A complaint filed against Shen Huang Company and Dog Young Technology Inc. for engaging in multi-level sales and violated the Fair Trade Law

Chinese Taipei

Case:

A complaint filed against Shen Huang Company and Dog Young Technology Inc. for engaging in multi-level sales and violated the Fair Trade Law

Key Words:

Decreased value of goods, sales agent, multi-level sales

Reference:

Fair Trade Commission Decision of August 25, 2005 (the 720th Commissioners’ Meeting); Disposition Kung Ch’u Tzu No. 094090

Industry:

Direct Selling Establishment (4812)

Relevant Laws:

Article 23-2(2) of the Fair Trade Law and Article 23-3 (2)of the Fair Trade Law

Summary:

1. The Fair Trade Commission received a complaint from the general public, alleging that Dog Young Technology Inc. (hereinafter referred to as Dog Young Company) which is the sales agent for Shen Huang Ltd. Co. (hereinafter referred to as Shen Huang Company), has engaged in multi-level sales activity without filing a report according to law. Dog Young Company did not indicate clearly that it has engaged in the act of multi-level sale when recruiting participants with the name of “questionnaire of community’s healthy mother”. Such conduct has violated Article 19 of the Supervisory Regulations Governing Multi-Level Sales. In addition, there were circumstances of participants being cajoled to make large volume of purchase and their requests of returning goods were hindered.

2. Grounds for disposition:
   • Shen Huang Company has used the agency system with Dog Young Company as an excuse to hinder and refuse the claims of its participants to withdraw and return the goods. In addition, it has allowed its agent company to hinder and refuse the applications of withdrawal and return of goods by its participants. Both companies have not handled the withdrawal and return of goods of its participants within the thirty days periods as prescribed in the provision of the Article 23-2 of the Fair Trade Law. Such conducts have violated Article 23-2, Paragraph 2 of the Fair Trade Law.
   • Shen Huang Company stipulated a rule of “the return of goods is restricted to not more than NT$ 100,000 of the agent price” in the return goods notice announced in the regulations of the participation withdrawal. There are obvious evidences showing the companies did not report to the Fair Trade Commission prior to the implementation of the said content and violated the provision of Article 7, Paragraph 1 of the Supervisory Regulations Governing Multi-Level Sales.
   • Shen Huang Company stated in the participation contract signed with its participants, “the ratio for the amount of the decreased value of the return goods: no return of goods will be accepted beyond 360 days”, and the aforementioned withdrawal and return of goods notice announcement stated “the return of goods is restricted to not more than NT$ 100,000 of the agent’s price”; it can be concluded that such contents have violated the provision of Article 13 of the Supervisory Regulations Governing Multi-Level Sales.
   • Dog Young Company was both the participant and the agent of Shen Huang Company, responsible to sell and promote the products of Shen Huang Company. The multi-level sales system of Shen Huang Company was adopted for its bonus system, operating regulations and participation contracts. According to the entrusted sales agreement signed between Dog Young Company and Shen Huang Company, “the agent (that is the participant) shall personally return goods to its directly subordinated sales agent”. However, Dog Young Company in handling the requests of its lower level participant to withdraw from the plan and return the goods, has successively followed the method used by its upper level agent; such as there is an upper limit of NT$ 100,000 for withdrawing and returning of goods, attempting to hinder the lower level participants from withdrawing the plan and returning the goods. It is unquestionable that such conducts have violated Article 17, Paragraph 1, Subparagraph 7 of the Supervisory Regulations Governing Multi-Level Sales applied mutatis mutandis to Article 17, Paragraph 2 of the same Supervisory Regulations.
   • Shen Huang Company which engaged in multi-level sales, did not buy back all goods possessed by the participant at ninety percent (90%) of the original purchase price within thirty days from the termination of the agreement; did not report to the Fair Trade Commission about the change to the articles and content of its participation contract prior to its implementation; did not comply with the regulation and did not state the conditions of withdrawing from the organization or plan, rights and obligations arising from the withdrawal in the participation contract signed with the participant. Such conducts have violated the provisions of Article 23-2, Paragraph 2, of the Fair Trade Law and the Article 7, Paragraph 1 and Article 13 of the Supervisory Regulations Governing Multi-Level Sales enacted pursuant to Article 23-4 of the Fair Trade Law. Dog Young Company improperly hindered the participants to terminate contract and to return goods. Such conducts have violated Article 17, Paragraph 1, Subparagraph 7 applied mutatis mutandis to Article 17, Paragraph 2 of the of the Supervisory Regulations Governing Multi-Level Sales enacted pursuant to Article 23-4 of the Fair Trade Law. Taking into consideration the motivation, purpose, and expected improper benefit of the unlawful acts of Shen Huang Company and Dog Young Company; the degree of the act’s harm to trading order; the duration of the act’s harm to trading order; benefits derived on account of the unlawful act; scale, operating condition, sales volume and market position of the enterprise; whether or not the type of unlawful act involved in the violation has been the subject of correction or warning by the Central Competent Authority; types of, number of, and intervening time between past violations, and the punishment for such violations; remorse shown for the act and attitude of cooperation in the investigation and other factors, therefore, Shen Huang Company and Dog Young Company are ordered to cease the unlawful acts immediately and a fine of NT$1.8 million and NT$350 thousand are imposed respectively according to Article 42, Paragraph 2, Article 42, Paragraph 3 and the anterior paragraph of Article 41 of the Fair Trade Law.

Summarized by Tu, Cheng-Hsien;
Supervised by Yeh, Tien-Fu

Appendix:
Shen Huang Ltd. Co.’s Uniform Invoice Number: 89565395
Dog Young Technology Inc.’s Uniform Invoice Number: 12738118