Violation of the Fair Trade Law and the Supervisory Regulations of Multi-level Sales by Vastworld Trading Co., Ltd.
Chinese Taipei
Case:
Violation of the Fair Trade Law and the Supervisory Regulations of Multi-level Sales by Vastworld Trading Co., Ltd.
Key Words:
improper multi-level sales, ranking, bonus system
Reference:
Fair Trade Commission Decision of August 26, 1998 (355th Commission Meeting); Disposition Ref. (87) Kung Ch'u Tzu No. 184
Industry:
Other General Goods Retail Sales Industry (5319)
Relevant Laws:
Articles 24, 23(2), 41, 42 of Fair Trade Law; Article 3(2) of the Supervisory Regulation of Multi-level Sales
Summary:
Article 3 of the Supervisory Regulation of Multi-level Sales (SRMS) provides that, prior to commencing its business or operation, a multi-level sales enterprise shall submit a written report on file with the central competent authority. According to SRMS Article 3(2), in the event of any change in the contents of the aforesaid report, the enterprise shall file another report for such change with the authority prior to the implementation thereof. Particulars regarding the principal office, and the calculation formula of participants' commissions, grants and other economic gains (generally referred to as the bonus system) of the multi-level sales enterprise are among the items that should be reported. If any of these items changes, the enterprise shall report such change to the Fair Trade Commission (FTC). Vastworld Trading Co., Ltd. (respondent) did not file a report of amendments before its relocating its business place and changing the membership price, minimum points required for bonus, bonus items, and bonus percentage and others, and therefore violated the provisions of the aforesaid law.
The FTC also found that Mr. Tsai (respondent's responsible person) had obtained the "Prime Minister" title, that Mr. Li (respondent's general manager) and eight participants of the respondent's multi-level sales plan had obtained the "Assistant Minister" title through direct accreditation, and that Tsai, as the respondent's responsible person, had obtained a "cultivation bonus" without the required sales performance, all of which did not comply with the respondent's bonus system. According to its bonus system, the "cultivation bonus" and the "membership bonus" were of fixed percentage, and based on the weighted number of points. The more participants are qualified for bonuses and the larger the number of points are accumulated, the smaller the value of each point can receive as a result of calculation. Furthermore, when calculating the "specific points" for the cultivation bonus, participants ranked above "Assistant Minister" could have included the total points down through the sixth level of participants cultivated. In other words, its "specific points" accounted for a larger percentage of the "total points" than the points accumulated by other participants that were entitled to bonuses. As a result, the other participants certainly would be distributed a lesser bonus. Such irregular granting of high-ranking titles has indeed breached the bonus system and adversely affected the participants' rights and interests and the normal operation of the multi-level sales in violation of FTL Article 24, which provides that an enterprise shall not engage in any deceptive or obviously unfair act that is likely to adversely affect the trading order.
In conclusion, the respondent was found to have violated Articles 24 and 23(2) of the Fair Trade Law (FTL), which provided for the establishment of the SRMS, and SRMS Article 3(2). During its 355th Commission Meeting, the FTC in accordance with FTL Article 41 ordered the respondent to cease its irregular granting of high-ranking titles. Regarding the violation of the SRMS, taking into account the respondent’s annual sales of only NT$6.3 million for 1997, the total sales of it from January through June this year (1998) of only NT$2.13 million, and the cooperation of it during the FTC's investigation and examination, the Commission decided to give leniency to the respondent and therefore the respondent was fined only NT$100,000 in accordance with FTL Article 42.
Summarized by Lin Chun-hui
Supervised by Yang Chia-chun
Appendix:
Vastworld Trading Co., Ltd.’s Uniform Invoice No.: 96862602