Rexall Showcase International, Inc., engaged in multi-level sales in violation of the Supervisory Regulations of Multi-Level Sales
Case:
Rexall Showcase International, Inc., engaged in multi-level sales in violation of the Supervisory Regulations of Multi-Level Sales
Key Words:
multi-level sales, report filing, foreign multi-level sales enterprise
Reference:
Fair Trade Commission Decision of September 15, 1999 (the 410th Commissioners' Meeting); Disposition (88) Kung Ch'u Tzu No. 135.
Industry:
General Merchandise Wholesale (5110)
Relevant Laws:
Articles 23(2) and 42 of the pre-amendment Fair Trade Law, Article 3(1) of the pre-amendment Supervisory Regulations of Multi-Level Sales
Summary:
1. The US-based multi-level sales company Rexall Showcase International, Inc. ("Rexall") published large magazine advertisements and constructed a web page informing the public of its multi-level sales program and of the contact addresses and telephone numbers of its direct sales agents in Chinese Taipei. A flurry of reports were filed with the Fair Trade Commission (the Commission) by competitors in Chinese Taipei's multi-level sales industry alleging that Rexall was taking an improper head start and disrupting the competitive order in Chinese Taipei's multi-level sales market. The Commission took the initiative in dispatching personnel to carry out widespread interviews with participant's in Rexall's plan, and compiled and reviewed materials submitted by members of the public. The Commission learned that Rexall's direct sales agents had already begun organizing a downstream sales network in Chinese Taipei in 1997. Rexall Showcase International, Inc., Chinese Taipei Branch ("Rexall Chinese Taipei") was subsequently incorporated in Chinese Taipei in September 1998, and filed a report with the Commission in October of the same year notifying the Commission that it formally began multi-level sales operations on October 26, 1998. 2. In this era of lively international commerce, multi-level sales enterprises have widely implemented systems to expand their sales organizations abroad. Such systems usually specify what kinds of activities are permitted and restricted prior to official commencement of sales in a specific country. Most multi-level sales enterprises consider that simple market investigations do not constitute commencement of sales activity in a region, but that execution of participant contracts, transactions of goods, and calculation and payment of bonuses do. Prior to setting up its Chinese Taipei branch, Rexall had already begun actively developing its multi-level sales operations by means such as holding regularly scheduled seminars and providing explanatory materials in the Chinese language. It was also planning to recruit members for its organization using "Member Application and Agreement Statements" signed by its direct sales agents. Upstream leaders would plan and administer all order-taking, delivery, and bonus payment for the direct sales agents, who would sell products in Chinese Taipei and collect bonuses on their sales without having to leave the country. Clearly, even though Rexall had repeatedly reiterated its prohibition on such activities by its direct sales agents in any region where commencement of activities had not yet been approved, the activities of its direct sales agents overstepped the bounds of pre-commencement activities approved by Rexall and typically sanctioned by the industry, and had a direct effect on competitive order in Chinese Taipei's multi-level sales market. Accordingly, Chinese Taipei's Fair Trade Law (FTL) should be applied. 3. According to its regulations for international membership recruitment, Rexall strictly prohibits its sales agents from engaging in premature activity in regions where commencement of activity has not yet been approved. Observing Rexall's actual practices, however, Rexall backs that rule up merely with passive warnings rather than any active enforcement measures. Therefore, although Rexall may not have guided or instructed its direct sales dealers to engage in the activities, it cannot shirk responsibility for tacitly condoning them. 4. In sum, through its extraterritorial condoning of the above-mentioned practices, its sales agents' recruitment in Chinese Taipei of members for direct enrollment in its US-based sales organization, and its agents' engagement in multi-level sales activity in Chinese Taipei, Rexall directly affected competitive order in Chinese Taipei's multi-level sales market sufficiently to be deemed in violation of Article 3(1) of the Supervisory Regulations of Multi-Level Sales in effect at the time of the acts. In view of the company's attitude of cooperation after receiving notification of Chinese Taipei's relevant laws and regulations, a fine of NT$300,000 was imposed pursuant to the provisions of Article 42 of FTL in effect at the time of the acts. Summarized by Li Ya-ching; Supervised by Hsu Shu-hsing