Ex-officio Investigation by the Fair Trade Commission into the Mei Yen Li International Development Co., Ltd., a multi-level sales enterprise, violates the Fair Trade Law

Case:

Key Words:

multi-level sales enterprise, contract termination

Reference:

Fair Trade Commission Decision of June 17, 2004 (the 658th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 093063

Industry:

Direct Selling Establishments (4812)

Relevant Laws:

Article 23-2(2) of the Fair Trade Law; Articles 7(1) and 20(1) of the Supervisory Regulations Governing Multi-Level Sales

Summary:

This case was reported by an ordinary citizen and an investigation was initiated by the Fair Trade Commission (FTC), which finds that the poster of "I Am a Millionaire" printed and used by Mei Yen Li International Development Co., Ltd. (hereinafter called "Mei Yen Li") states that "within one year after establishment of the company, 5 people have earned an income of New Taiwan Dollars (NT$) 10,000,000" and the others, where untrue statements may be involved. The FTC also finds that Mei Yen Li failed to comply with the regulations when handling termination of agreement, withdrawal, and refund with the participants, as well as failed to file a report for change in accordance with the statutory period. Consequently, the FTC initiated an ex-officio investigation.
Findings of the FTC after investigation:
The 8 participants including Mr. Sun did send a postal attested letter on May 5, 2003 to terminate the agreement and that they had returned the goods to Mei Yen Li on October 25, 2002 for refund, but Mei Yen Li did not comply with the law to terminate the agreement. On December 6, 2001, Mei Yen Li filed a report to the FTC for three new places of business, which were Touliu Branch Office, Chupei Branch Office and Tainan Branch Office. However, according to the detailed sales data provided by Mei Yen Li, sales already occurred in Touliu Branch Office from July to August of 2001, in Chupei Branch Office from September to October of 2001, and in Tainan Branch Office from November to December in 2001. The poster of "I Am a Millionaire" was printed by Mei Yen Li in November 2001, with a circulation duration of 3 months. The said poster claimed that within one year after the company was established, 5 people earned NT$10,000,000. The calculation of time was conspicuously different from the general concept. Moreover, the company could not provide information on one of the five people to prove the truthfulness of the advertisement.
Grounds for disposition:
1. It has been found that Mr. Sun and the other 7 participants did send a postal attested letter on May 5, 2003 to terminate the agreement, while Mei Yen Li did not admit the receipt of such letter until February 12, 2004. Mei Yen Li additionally claimed that the company had called the 8 participants and sent letters inviting them to go to its place of business to handle the matter of refund. However, no specific information was provided as proof. Furthermore, Mr. Sun and the rest participants already delivered the goods they intended to return on October 25, 2002 to Mei Yen Li for refund, and relevant personnel confirmed the return of said goods and stored them at the warehouse. Therefore, without other claims sustained, Mei Yen Li shall proceed with the refund pursuant to the preceding provision. The FTC finds that it has no merit for Mei Yen Li to employ the fact that the 8 participants did not go to the place of business in person as an excuse for refusing to handle termination of agreement, withdrawal and refund. Based on the above facts, the FTC has sufficient reasons to determine that Mei Yen Li has violated Article 23-2(2) of the Fair Trade Law (FTL).
2. On December 6, 2001, Mei Yen Li filed a report to the FTC for the three new places of business, Touliu Branch Office, Chupei Branch Office and Tainan Branch Office. On December 27, 2001, it also claimed in writing that the beginning operating dates for the new places of business were June 26, 2001 for Touliu Branch Office, September 18, 2001 for Chupei Branch Office, and November 15, 2001 for Tainan Branch Office. Although subsequently Mei Yen Li changed the above statement and claimed that the said beginning operating dates were merely for preparation and that the three new places of business had not yet been operating independently and incurred no major operating income, and this is why it did not file a report for the change until December 2001. However, based on the detailed sales data provided by Mei Yen Li, the sales volume of Touliu Branch Office from July to August of 2001 was NT$2,033,022, while that of Chupei Branch Office from September to October 2001 was NT$2,485,308, and that of Tainan Branch Office from November to December of 2001 was NT$2,723,363, so the above allegation of Mei Yen Li was obviously unacceptable. The FTC find its conduct to be in violation of Article 7(1) of the Supervisory Regulations Governing Multi-Level Sales.
3. Mei Yen Li admitted that the poster of "I Am a Millionaire" was printed in November 2001 and issued in December of the same year, with a duration of 3 months. Such poster was used in each branch office for the purposes of promotion and sale of goods. According to the investigation, within one year after Mei Yen Li was established, only one participant, Chuang-Mi, had an accumulated bonus of more than NT$10 million. As per the itemized income list of executive directors, only 4 participants, He-Shun (Chao-Hui), Wan-Shun Wu (Mei-Yu), Taiwan Sheng Yu (Chuang-Mi) and Chu-Chiang (Yueh-Chin), had an income of over NT$10,000,000. Moreover, the said itemized income list of executive directors applied the period from August 2000 to December 2001 as the calculation basis, instead of one year. Besides, the poster contained the statement that "5. Creating Millionaires: Within one year after Mei Yen Li was established, 5 executive directors reached an income of NT$10 million, and they are Ju-Chen, Chao-Hui, Mei-Yu, Chuang-Mi, and resident director Yueh-Chin." Mei Yen Li was unable to provide relevant information about the accumulated bonus as proof for the participant, Ju-Chen, as described in the poster. As for Mei Yen Li's argument that the second half of year 2000 was the preparation period for establishment of the company so that the sales figures of 2000 was jointly calculated with those of 2001, where the expression of "within one year after establishment of the company" stated in the above poster actually refers to the period from August 2000 to December 2001, it is obviously different from the general concept of time calculation, and the aforesaid situation has been found to be in violation of Article 20(1) of the Supervisory Regulations Governing Multi-Level Sales at the time of conduct. An administrative fine of NT$900,000 was imposed accordingly.

Appendix:
Mei Yen Li International Development Co., Ltd.'s Uniform Invoice Number: 70606311

Summarized by Wu, Hung-Kuan; Supervised by Lin, Ghing-Tarng

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