Shih Yun Tsun Ke Chi Sheng Huo Kuan Co., Ltd. engaged in multi-level sales in violation of the Fair Trade Law.
Case:
Shih Yun Tsun Ke Chi Sheng Huo Kuan Co., Ltd. engaged in multi-level sales in violation of the Fair Trade Law.
Key Words:
multi-level sales, bonus, fair market price, reporting
Reference:
Fair Trade Commission Decision of May 10, 2001 (the 496th Commissioners' Meeting); Disposition (90) Kung C'hu Tzu No. 074
Industry:
Direct Marketing (4812)
Relevant Laws:
Article 23 of the Fair Trade Law, Article 7(1) of the Supervisory Regulations Governing Multi-level Sales.
Summary:
1. A complainant filed a letter stated that Shih Yun Tsun Ke Chi Sheng Huo Kuan Co., Ltd. (Shih Yun Co.) in August 1998 launched a promotion to sell membership cards through a multi-level sales structure, and clearly provided in its by-laws that "members may have the benefit of 20% discount at the Chinese restaurant, beer house, swimming pool, and other club leisure facilities." Members later found, however, that upon visiting the club swimming pool they were unable to obtain the 20% discount, which they were entitled to and that the restaurant and beer house facilities were being used for other purposes. 2. The Fair Trade Commission (FTC) investigation showed that Shih Yun Co. required participants to pay certain fees, including an entry fee of NT$1,000, membership card fee of NT$9,400, NT$6,000 for two VIP passes, NT$2,000 for a travel guide and NT$5,600 for a Chinese-language pager and seven months of voice mailbox services. Additionally, Shih Yun required members to pay three months membership fees (NT$12,000 per month) up front, for total membership expenses of NT$36,000. Shih Yun Co.'s participants were eligible to receive an NT$6,000 bonus for each new member they introduced. The "Shih Yun Ts'un Sheng Huo Kuan" was mostly involved in food and beverage services. The adjacent playing fields, swimming pools and other facilities were neither owned by Shih Yun Co. nor did the company have any rights to their use but the company continued to require its participants to pay NT$4,000 per month to maintain their membership status, which also counted as a consideration toward the price of the car. Additionally, the company's "Shih Yun Ts'un Sheng Huo Kuan" was no different from an average establishment offering food and beverage service or simple accommodations (except for the 20 percent discount offered for food and beverage services). It is obvious that the NT$9,400 membership card fee which Shih Yun Co. required its members to pay was to cover the expenses of the NT$6,000 bonus Shin Yun Co. paid for new member recruitments. Further, in November of 2000, the company changed its basic company information, including the company name, responsible person and capitalization, constituting amendments to major portions of the content of Shih Yun Co.'s company license and business license. The company, however, failed to report these changes to the FTC within 15 days as law required. 3. Grounds for disposition (1) The findings of the investigation substantiated that the monthly membership fees paid by Shih Yun Co.'s participants clearly were not necessary fees to continue receiving goods and services. The monthly membership fee was merely the basis for the bonus payments. If participants wanted to remain eligible to receive bonuses, they were required to continue paying the monthly fee. Additionally, the major source of any commissions, bonuses or other financial remuneration received by any participant was the continued payment of monthly membership fees by downstream members introduced by the participant and not based upon a fair market price for any goods or services promoted or sold by the participant, constituting a violation of the provisions of Article 23 of the Fair Trade Law. Also, the failure to report the major changes in the content of the company license and business license, including the company name, responsible person and capitalization, within 15 days as required by regulations was a violation of the provisions of Article 7(1) of the Supervisory Regulations Governing Multi-level Sales. (2) After weighing and considering the motive, purpose and anticipated undue profit from Shih Yun Co.'s unlawful acts, and other details including the number of people in the organization, operational status, operating revenue, attitude toward cooperation with the investigation and the harm the company's acts caused the trading order, the FTC fined Shih Yun Co. NT$1 million and ordered it to cease and rectify all unlawful practices under Article 41 of the Fair Trade Law. Appendix: Shih Yun Tsun Ke Chi Sheng Huo Kuan Co., Ltd.'s Uniform Invoice Number: 16539147 Summarized by Chi, Hsuen-Li; Supervised by Lin, Ching-Tarng