Ino Advertising Marketing Co., Ltd.

1325th Commissioners' Meeting (2017)

Case:

Ino Advertising violated the Multi-level Marketing Supervision Act by failing to file with the FTC before changing its sales system and not processing within the statutory period products returned by participants upon contract cancellation and termination

Keyword(s):

Multi-level marketing, filing changes, return of products upon withdrawal, business operation inspection

Reference:

Fair Trade Commission Decision of March 29, 2017 (the 1325th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 106021

Industry:

Direct Selling Establishments (4872)

Relevant Law(s):

Article 7, 20, 21 and 24 of the multi-level Marketing Supervision Act

Summary:

1. On Jan. 17, 2017, the FTC staff members sent to the main office of Ino Advertising Marketing Co., Ltd. (hereinafter referred to as Ino Advertising), a multi-level marketing business, to perform business inspections discovered that the company had violated the Multi-level Marketing Supervision Act.
2. Findings of the FTC after investigation:
   (1) Ino Advertising marketed the "Ino Platform Advertising Social Network Marketing Scheme (VIP members)" and the "Ino Platform Advertising Social network Marketing Scheme (regular members)." VIP members could use Ino Advertising's cell phone shopping app "Taking Advantage" to post advertisements whereas regular members could only use the app to browse the advertisements and purchase products. Hence, the FTC concluded that Ino Advertising sold service products.
   (2) Between Jun. and Aug. 2016, Ino Advertising held an overseas travel incentive activity during which 75 members were given cash prizes and 40 awarded a trip to Thailand. The company adopted the new regulation that each participant could purchase seven VIP memberships at the maximum but did not file with the FTC in advance.
   (3) Another finding revealed that the "organization bonuses (the social networking bonuses filed)" registered on the weekly bonus sheets between Jun. 27, 2016 and Jan. 1, 2017 were inconsistent with the information Ino Advertising filed with the FTC. The bonuses actually issue were more than the amounts filed.
   (4) As of Jan. 4, 2017, applications for termination of 475 management rights were filed by participants of Ino Advertising within 30 days after their contracts were signed and applications for termination of 241 management rights were filed 30 days after their contracts were signed When giving its statement on Feb. 15, 2017, however, Ino Advertising admitted that it never refunded those applicants for the products they returned.
3. Grounds for disposition:
   (1) The overseas travel incentive activity held by Ino Advertising included cash prizes and overseas trips. The issuance of prize money and economic benefits was part of the company's sales system, but before its implementation Ino Advertising never filed with the FTC the contents of the incentives, conditions for issuance of such incentives, and ratio of the cost to the company's total revenue. It was in violation of Article 7 (1) of the Multi-level Marketing Supervision Act.
   (2) According to the original information filed by Ino Advertising, there was not an upper limit on the management rights that each participant could purchase. Starting on Oct. 31, 2016, however, each participant could purchase at the most seven "VIP memberships" and each "VIP membership" represented one management right, and Ino Advertising had not filed with the FTC before implementing the new system. It was in violation of Article 7 (1) of the Multi-level Marketing Supervision Act.
   (3) As indicated in the information Ino Advertising filed with the FTC, the maximum of the "social networking bonuses" was 35% of the total sales of the period. However, the "organization bonuses (the social networking bonuses filed with the FTC)" Ino Advertising actually issued between Jun, 27m 2016 and Jan. 1, 2017 exceeded the above percentage. In other words, the issuance of bonuses was inconsistent with the information filed with the FTC and the company had not registered the change with the FTC beforehand. The conduct was in violation of Article 7 (1) of the Multi-level Marketing Supervision Act.
   (4) As of Jan. 4, 2017, applications were filed by the company's participants for the termination of 475 management rights within 30 days after their contracts were signed. Ino Advertising was supposed to process the withdrawals and refunded the participants at the latest on Feb. 3, 2017, yet the company admitted it had not completed the refunding before Feb. 15, 2017. Therefore, its failure to complete the withdrawal process and refunding within 30 days after the participants canceled or terminated their contracts was in violation of Article 24 of the Multi-level Marketing Supervision Act and Article 20 (2) of the same act was applicable mutatis mutandis. In the meantime, applications for the termination of 241 management rights were filed by participants 30 days after their contracts were signed. At the latest, Ino Advertising had to complete the withdrawal process and refund the participants on Feb. 3, 2017, yet the company admitted it had not completed the refunding before Feb. 15, 2017. Consequently, its failure to complete the withdrawal process and refunding within 30 days after the participants canceled or terminated their contracts was in violation of Article 24 of the Multi-level Marketing Supervision Act and Article 21 (2) of the same act was applicable mutatis mutandis.
   (5) Ino Advertising violated Article 7 (1) of the Multi-level Marketing Supervision Act by failing to file with FTC before changing its sales system. The FTC imposed an administrative fine of NT$1 million on the company. Meanwhile, the company's failures to complete the withdrawal process and refund the participants as described above also respectively violated Article 24 of the Multi-level Marketing Supervision Act while Article 20 (2) of the same act was applicable mutatis mutandis and Article 24 while Article 21 (2) was applicable mutatis mutandis. The FTC imposed an administrative fine of NT$1.5 million for each of these two violations. The fines totaled NT$4 million.