest number of participants in the fewest levels. The Bureau also recognized that it is the company’s responsibility to update the typical earnings statement when current data for the plan becomes available.

The Bureau felt that the $300 Personal Business Volume sales requirement to become an Qualified Independent Distributor and the $75/$50 minimum sales threshold for a Qualified Independent Distributor to maintain their status, should rarely create a sufficiently strong inducement to purchase product, thus creating a defacto purchase requirement. Therefore these thresholds do not raise concerns with the Act. However, the Competition Bureau felt that thresholds above these volumes are not considered minimal, and are potentially unreasonable, thus raising issues with subsection 55.1(1)(b) of the Act.

The Bureau also recognized that the advancement from a Qualified Independent Distributor to a Trainer, and above, was based on the building of sales volume in one’s down line. Therefore the increased levels of participation was based on sales volumes, and not the recruitment of participants into the plan.

(3098787)