Beverages, supplements and personal care products

A multi-level marketing company that proposed to market beverages, supplements and personal care products sought a written opinion in January 2006, on whether its proposed multi-level marketing plan would raise concerns under the Competition Act. On April 5, 2006 the Competition Bureau provided a negative opinion on the basis that the plan had issues relating to compensation under the plan and that the plan appeared to be a scheme of pyramid selling.

The Bureau denied the opinion on the basis that:

• representations relating to compensation (under the multi-level marketing plan) provided typical earnings as an average for the first five levels in the plan and not as representative examples of the compensation that can actually or likely be received by typical participants. It therefore fails to meet the requirement of subsection 55(2) of the Act;
• the plan granted a participant the opportunity to become a certified trainer. Additionally, she/he had the privilege to receive compensation for training uncertified participants as well as the ability to receive further compensation as a mentor to any other trainee within the organization. This contradicts the statement of policy to the plan and creates a potential defacto condition of compensation for recruitment, thereby enabling a scheme of pyramid selling as described by paragraph 55.1(1)(a) of the Act;
• the plan required some participants, at certain levels in the plan, to be on autoship; thereby creating a condition of a required product purchase and thus enabling a scheme of pyramid selling as described by paragraph 55.1(1)(b) of the Act;
• participants who left the plan could return product for a refund. However, participants who remained in the plan could only exchange product and were not entitled to receive a refund. The Bureau's interpretation of "exercisable on commercially reasonable grounds" is that a participant of the plan is entitled to return product, receive a refund for that product, and can continue to be a participant in the plan. In this case, the plan's buy-back guaranteed was not considered to be exercisable on commercially reasonable grounds because the plan required that a participant leave the plan to receive a refund. The plan appeared to be a scheme of pyramid selling as defined by paragraph 55.1(d) of the Act; and
• the plan required participants to be on autoship at certain levels of the plan. The requirement under the plan for participants to purchase product every month when they had reached certain levels in the plan acting together with the requirement that participants were entitled to a refund if they left the plan appeared to lead to inventory loading. In this case, the plan provided participants with the incentive to accumulate an inventory because the only option available to participants to receive a refund while on autoship was to leave the plan. The plan appeared to be scheme of pyramid selling as defined by paragraph 55.1(c) of the Act.

(3099891)