He Chia International Co., Ltd. violated Articles 7(1), 12(1), 14, and 18 of the Supervisory Regulations Governing Multi-Level Sales enacted pursuant to Article 23-4 of the Fair Trade Law

Chinese Taipei

Case:

Keywords:

He Chia International Co., Ltd., multi-level sales, participation contract

Reference:

Fair Trade Commission Decision of October 21, 2004 (the 676th Commissioners' Meeting); Disposition (93) Kung Ch'u Tzu No. 105

Industry:

Direct Selling Establishments (4812)

Relevant Laws:

Article 23-4 of the Fair Trade Law, Articles 7 (1), 12(1), 14, and 18 of the Supervisory Regulations Governing Multi-Level Sales

Summary:

1. He Chia International Co., Ltd. (hereinafter referred to as "He Chia") filed a report to the Fair Trade Commission (FTC) for its engagement in multi-level sales on May 24, 2002. However, the content of the report failed to comply with the laws and regulations and was deficient. After the FTC requested the company to make necessary corrections and supplement via letters, the content of the written participation contracts concluded between He Chia and its participants still failed to clearly specify the laws and regulations relevant to multi-level sales and the methods for handling the return of goods caused by reasons attributable to the participants. In addition, He Chia failed to file a report on the change of its name in violation of the laws.

2. Article 7(1) of the Supervisory Regulations Governing Multi-Level Sales provides, " Any change to the content of the report filed by a multi-level sales enterprise shall be reported prior to implementation. However, report on changes with respect to the items prescribed in Article 5 (1) (i) may be filed within 15 days after the change." When He Chia filed the report to the FTC on May 24, 2002, its name was Chiao Lun Co., Ltd. The company changed its name to He Chia International Co., Ltd. on July 24, 2002; however, the report on the change was filed on October 16, 2002. It is clear that He Chia violated the aforesaid provision.

3. Article 12(1) of the Supervisory Regulations Governing Multi-Level Sales provides, "A multi-level sales enterprise shall enter into a participation contract in writings with that who intends to take part in the sales organization or plan as a participant; the participation contract shall include the matters prescribed in items 2 through 9 of paragraph 1 of the preceding article." It means, when a multi-level sales enterprise enter into a written participation contract with a participant, such a contract shall clearly contain the operational rules, transaction guidelines, and laws and regulations relevant to multi-level sales; obligations and responsibilities of a participant; contents of benefits a participant may obtain by directly promoting or selling goods or services, contents of benefits a participant may obtain when a person he/she introduced to take part in the plan or organization promotes or sells goods or services, and the conciliations for obtaining such benefits; types, functions, qualities, prices, and uses of the goods or services, and other matters related thereto; conditions, terms, and scope of warranties against defects of the goods or services; and conditions of withdrawal by a participant from the organization or plan, and rights and obligations arising from the withdrawal. It was found that He Chia commenced the implementation of multi-level sales on June 25, 2002. Between He Chia and its participants, the only document signed was the "Preferential Customer Application Forms," and the forms failed to include the aforementioned statutory items. Although He Chia printed and issued "Tupperware Enterprise Handbooks" to its participants during October 2002, the handbooks still failed to clearly specify the laws and regulations relevant to multi-level sales, in violation of the aforesaid provision.

4. Article 14 of the Supervisory Regulations Governing Multi-Level Sales provides, " The method for handling a request by a participant to return goods in the event a multi-level sales enterprise rescinds or terminates the contract for breach of operational rules or plans by such participant or other reasons attributable to such participant shall be specified in the contract." It was found that the "Preferential Customer Application Forms" concluded between He Chia and its participants failed to include the methods for handling the return of goods caused by reasons attributable to the participants. The "Tupperware Enterprise Handbooks" printed and issued later on also failed to contain the items prescribed in the aforementioned regulations. Article 18 of the Supervisory Regulations Governing Multi-Level Sales provides, "For purposes of regulating the activities of its participants in respect of multi-level sales, a multi-level sales enterprise shall stipulate that the following are breaches of contract by the participant, and shall prescribe methods for handling such breaches and faithfully enforce them: (the following is omitted)" The "Preferential Customer Application Forms" that have been entered by He Chia and its participant since June 25, 2002, failed to contain the breaches of contract by the participants and the methods for handling such breaches, in violation of the aforesaid provision.

5. After considering the number of participants, operating condition, sales amount, attitude of cooperation in the investigation, and the degree of the act's harm to trading order, the Commission imposed an administrative fine of NT$ 400,000 on He Chia in accordance with Article 42 (3) and the fore part of Article 41 of the Fair Trade Law.

Summarized by Li, Shih-Che;

Supervised by Hsu, Hung-Jen

Appendix:

He Chia International Co., Ltd.'s Uniform Invoice Number: 22836285

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1.	He Chia International Co., Ltd. (hereinafter referred to as "He Chia") filed a report to the Fair Trade Commission (FTC) for its engagement in multi-level sales on May 24, 2002. However, the content of the report failed to comply with the laws and regulations and was deficient. After the FTC requested the company to make necessary corrections and supplement via letters, the content of the written participation contracts concluded between He Chia and its participants still failed to clearly specify the laws and regulations relevant to multi-level sales and the methods for handling the return of goods caused by reasons attributable to the participants. In addition, He Chia failed to file a report on the change of its name in violation of the laws.
2.	Article 7(1) of the Supervisory Regulations Governing Multi-Level Sales provides, " Any change to the content of the report filed by a multi-level sales enterprise shall be reported prior to implementation. However, report on changes with respect to the items prescribed in Article 5 (1) (i) may be filed within 15 days after the change." When He Chia filed the report to the FTC on May 24, 2002, its name was Chiao Lun Co., Ltd. The company changed its name to He Chia International Co., Ltd. on July 24, 2002; however, the report on the change was filed on October 16, 2002. It is clear that He Chia violated the aforesaid provision.
3.	Article 12(1) of the Supervisory Regulations Governing Multi-Level Sales provides, "A multi-level sales enterprise shall enter into a participation contract in writings with that who intends to take part in the sales organization or plan as a participant; the participation contract shall include the matters prescribed in items 2 through 9 of paragraph 1 of the preceding article." It means, when a multi-level sales enterprise enter into a written participation contract with a participant, such a contract shall clearly contain the operational rules, transaction guidelines, and laws and regulations relevant to multi-level sales; obligations and responsibilities of a participant; contents of benefits a participant may obtain by directly promoting or selling goods or services, contents of benefits a participant may obtain when a person he/she introduced to take part in the plan or organization promotes or sells goods or services, and the conciliations for obtaining such benefits; types, functions, qualities, prices, and uses of the goods or services, and other matters related thereto; conditions, terms, and scope of warranties against defects of the goods or services; and conditions of withdrawal by a participant from the organization or plan, and rights and obligations arising from the withdrawal. It was found that He Chia commenced the implementation of multi-level sales on June 25, 2002. Between He Chia and its participants, the only document signed was the "Preferential Customer Application Forms," and the forms failed to include the aforementioned statutory items. Although He Chia printed and issued "Tupperware Enterprise Handbooks" to its participants during October 2002, the handbooks still failed to clearly specify the laws and regulations relevant to multi-level sales, in violation of the aforesaid provision.
4.	Article 14 of the Supervisory Regulations Governing Multi-Level Sales provides, " The method for handling a request by a participant to return goods in the event a multi-level sales enterprise rescinds or terminates the contract for breach of operational rules or plans by such participant or other reasons attributable to such participant shall be specified in the contract." It was found that the "Preferential Customer Application Forms" concluded between He Chia and its participants failed to include the methods for handling the return of goods caused by reasons attributable to the participants. The "Tupperware Enterprise Handbooks" printed and issued later on also failed to contain the items prescribed in the aforementioned regulations. Article 18 of the Supervisory Regulations Governing Multi-Level Sales provides, "For purposes of regulating the activities of its participants in respect of multi-level sales, a multi-level sales enterprise shall stipulate that the following are breaches of contract by the participant, and shall prescribe methods for handling such breaches and faithfully enforce them: (the following is omitted)" The "Preferential Customer Application Forms" that have been entered by He Chia and its participant since June 25, 2002, failed to contain the breaches of contract by the participants and the methods for handling such breaches, in violation of the aforesaid provision.
5.	After considering the number of participants, operating condition, sales amount, attitude of cooperation in the investigation, and the degree of the act's harm to trading order, the Commission imposed an administrative fine of NT$ 400,000 on He Chia in accordance with Article 42 (3) and the fore part of Article 41 of the Fair Trade Law.