He Pao Management Consultants Ltd. sold gasoline coupons and other products through a multi-level sales platform where the main source of income for participants came from the introduction of new members, constituting a prohibited form of multi-level sales

Chinese Taipei

Case:

He Pao Management Consultants Ltd. sold gasoline coupons and other products through a multi-level sales platform where the main source of income for participants came from the introduction of new members, constituting a prohibited form of multi-level sales

Key Words:

multi-level sales, gasoline coupons, membership fees

Reference:

Fair Trade Commission Decision of December 19, 2002 (the 580th Commissioners' Meeting); Letter (91) Kung San Tzu No. 0920000007

Industry:

Direct Sales Enterprises (4812)

Relevant Law:

Article 23 of the Fair Trade Law

Summary:

1. The main business of He Pao Management Consultants Ltd. (He Pao) was the sale of gasoline coupons issued by China Petroleum Corporation and Formosa Taffeta Company Ltd. for which they employed a network marketing system that was divided into Plan A and Plan B. The membership fee for Plan A was NT$1000 and participants were required to make monthly purchases of at least NT$2000. The membership fee for Plan B was NT$400 and participants were required to make monthly purchases of NT$600. Both plans included “recommendation bonuses” and “organization bonuses”. Participants would receive a “recommendation bonus” of NT$300 under Plan A and NT$100 under Plan B for each new member introduced. “Organization bonuses” were distributed to participants who recruited the first organizational level of five people, and would include bonuses from participants in each of the subsequent six levels. Those who had completed a second organizational level comprised of 25 people would be eligible for bonuses from participants in the subsequent eight levels. Bonuses would be calculated according to the number of people down-line whose purchases reached NT$2000. Participants under Plan A would receive NT$20 per person while those under Plan B would receive NT$6 per person.

2. Grounds for disposition: Based on the conditions stated above, it was clear that the “recommendation bonus” was based purely on the introduction of new members.
During the period that He Pao was engaged in multi-level sales, it distributed, in total, NT$2,828,917 in bonuses, NT$1,927,022 of which was for “recommendation bonuses” while the remaining NT$901,717 was for “organization bonuses.” “Recommendation bonuses,” therefore, accounted for 68% of the total bonuses. However, the estimated total profits and commissions from the sale of gasoline coupons and other products did not exceed NT$1 million, which demonstrates that, were the bonus system based on these profits and commissions, it would have covered less than 40% of the total bonuses paid out by the respondent. In summary, it was found that the bonuses distributed by He Pao, and consequently the income received by participants, was based mainly on the introduction of new members and not on the marketing and sale of goods or services at reasonable market prices. As such He Pao was considered to be in violation of Article 23 of the Fair Trade Law.

Appendix:
He Pao Management Consultants Ltd.’s Uniform Invoice Number: 70709169

Summarized by Chou, Pai-Wei; Supervised by Yeh, Tine-Fu