It is now more than 17 years since the scope of application of Chinese Taipei’s Fair Trade Law was expanded to include multi-level marketing. During this time, various principles for the practical regulation of multi-level marketing have been developed, in light of the provisions of the Fair Trade Law and based on the accumulation of experience by the Fair Trade Commission (FTC). Over the years, the main focus of the activities undertaken by the FTC to ensure effective implementation of the law with respect to multi-level marketing has been with respect to the return of unsold goods, an issue that is of great concern to participants in multi-level marketing schemes. Given the need to handle a wide range of different cases relating to multi-level marketing return of unsold goods on the basis of a limited number of rather broad statutes, although there are precedents that can be followed, the ongoing process of change in the market and the introduction of new product types has led to the emergence of new issues relating to the return of unsold goods, making it necessary for the regulatory authorities to interpret and apply the law in new ways.
Articles 23-1, 23-2 and 23-3 of the Fair Trade Law specify compulsory provisions regarding the handling of the return of unsold goods in the event of revocation or termination of multi-level marketing participant agreements. These provisions were added in the 1999 revision of the Fair Trade Law; prior to that date, this issue was handled in accordance with Paragraph 1 of Article 5 of the February 28, 1992 version of the Supervisory Regulations Governing Multi-level Sales. The explanatory notes for the relevant items of these provisions read as follows: “… 3. The fact that a participant in a multi-level marketing scheme has not exercised their right to withdraw from the scheme during the cooling-off period cannot be taken to mean that the participant wishes to remain a participant in the scheme for ever. Multilevel marketing businesses often impose restrictions on participants that make it difficult for them to withdraw from the scheme. It is for this reason that Article 4 of the Regulations stipulates that multi-level marketing participant contracts must state clearly that the participant has the right to withdraw from the scheme at any time; this provision is based on similar stipulations contained in British regulations to combat pyramid schemes, and in laws enacted in states such as Massachusetts, Wyoming, Louisiana and Florida in the U.S. 4. The obligation imposed on multi-level marketing firms to repurchase all unsold goods currently in the hands of the participant when a participant withdraws from the scheme is intended to discourage multi-level marketing firms from forcing participants to accept large quantities of goods, thereby preventing multi-level marketing schemes from mutating into illicit forms of economic activity. The prices paid by the multi-level marketing firm in such cases of repurchase should be reasonable, otherwise participants will be tempted to engaged in inventory loading (with the intention of then forcing the firm to buy the goods back again); on the other hand, if the prices are too low, then the participant will lose their investment, and the law will have failed in its original aim of protecting participants. Hence the requirement in Article 5 of the Regulations that contracts should clearly state that the multi-level marketing firm is required to buy back unsold goods at 90% of the original price paid for the goods by the participant, which is intended to prevent disputes. Similar provisions can be found in British regulations to combat pyramid schemes, and in laws enacted in states such as Massachusetts, Wyoming, Louisiana and Florida in the U.S.
It can be seen from the explanation cited above that these regulations were intended to ensure that participants in multi-level marketing schemes can withdraw from the scheme at any time. At the same time, the requirement that multi-level marketing firms must buy back unsold inventory from participants who wish to leave the scheme serves to protect participants’ rights while also helping to prevent multi-level marketing schemes from degenerating into pyramid schemes (see Article 23 of the Fair Trade Law). It would therefore seem reasonable to describe the three clauses of the Fair Trade Law cited above as playing a key role in the regulation of multi-level marketing enterprises.
The present study uses scenario-based modeling and exploration to examine the laws and regulations that currently govern the return of unsold goods by participants in multi-level marketing schemes, in terms of both theory and practice. The study also considers potential issues relating multi-level marketing purchase returns (issues that have not yet arisen but which might arise in the future), with the aim of providing a useful reference for enterprises, participants and government personnel when dealing with such cases in the future.
- Multi-level marketing firms should allow participants to return free gifts when implementing the return of unsold goods
- Multi-level marketing firms should not be allowed to ignore the regulations governing return of unsold goods for any reason
- Participants should not be permitted to enter into agreements with a multi-level marketing firm to waive the regulations governing return of unsold goods
- Multi-level marketing firms should not be allowed to deduct processing fees for payment by credit card
- Multi-level marketing firms should be required to behave consistently with regard to value impairments, and should not be permitted to make unwarranted impairments
- Participant contracts should be classed as standard contracts, to which the good-faith principle applies; if the annexes to the contract are not submitted, then they will not be binding on the multi-level marketing firm.