Amkey Co., Ltd.

Case:

Key Words:

multi-level sales, participant, credit card service charge, diminished value

Reference:

Fair Trade Commission Decision of November 26, 2009 (the 942nd Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 098168

Industry:

Direct Selling Establishments (4872)

Relevant Laws:

Article 23-2(2) of the Fair Trade Law, Articles 7(1), 12(1), 13, and 14 of the Supervisory Regulations Governing Multi-Level Sales

Summary:

1. This case originated from the business operations inspection by the FTC personnel conducted to Amkey Co., Ltd. (hereinafter referred to as Amkey) at its main place of business. It was found that Amkey deducted "credit card service charges" when a participant terminated the contract, altered its sales system without reporting to the FTC within the statutory period, failed to state in the written participation contracts the relevant multi-level sales regulations, conditions of withdrawal by a participant from the organization or plan, and rights and obligations arising from the withdrawal, and the handling methods of returned goods due to reasons attributable to the participant as requested by the law. Amkey's aforesaid acts violated Article 23-2(2) of the Fair Trade Law and Articles 7(1), 12(1), 13, and 14 of the Supervisory Regulations Governing Multi-Level Sales prescribed pursuant to Article 23-4 of the Fair Trade Law.

2. The FTC requested Amkey in writing to provide statements in person regarding the truthfulness of the aforesaid affairs. Amkey's statements are summarized as follows:
   (1)Amkey followed its "Return/Exchange Procedures Schedule" and refunded 80% of the original purchase price with regard to goods that had an invoice date of more than 31 days ago. Though this schedule was not provided to the participant, Amkey had already separately published it at the place of business.
   (2)Where a participant purchased the goods via credit cards but requested for a refund in cash, Amkey would additionally deduct the "credit card service charges" from the refunds.
   (3)Amkey's bonus system was partly altered including the organization development bonus and newly added purchasing bonus but was not reported to the FTC due to the mistake by Amkey's personnel.
   (4)Amkey's original enterprise manual contained the relevant regulations governing multi-level sales, handling methods of returned goods due to reasons attributable to the participant, and Article 23-3 of the Fair Trade Law. However, the manual was planned to be reprinted in February 2009, the provision of which to the participants was therefore ceased.

3. Grounds for disposition:
   (1)Amkey violated Article 7(1) of the Supervisory Regulations Governing Multi-Level Sales by failing to report to the FTC prior to its alteration of the organization development bonus and addition of "purchase bonus." Additionally, the written participation contracts entered into by Amkey and its participants failed to include relevant regulations governing multi-level sales. The contracts also failed to state the calculation of "diminished value" under the "conditions of withdrawal by a participant from the organization or plan," in violation of Article 12(1) of the Supervisory Regulations Governing Multi-Level Sales which provides that a written contract with a participant shall include the "laws and regulations relevant to multi-level sales" and the "conditions of withdrawal by a participant from the organization or plan, and rights and obligations arising from the withdrawal" set forth respectively in Article 11(1)(iii) and (vii) of the same law.
   (2)Furthermore, Amkey provided in Point 18 of its Distributor Agreement that "A Distributor may terminate this Agreement in writing at any time in the period from the 15th day to the 30th day from signing this Agreement…" The restriction on the period "from the 15th day to the 30th day" is inconsistent with the statutory requirement which provides that a contract can be terminated in writing at any time 14 days after the signing of the contract, in other words, no restriction on the period. Thus Amkey's restriction violated Article 13 of the Supervisory Regulations Governing Multi-Level Sales. In addition, Amkey's written participation contracts did not specify the method for handling a request by a participant to return goods due to reasons attributable to the participant, which was admitted by Amkey. This was also an violation of Article 14 of the Supervisory Regulations Governing Multi-Level Sales. As a result, an administrative fine of NT$300,000 was imposed.

Appendix:
Amkey Co., Ltd.'s Uniform Invoice Number: 27563066

Summarized by Ma, Hai-Chich; Supervised by Yeh, Tien-Fu