Power Way International Trading Co., Ltd.

Case:

Key Words:

multi-level sales, handling the returning of goods, credit card handling charge, report change, business inspection, participation contract

Reference:

Fair Trade Commission Decision of June 7, 2007 (the 813rd Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 096109

Industry:

Direct Selling Establishments (4872)

Relevant Laws:

Article 23 - 2(2), 23 - 4, 41 and 42 of the Fair Trade Law and and Articles 7, 12, 14 and 22 of the Supervisory Regulations Governing Multi-Level Sales

Summary:

1. The FTC conducted a business inspection in the main business place of Power Way International Trading Co. Ltd. (hereinafter called "Power Way"). This company could not timely submit the information of the number of the participants, list of the participants, system table, turnover, amounts of the premiums granted, and details of the sales. Besides, it also needed time to look for the primitive information about the withdrawal of the sales and returning of goods and consequently could not submit the related information timely.
2. Findings of FTC after investigation: Power Way submitted to the FTC the related information inquired by the FTC business inspection team on August 31, September 11 and 18 and December 6 respectively and went to the Commission to make the statement, which was briefly stated as follows:
1. The information about the withdrawal of the sales and returning of goods submitted by Power Way showed that four of the participants paid to join the multi-level sales by way of charging to their credit cards. Furthermore, the Respondent deducted the credit card handling charge at the rate of 3% from each of the four participants’ refunds while handling the termination of these participants’ contracts and refunds.
2. Power Way had reported to the FTC that its main business place and place of registration. However, it did not report to the Commission the change of the place and the person in charge of the business, as the original place of the company, 9F, No. 787, Jong-Ming S. Road. Taichung City was moved to the place, 9F, No. 789 of the same road in the same city, and the original person in charge, Yuan, Chan-hsun, was changed to the person, Su, Yi-hsiung.
3. Power Way had never reported to the FTC the information of many product items sold by itself.
4. The contract concluded between Power Way and each of the four participants did not specify the laws and orders related to multi-level sales, and the means of handling the returning of the goods, all of which could hold the participants liable.
3. Grounds for disposition:
1. In accordance with the provisions of the Fair Trade Law regarding a multi-level sales enterprise returns the payments made by a participant to the participant upon his or her withdrawal from the sales and returning of the goods, only three deductions are legal in the contract of Power Way: "any bonus or remuneration already paid to the participant who had applied the withdrawal from the sales and returning of the goods, due to such a returning of the goods," "the amount of the decreased value of the goods," and "If the returned goods … are collected by the enterprise, the enterprise may deduct the shipping costs required for such collection" from the refund. In any event, any of the legal deductions did not include the credit card handling charge. As Power Way deducted the credit card handling charge at the rate of 3% from each of the participants’ refunds while handling the termination of their contracts and refunds, it was found that the company violated Article 23-1(2) of the Fair Trade Law.
2. Article 7(1) of the Supervisory Regulations Governing Multi-Level Sales provides that "in the event that there is a change in the content of the information reported by a multi-level sales enterprise, the enterprise shall report the change prior to the execution of it. Nevertheless, if a change occurs in the item reported in accordance with Article 5(1)(i), the change must be reported within 15 days after the change." The information that are reported to the FTC and recorded in Articles 5(1)(i), (ii) and (vi) of the same Regulations are the representative or person in charge of the enterprise, place of the main business activity, and items, prices, unit cost, purpose, sources of and other matters related to the sales of products. With regard to the acts that Power Way changed the person in charge, place of business, main business place and newly added products did not report the changes to the Commission in accordance with aforesaid law, they were sufficient to render the company a violation of law.
3. Article 12(1) of the Supervisory Regulations Governing Multi-Level Sales provides that "a multi-level sales enterprise shall conclude a written participation contract with the participant at the time that the participant joins its multi-level sales organization or program; the participation contract shall record the matters provided from Subparagraphs 2 to 8, Paragraph 1 of the preceding Article." It was also found that a participation contract should also specify laws and orders related to multi-level sales provided by Article 11(1)(iii) of the same Regulations. Furthermore, Article 14 of the Regulations provides that "the multi-level sales enterprise which rescinds or terminates the participation contract because the participant does not conform to business rules, program or other matters for which the participants can be held liable, shall record in the contract the means of handling the returning of the goods proposed by such a participant." However, Power Way did not record the abovementioned requirements in its participation contract and consequently Power Way was found that its act constituted a violation of law.
4. Article 22(1) of the Supervisory Regulations Governing Multi-Level Sales provides that "a multi-level sales enterprise shall prepare and locate the following information in writing in the main business place and record its development in the territory of the Republic of China …" However, Power Way did not prepare and place the related information in its main business place and could not provide such information for the purpose of FTC inspection. It was found that the company violated the aforesaid provision.
5. After considering the motive, purpose and anticipated improper profits of the unlawful acts of Power Way; the degree and duration of the unlawful acts' harm to trading order; the benefits derived from its the unlawful acts; the scale of business; and the remorse shown for the acts and attitude of its cooperation in the investigation; and other factors, Power Way was therefore imposed with an administrative fine of NT$ 300,000 in accordance with the fore part of Articles 41 and 42(2) and (3) of the Fair Trade Law.

Appendix:
Power Way International Trading Co. Ltd.'s Uniform Invoice Number: 27863438

Summarized by Li, Shih-che; supervised by Hsu, Hung-jen