Lin Yu Cultural Enterprise Co., Ltd, Perfect World Technology Co., Ltd., and Ch'ao Ha Webservice Co., Ltd., along with 14 other individuals violated the Fair Trade Law for engaging in unlawful multi-level sales

Chinese Taipei

Case:

Lin Yu Cultural Enterprise Co., Ltd, Perfect World Technology Co., Ltd., and Ch'ao Ha Webservice Co., Ltd., along with 14 other individuals violated the Fair Trade Law for engaging in unlawful multi-level sales

Key Words:

multi-level sales, franchise website card, book purchasing card

Reference:

Fair Trade Commission Decision of October 17, 2002 (the 571th Commissioners’ Meeting); Letters (91) Kung San Tzu 0910010274, 0910010275, and 0910010276

Industry:

Direct Sales Enterprises (4812)

Relevant Law:

Articles 23 of the Fair Trade Law

Summary:

1. From 21 November 2001 Lin Yu Cultural Enterprise Co., Ltd (Lin Yu), Perfect World Technology Co., Ltd. (Perfect World), and Ch’ao Ha Webservice Co., Ltd. (Ch’ao Ha) announced the establishment of the “Lin Yu Publishing Group,” which successively marketed and sold A Cards (franchise website cards), B Cards (business cards), C Cards (merit cards), D Cards (book purchasing cards) and E Cards (franchise website education cards). By the end of June 2002 there were 3268 members and as of 31 July 2002, income from the sale and monthly fees for these cards was over NT$193 million. The bonus distribution ratio was approximately 84%.

2. It was found that the purpose of members in joining the organization was not to market or sell goods or services, but rather to partake in substantial bonuses and profits. Furthermore, although Lin Yu, Perfect World and Ch’ao Ha were nominally in the business of marketing and selling the various cards, these services were either not provided, or were reduced to systems of “money games.” According to their system, in order to maintain the high bonuses, participants needed to constantly introduce new members, or have members continue to raise subscriptions and inject capital. The commissions, awards or other economic benefits received by the members were not based on the marketing and sale of goods or services at reasonable market prices, but rather, on the continuous expansion of the organization. Lin Yu, Perfect World and Ch’ao Ha were therefore found in violation of Article 23 of the Fair Trade Law. For consensually implementing illegal multi-level sales and for actively participating in network marketing expansion through the recruitment of a large number of participants, the Fair Trade Commission (FTC) also found Lin Yu, Perfect World and Ch’ao Ha as well as Liu Ying-kan, Ch’en Hsu-mei, Wu Hsiu-Ch’in, Hsu Ching-lan, Chang K’un-tsung, Chao P’ei-chih, Ch’en Ts’an-hung, Lai Ch’eng-chih, Lu Ch’un-ch’eng, Ts’ao Yung-tung, Chao Chin-hao, Huang Su-yen, Huang Hua-li and Chang Wei-chih in violation of Article 23 of the Fair Trade Law.

3. Through the involvement of the principal participants (listed above) in this improper network-marketing scheme, their active participation in the organization’s expansion through the recruitment of a large number of new members, and the substantial illegal economic benefits they received, created adverse effects that expended like a web, causing widespread and substantial harm to society and the economy. According to Perfect World’s account information, the participants listed above all received several million New Taiwan dollars in illegal economic benefits. When determining the appropriate penalties, the FTC considered the motives and purposes of the violation, the degree to which the trading order was damaged as well as the duration of that damage. The FTC found that the unlawful actions in this case seriously damaged the economic and social order, and therefore, a total administrative fine of NT$55 million was imposed on Lin Yu, Perfect World, and Ch’ao Ha, as well as Liu Ying-kan, Ch’en Hsu-mei, Wu Hsiu-Ch’in, Hsu Ching-lan, Chang K’un-tsung, Chao P’ei-chih, Ch’en Ts’an-hung, Lai Ch’eng-chih, Lu Ch’un-ch’eng, Ts’ao Yung-tung, Chao Chin-hao, Huang Su-yen, Huang Hua-li and Chang Wei-chih. The FTC ordered all illegal activity to cease, and Perfect World and Ch’ao Ha, whose business served simply to market franchise website cards, were ordered to terminate operations.

Appendix:
Lin Yu Cultural Enterprise Co., Ltd.’s Uniform Invoice Number: 23887748
Perfect World Technology Co., Ltd.’s Uniform Invoice Number: 13067221
Ch’ao Ha Webservice Co., Ltd.’s Uniform Invoice Number: 79981077

Summarized by Wang, Horng-Shiuan; Supervised by Lin, Ching-Tarng