Violation of the Fair Trade Law and the Supervisory Regulation of Multi-level Sales by Asia Leching International Co., Ltd.
Chinese Taipei
Case:
Violation of the Fair Trade Law and the Supervisory Regulation of Multi-level Sales by Asia Leching International Co., Ltd.
Key Words:
improper multi-level sales, rank, bonus system
Reference:
Fair Trade Commission Decision of September 2, 1998 (the 356th Commission Meeting); Disposition Ref. (87) Kung Ch'u Tzu No. 193
Industry:
Retail sales of other general good (5319)
Relevant Laws:
Articles 24, 23(2), 41, 42 of the Fair Trade Law and Article 3(2) of the Supervisory Regulation of Multi-level Sales
Summary:
Article 3(2) of the Supervisory Regulation of Multi-level Sales (SRMS) provides that in the event of any change in the contents of previous report filed by the multi-level sales enterprise to the competent authority, the enterprise shall file another report regarding such change with the authority prior to the implementation of the change. According to Article 3(1)(ii) of the same regulation, items which should be reported include the calculation formula of participants' commissions, grants and other economic gains (generally called the "bonus system"). Asia Leching International Co., Ltd. (the respondent) filed two reports in 1997 regarding its bonus system. According to the data in file, the first report was filed on April 2, 1997 regarding the "Ya Shih Pao Lin System" according to which the participants were ranked by titles such as "angel," "business outlet," and "agent outlet." The second report was filed on November 25 the same year regarding the "Green Crystal System" (the GSC bonus system) according to which the participants were ranked as "member," "account executive," "leader," and "director." During the investigation, the respondent claimed that the "Ya Shih Pao Lin System" was never implemented because it did not meet its needs. The GCS bonus system was implemented in August 1997 and a number of participants were directly granted the title of "director." The roster of the "directors" as submitted by the respondent shows that many participants joined the respondent's multi-level sales plan during the period from July to October 1997. According to the respondent's sales information, no participants join the multi-level sales until the beginning of August 1997 when the initial sales began. Given the facts and evidence, the Fair Trade Commission (the Commission) finds the respondent in violation of the aforesaid provisions as it implemented the GCS bonus system in August 1997 but did not report the change to its bonus system until November 25 the same year.
According to the GCS bonus system, the "director" title is granted to those participants who have three first-descendent-level participants below them who have completed the requirement of 363 descendent participants. Therefore, with those first-descendent-level participants included, there should be 1,092 participants in the pyramid headed by a "director." However, according to the sales data which the respondent submitted on July 10, 1998, there are currently only 310 participants in the respondent's multi-level sales plan. In other words, it is impossible for any participant to have obtained the "director" title. Nonetheless, the respondent's roster of "directors" shows that forty participants have obtained the "director" title. This further proves the respondent's improper practices regarding the bonus system as it directly grants the title without the qualification as required by its GCS bonus system. Under the GCS bonus system, directors are entitled to a "national bonus," i.e. a portion of 3% of the respondent's total sales. With a fixed bonus available for distribution, the more participants qualified for distribution, the less the bonus awarded to them. In benefiting certain participants by directly granting them high-ranking titles, the respondent has broken its established bonus system, an action which adversely affects the rights and interests of the participants as well as the normal operation of the multi-level sales in violation of Article 24 of the Fair Trade Law (FTL).
In conclusion, the respondent is found in violation of the provisions of FTL Article 24 and Article 3(ii) of the SRMS prescribed in accordance with FTL Article 23(ii). The 356th Commission Meeting of the Commission decided that the respondent be ordered to cease its act of directly granting high-ranking titles to certain participants. With regard to its violation of the SRMS, the respondent is imposed a fine of NT$100,000 in accordance with FTL Article 42.
Summarized by Lin, Chun-Huei
Supervised by Yang, Chia-Chun
Appendix:
Asia Leching International Co., Ltd.’s Uniform Invoice No.: 97334545