Shou Mao Enterprise Co., Ltd. and Ching Ya Enterprise Co., Ltd. violated Article 23(1) of the Fair Trade Law and the Supervisory Regulation of Multi-level Sales
Chinese Taipei
Case:
Shou Mao Enterprise Co., Ltd. and Ching Ya Enterprise Co., Ltd. violated Article 23(1) of the Fair Trade Law and the Supervisory Regulation of Multi-level Sales
Key words:
illegal multi-level sales
Reference:
Fair Trade Commission Decision of July 8, 1998 (the 40th Commission Meeting); Disposition (81) Kung Ch'u Tzu No. 008
Industry:
Retail Sales Industry (2100)
Relevant Laws:
Articles 23(1), 41, 42 of the Fair Trade Law; Articles 3(1), 4(2), 5(1) and 7(1)(iv) of the Supervisory Regulation of Multi-level Sales
Summary:
According to the multiple complaints filed in April 1992, the respondents allegedly engaged in illegal multi-level sales. The Fair Trade Commission and the Criminal Investigation Bureau of National Police Administration of the Ministry of Interior jointly conducted an investigation of the matter. The findings of the investigation showed that in June 1991, in the name of establishing a new affiliate, the respondents set up business offices around the island to engage in illegal multi-level sales. The respondents' illegal multi-level sales activities continued after the Fair Trade Law was implemented on February 4, 1992. The affiliates established by the respondents distributed cosmetics, detergent and health food through the following multi-level sales plan.
(1) A new comer who is introduced by members paid NT$13,500 to purchase products of an alleged value of NT$15,000 in order to obtain a "sales representative" status. The sales representatives were entitled to purchase further goods at 10% off the fixed price and obtain a commission for introducing new comers.
(2) When a new comer’s purchase reached a value of NT$100,000 or more, or the new comer purchased NT$25,000 of products in one order, the sales representative who introduced such new comer would be promoted to "sales director" and was entitled to purchase further goods at 30% off the fixed price and obtain a NT$3,000 commission for introducing the new comer.
(3) According to the sales director's sales accumulation, the sales director could be promoted to "group leader," "deputy manager," "assistant manager," and "manager." The participants at the various levels of the multi-level sales plan obtained bonuses based on the difference in their sales from the total sales of all lower levels combined. For example, the group leader could obtain a 5% more discount than the sales director; the deputy manager could obtain a 3% more discount than the group leader; the assistant manager could obtain a 2% more discount than the deputy manager. In addition, the manager could obtain an additional 0.5% technical bonus.
(4) When a group leader/deputy manager/assistant manager introduced a new comer to be the representative, the introducer could obtain a bonus of NT$3,750/NT$4,200/NT$4,500 [respectively]. When the participant was promoted to a sales director, the introducer, i.e. the group leader/deputy manager/assistance manager could obtain a bonus of NT$6,250/NT$7,450/NT$8,250 [respectively].
In accordance with the multi-level sales plan, participants could accumulate sales through product purchases or the introduction of new comers, thereby obtaining promotion and better discount rates or larger commissions. However, the Fair Trade Commission found that most of the participants had accumulated sales of NT$10,000-20,000 or more without claiming the products. Thus, the same products remained and were repeatedly sold, and the participants continued to obtain discounts for further goods purchases as well as bonuses. Therefore, in reality the alleged "purchase" rarely concerned the promotion or sales of products. In addition, the retail price was [as high as] six to eight times the cost, which meant the participant relied on the commission from introducing new comers for income rather than on the promotion or sales of products at reasonable market prices. This was a blatant violation of Article 23(1) of the Fair Trade Law. The case was forwarded to the Prosecutor's Office of the Kaohsiung District Court for handling.
The respondents should have complied with by the Supervisory Regulation of Multi-level Sales established in accordance with Article 23(2) of the Fair Trade Law for operation of their multi-level sales plan. The respondents, Shou Mao failed to report to the Fair Trade Commission of its multi-level sales plan, and Ching Ya's report set forth neither the “terms and conditions providing rights and obligations of comers and general conditions of sales,” nor “provisions regarding warranties with respect to the commodities or services to be sold.” In addition, the respondents failed to enter into a written contract with the participant, rejected goods returns when the participants requested to withdraw, and withheld gains payable to the participants in various improper names after they withdrew, thereby inflicting damage to the participant's interest. Such acts were obviously in violation of Articles 3, 4, 5, and 7 of Supervisory Regulation of Multi-level Sales. Due to the seriousness of the violation, respondent Shou Mao and respondent Ching Ya were fined NT$500,000 and NT$400,000, and ordered to suspend their business for a period of four months and three months respectively. Both respondents were given a time limit within which to correct their actions.
Summarized by Liu, Shih-ming
Supervised by Tso, Tien-liang