Wei Hsin International Corporation
violated the Fair Trade Law and the Supervisory Regulation of Multi-level Sales
Chinese Taipei
Case:
Wei Hsin International Corporation violated the Fair Trade Law and
the Supervisory Regulation of Multi-level Sales
Key words:
inappropriate multi-level sales
Reference:
The Fair Trade Commission Decision of August 6, 1997 (the 301st
Commission Meeting); Disposition (86) Kung Chu Tzu No. 124
Industry:
Retail Industry (4020)
Relevant Laws:
Articles 20 and
24 of the Fair Trade Law; Article
4(1)(ii) of
Supervisory Regulation of Multi-level Sales
Summary:
- 1. The Fair Trade Commission(FTC) repeatedly received complaints
alleging that the participants of Wei Hsin International Corporation (Wei Hsin), a
mutli-level sales company conducted surveys of students and recent graduates with
questionnaire on their attitudes toward the job market for the purpose of obtaining
personal information. The participants afterwards called them up, claimed that an
international trade company (without mentioning "Wei Hsin" or "multi-level
sales company") would like to offer them a part-time job, and induced them to visit
the company and purchase products like cosmetics and ganoderma lucidum. If the
complainants did not have sufficient cash to qualify themselves as participants in Wei
Hsin, the participants would urge them to borrow money from friends, or claimed that their
upline participants could pay for them, but they had to sign a promissory note. Moreover,
the participants suggested the complainants taste the [nutrition] products on the spot, or
advised them to break the packages of products into several cans to be easily carried. As
a result, the complainants could not return these products as they were already opened. If
the complainants wanted to return the products to Wei Hsin or their direct upline
participants, the participants would require them to pay the remaining sum by claiming
that they got hold of the promissory notes signed by the complainants, and that no return
of goods would be accepted as they had exceeded the four-day satisfaction guarantee return
period.
- The FTC's investigation found that most of Wei Hsin's participants
obtained the complainants' personal information by asking them to fill out a
questionnaire. The participants then intentionally concealed their identity as
participants in Wei Hsin, a multi-level sales organization, and by inducing inexperienced
recent graduates and students to visit Wei Hsin with an offer of high-pay part-time jobs.
As soon as they arrived, the participants exaggerated the amount of potential income and
solicited them to join the organization by purchasing their products. During the process,
the participants used a variety of improper reasons to have the complainants open the
products and hide the truth from their parents about their participation in the
multi-level sales organization; such sales techniques were obviously questionable.
Furthermore, most of the sanctioned participants claimed that they only engaged in sales
within the company, and that most of them used such an approach to promote their business.
So, there was no reason why Wei Hsin would not have been aware of such matters, yet it
never took action to rectify or stop them. Therefore, Wei Hsin shall be held liable for
the wrongdoing inside its sales organization. We Hsin's conduct should be deemed a
violation of Article 24 of the Fair Trade Law.
- The investigation also revealed that, pursuant to Wei Hsin's
regulations, one had to purchase products worth at least 18,000 points, go through the
B/Training program and interviews, and sign a contract in order to be a direct distributor
(the basic level distributors were called "DM"). Those who were disqualified
from the process were categorized as consumers. However, to be a DM, this process had to
be completed in one month. Unless participants made it clear when making the purchase that
they had no intention of joining the sales organization, who then would be treated merely
as consumers, they would still be regarded as participants in the multi-level sales
organization, and the products they bought would be part of the price they paid for such
participation. Therefore, even though these persons did not become participants due to
insufficient points, the company in accordance with Article 5 of Supervisory Regulation of
Multi-level Sales(SRMS) shall still refund the money within a specified period of time
after the contract was termiated if asked to. Nevertheless, based on their non-participant
status, as they had not purchased products worth of over 18,000 points, attended the
B/Training program and interviews and signed the contract, and on the excuse that the
four-day satisfaction guarantee return period had already passed, Wei Hsin rejected the
consumers' request to return the goods, which was a obviously unfair act. Besides, in its
business manual and product sales sheets, Wei Hsin unilaterally decided regulations such
as the "four-day satisfaction guarantee return period," and that the return of
cosmetics and water purifier machines that had been installed would not be accepted. Such
regulations were unilaterally decided in advance and incorporated into contracts the
company signed with an unspecified number of people, which obviously aimed to exclude the
consumer or participant's right to return goods. Such contracts were in violation of the
principles of fairness and reciprocity. Based on the information described above, Wei
Hsin's acts constituted a violation of Article 24 of the Fair Trade Law.
- As for the investigation of Wei Hsin's acts to see if they violated
any provisions of Superiviosry Regulation of Multi-level Sales (SRMS):
The term "direct distributors" as used in the operation flow in the company's
Business Manual refers to something different from "DM", but in the Business
Manual refers to all participants as "direct distributors." The investigation
revealed that Wei Hsin did not change its flow chart or explain the distinction among such
terms. As a result, the consumers might have mistakenly believed that they would qualify
as official participants as long as they made the purchase, and were reviewed and approved
by the company. Nevertheless, Wei Hsin interpreted the "direct distributors" as
"consumers" and continued to show the inappropriate flow chart to inexperienced
participants, which was tantamount to a misleading manifestation, constituting a violation
of Article 4(1)(ii). of SRMS. Pursuant to Article 42 of the Fair Trade Law, the FTC
sanctioned Wei Hsin with a fine of NT$ 400,000.
Summarized by Hu, Peng-nien
Supervised by Tsuo, Tien-liang
Appendix:
Wei Hsin International Co., Ltd.'s Uniform Invoice Number: 01178686
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