Health Products - Multi-level Marketing and Scheme of Pyramid Selling

A multi-level marketing company supplying health products sought a written opinion in November 2007, on whether a proposed multi-level marketing plan would raise concerns under the Competition Act.

The Competition Bureau issued a negative opinion in August 2008 on the basis that the plan was deemed to constitute a scheme of pyramid selling as defined in section 55.1(1)(a) and 55.1(1)(c) of the Act.

The plan provided strong incentives for a participant to recruit other prospective participants into the plan in order to receive compensation. For example, participants immediately achieved a higher level and, consequently, higher compensation for recruiting others into the plan. The plan was also deemed to constitute a scheme of pyramid selling as defined in section 55.1(1)(a) of the Act as it required the participants to purchase a product as a condition of their participation. Furthermore, the plan was deemed to constitute a scheme of pyramid selling as defined in section 55.1(1)(c) of the Act on the basis that it appeared to promote inventory loading because the compensation of participants was tied directly to participating in the Autoship Program. In this case, the Autoship Program provided participants with incentive to purchase more product and knowingly supply the product to the participant in an amount that would be considered commercially unreasonable.

(3101938)