Telecommunications services - Multi-level Marketing, Pyramid Selling

A company that markets third-party telecommunications services sought an written opinion in April 2005 on whether its proposed multi-level marketing plan would raise concerns under the Competition Act.  Subsequent to a negative opinion in May 2005 by the Competition Bureau, the company revised their marketing plan and sought a second written opinion in June 2005. The Bureau examined the proposed marketing plan under the multi-level marketing and scheme of pyramid selling provisions of the Act, sections 55 and 55.1.

The following revisions were reflected in the proposed marketing plan:

• The company agreed to include a disclosure of the earnings of typical participants in the plan and to include this disclosure at relevant points in the plan's materials in order to avoid potential problems under paragraph 55(2).
• Participants were required, as a condition of becoming an active member, to make a minimum of three sales (one of which must be to a customer other than themselves and to a customer other than those with whom she/he is domiciled). Movement in the plan is based on their personal sales volume and the sales volume of the other participants that recruited into the plan. Personal sales volume and the sales volume of the other participants is also the condition upon which the participant is eligible to earn bonuses.
• The inclusion of a disclosure of the earning of typical participants in the plan and an understanding that trainers will include the disclosure at relevant points in the training materials presented to participants in order to avoid problems under paragraph 55(2) of the Act.
• The elimination of a direct monetary payment to participants that recruit and train new participants and a revision that makes any remuneration to a trainer be based on a commission that is tied to the sales made by the trainee within 90 days from the day of the conclusion of any training session.

In August 2005, the Competition Bureau provided a positive opinion on the basis that the plan as provided appeared to comply with the requirements of sections 55 and 55.1 the Act.

(3099063)