Kao Hsin Communication Co., Ltd violates the Fair Trade Law by engaging in unlawful multi-level sales activities

Case:

Key Words:

multi-level sales enterprise, to sign written participation contract

Reference:

Fair Trade Commission Decision of July 15, 2004 (the 662th Commissioners' Meeting); Disposition (93) Kung Ch'u Tzu No. 070

Industry:

Direct Selling Establishments (4812)

Relevant Laws:

Article 23-4 of the Fair Trade Law; Articles 12(1) ,14 and 18 of the Supervisory Regulations Governing Multi-Level Sales

Summary:

The general public alleged that Kao Hsin Communication Co., Ltd (hereinafter called "Kao Hsin") already had more than one thousand members; however, even Kao Hsin had filed a report to the Fair Trade Commission (FTC) for its multi-level sales activities, it was still recorded as in the correction phase on the multi-level sales enterprise reporting list on the FTC's website, and therefore was suspicious of illegally engaging in multi-level sales acts without reporting to the FTC.
Findings of the FTC after investigation:
Kao Hsin sales organizational system was commenced on April 1, 2003, and started giving out bonuses on May 5, 2003. Although Kao Hsin reported to the FTC for the commencement of multi-level sales activities on February 25, 2003, additional materials were still required by the FTC. The enterprise manuals were supposed to be given to the participants for them to understand the rights and obligations prescribed under the laws and regulations after the correction procedure was completed. Thus, the written participation contracts entered into between the said company and its participants had not specified the statutory matters prescribed by Article 12 of the Supervisory Regulations Governing Multi-level Sales. Additionally, the written participation contracts signed by the said company and its participants did not contain the handling method of refund under the circumstances where Kao Hsin rescinds or terminated the contracts when the participants violate the operational rules nor the specific conditions qualifying breaches of contract by the participants and the handling method for such breaches.
Grounds for disposition:
1. The distributors' application form with the said company name on it and were signed by Kao Hsin and its participants did not specify any statutory matters prescribed in Article 11 (1)(ii) to Article 11(1)(ix). This could be evidenced by the written participation contracts of the participant Mr. Hsu and others. Kao Hsin argued that it was waiting for the correction procedure to be completed before delivering the enterprise manuals specifying statutory matters to the participants. However, it had already violated the aforesaid provisions.
2. If was found that the written contracts signed by Kao Hsin and its participants did not specify the process of handling refund attributable to the participants and the conditions for which participants shall be held liable for breaches when engaging in activities relating to the multi-level sales program and its handling methods. It has violated Articles 14 and 18 of the Supervisory Regulations for Multi-level Sales.
3. Kao Hsin violated Article 23-4 of the Fair Trade Law (FTL) regarding Articles 12(1), 14, and 18 of the Supervisory Regulations Governing Multi-level Sales. After weighing the number of its participants, operational status, market position, sales amount, cooperation during the investigation, motivations of the violation, purpose, expected improper benefits, and the degree and duration of harm to the trading order, the FTC imposed an administrative fine of New Taiwan Dollars (NT$) 300,000 and ordered Kao Hsin to inform each participant in writing to amend the contract within 30 days after the second day of the delivery of the disposition pursuant to Article 42(3) and the forepart of Article 41 of the FTL.

Appendix:
Kao Hsin Communication Co., Ltd.'s Uniform Invoice Number: 13197955

Summarized by Huang, Chien-Chih; Supervised by Lin, Ghing-Tarng

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