Alleged violation of the Supervisory Regulation of Multi-Level Sales by Freemaker International Co., Ltd.
Chinese Taipei
Case:
Alleged violation of the Supervisory Regulation of Multi-Level Sales by Freemaker International Co., Ltd.
Key Words:
multi-level sales, reporting of added goods, healthy living card
Reference:
Fair Trade Commission Decision of January 27, 1999 (378th Commission Meeting); Disposition (88) Kung Ch'u Tzu No. 004
Industry:
General Merchandise Wholesaling (5110)
Relevant Laws:
Articles 23(2) and 42 of the Fair Trade Law; Article 3(2) of the Supervisory Regulation of Multi-Level Sales
Summary:
Article 23(2) of the Fair Trade Law (FTL) provides that "rules governing multi-level marketing shall be prescribed by the competent central government authority." Article 42 of the FTL further provides that "any person who violates the regulations prescribed by the central government authority pursuant to Article 23(2) shall be subject to an administrative fine no less than NT$50,000 and no more than NT$500,000; in serious cases, an order for dissolution, suspension, or termination of operations may be made." Article 3(1) of the Supervisory Regulation of Multi-Level Sales (SRMS) provides that "prior to commencing operations or implementing multi-level marketing activity, multi-level marketing enterprises shall file written report with the competent central authority describing candidly matters including the structure of the marketing organization or marketing plan, the operational plan or rules...." Article 3(2) of the SRMS provides that "Any alteration to the content of the aforesaid report shall be reported prior to implementation."
The kinds and prices of products sold by a multi-level marketing enterprise are not only related to the financial benefits of the participants, the setting of their prices are also relevant for the determination of the "reasonable market value" under Article 23(1) of the FTL. Therefore, Article 4(1)(vi) of the SRMS provides that multi-level marketing enterprises should notify participants of the kinds of products or services and their prices before the participants join their organization or plan. Article 4(2) of the SRMS further provides that the kinds of products or services and their prices are the required part for the contract stipulating the rights and obligations of participants and should also be included in contracts governing participation in ordinary transactions. Articles 3(1) and 3(2) of the SRMS further provide that enterprises adding new products or services for marketing should report the additions to the Fair Trade Commission (FTC) prior to implementing them. In this case, Freemaker International Co., Ltd., (hereinafter "Freemaker") added the "Freemaker Healthy Living Card" to its product line on April 2, 1998 without first reporting the addition to the FTC, which as a result had violated the provisions of Article 3(2) of the SRMS prescribed pursuant to Article 23(2) of the FTL.
Previously, personnel dispatched by the FTC to inspect the actual operations of Freemaker on August 19, 1993 had found that Freemaker had failed to report in advance new additions to its product line. In that instance, the FTC decided ex officio not to impose sanctions after taking into consideration that the company was not familiar with the SRMS that had then just taken effect, and that the company had filed a report in arrears in a timely fashion after being notified to do so.
In the current case, however, the situation is different: the Regulations have been in effect for over six years, Freemaker already has the aforementioned history of violating the law, and precedents of sanctions in similar cases already existed for reference. Furthermore, intent is not a prerequisite for imposing administrative sanctions. Therefore, Freemaker can not exempt itself from liability by claiming that it was unaware of the law or that the violation is due to its internal administrative oversight.
The FTC also took into account the number of Freemaker's participants and the fact that sales of the new "Freemaker Healthy Living Card" product amounted to over NT$40 million to reach the conclusion that although Freemaker had already filed the report for the new product in arrears, the impact of its original failure to report was not insubstantial. It therefore imposed an NT$100,000 fine on Freemaker pursuant to the provisions of Article 42 of the FTL.
Summarized by Yeh Tien-fu
Supervised by Yang Chia-chun
Appendix:
Freemaker International Co. Ltd. Uniform Invoice No.:
86087743