Violation of the Fair Trade Law by Ewa Culture Enterprise Co., Ltd. through engaging in multi-level sales in which participants' income was primarily derived from recruiting others to participate, rather than through promotion or sales of goods or services at a reasonable market price
Case:
Violation of the Fair Trade Law by Ewa Culture Enterprise Co., Ltd. through engaging in multi-level sales in which participants' income was primarily derived from recruiting others to participate, rather than through promotion or sales of goods or services at a reasonable market price
Key Words:
multilevel sales, website
Reference:
Fair Trade Commission Decision of August 23, 2001 (the 511th Commissioners' Meeting); Disposition (90) Kung Ch'u Tzu No. 114
Industry:
Provision of Information on the Internet (7321)
Relevant Laws:
Articles 23 and 23-4 of the Fair Trade Law; Articles 5(1), 11(1), and 12 of the Supervisory Regulations Governing Multi-Level Sales
Summary:
1. A citizen complaint pointed out that Ewa Culture Enterprise Co., Ltd. (Ewa) was recruiting members under the name "Yi Fa Network," at the e-mail address www.ewa.com.tw. New members would pay NT$7,500 for website services provided by the company, through which they could establish their own web page for business purposes. Of that sum, NT$1,500 went to the company itself, with the other NT$6,000 being paid in sums of NT$1,000 to each of six upline members. It was suspected to be a multi-level sales scheme.2. The Fair Trade Commission's (FTC) investigation showed that Ewa claimed its Yi Fa Network provided advertising services, establishing individual web pages for clients on the above website, and posting product advertising by clients in the products columns. The website was also to provide other services, including a search engine, updating of individual web pages, B.B.S., personal mailbox service, client contact databases, personal agenda pages, automated interactive programs, electronic newsletters, friendship pages, and chat room.3. Members joining the "Yi Fa Network" could do so only through introduction by other members, and would have to obtain a "contractor's form" from their immediate sponsor, which listed the names and account numbers of six others to whom the new member would wire NT$1,000 each. After further payment of the NT$1,500 to the company, membership procedures were completed and the member could enjoy the above services, as well as obtain six "contractor's forms" allowing the member to further promote the Yi Fa Network to others. The titles given the six names on the "contractor's list" were, in order, "general editor," "program designer," "general web page editor," "web page designer," "creative editor," and "senior operations specialist." The new member's immediate sponsor would be listed on the original form as "senior operations specialist," but the new forms obtained by a new member would have the new member's name listed in that position, with each of the other members' names moved up to a correspondingly higher position, and with the name of the "general editor" being removed from the list in order to maintain an even roster of six. All persons on the list were related as sponsors and new members, and while all had specific titles, none engaged in work corresponding to their job titles; the actual work of page designing was all done by Ewa. This type of scheme constitutes multi-level sales.4. While Ewa claimed to provide website advertising services, the FTC's sampling of web-page use by the network's members showed that most member's pages were being underutilized, far from the commercial use claimed by the respondent, to the point of being virtually unused. And while the respondent had begun recruiting members as early as November of 2000, the primary services being provided during the period of the FTC's investigation were limited to provision of personal web pages and a search engine, even though members had already reached 5,000 people. Ewa also touted the individual web pages as useful for advertising, but given the website's scale during the then-current phase, the value of any advertising would be open to question. Also, given the number of other well-known websites in the market providing free personal web pages and e-mail service, the Yi Fa Network would have no particular appeal. The above circumstances demonstrate that the Yi Fa Network website was not providing a full spectrum of functionality, yet clients were willingly flocking to it and paying the NT$7,500 membership fee; clearly, their goal was not related to the actual services provided by the Yi Fa Network. Their entire multi-level sales system made recruitment of new members the primary source of income, rather than promoting the business or selling goods or services at a reasonable market price, in violation of Article 23 of the Fair Trade Law.5. In addition to the above, Ewa Culture Enterprise Co., Ltd. neither filed a report with the FTC that it was engaging in multi-level sales, nor adequately informed its participants of the same. It also failed to provide necessary information in a written contract in accordance with regulatory requirements, in violation of Articles 5(1), 11(1), and 12 of the Supervisory Regulations Governing Multi-Level Sales.6. In consideration of the income gained by Ewa Culture Enterprise Co., Ltd., as well as its motives, the degree of effect on the market order, the duration of its unlawful activities, and its attitude after committing the unlawful act, the FTC imposed an administrative fine of NT$9.7 million against it for its violations of Article 23 of the Fair Trade Law, in accordance with the provisions of Articles 41 and 42(3) of the same law. For its violations of Articles 5(1), 11(1), and 12 of the Supervisory Regulations Governing Multi-Level Sales, an administrative fine of NT$300,000 was imposed, for a total fine of NT$10 million. Ewa was ordered to immediately cease its unlawful activities and rectify its business conduct.Appendix:Ewa Culture Enterprise Co., Ltd.'s Uniform Invoice Number: 70454481Summarized by Chou, Pai-Wei; Supervised by Lin, Ching-Tarng