Multi-level marketing, pyramid selling

A company that provides the opportunity for adults to connect and enhance personal growth through alternative forms of entertainment and dating, sought an advisory opinion in May 2009 on whether its proposed multi-level marketing plan would raise concerns under the Competition Act.

The Competition Bureau examined the plan under the multi-level marketing and scheme of pyramid selling provisions of the Act, sections 55 and 55.1. On June 11, 2009, the Bureau provided a negative opinion on the plan on the basis that the purchase requirements to join and remain in the plan are features that enable a scheme of pyramid selling as defined by paragraph 55.1(1)(a) of the Act.

Participants in the plan were required to make monthly membership payments and have their accounts in good standing in order to remain in the plan and be eligible to receive compensation. The product attached to the plan was a service for which purchase was restricted to participants in the plan. Further, the conditions attached to the service were such that the operator of the plan was the sole vendor of the service. Therefore, it was not possible for participants to generate sales by supplying the service to participants in the plan or to prospective participants who may wish to join the plan. The absence of sales of the product by the participants in the plan made the monthly membership fee a payment for the recruitment of people into the plan and as such enables a scheme of pyramid selling as described by paragraph 55.1(1)(a) of the Act.

The registration fee as a condition to participate in the plan was not for the purpose of purchasing the product attached to the plan at the operator, or seller’s cost, for the purpose of facilitating sales as described under paragraph 55.1(1)(b) of the Act. The absence of sales of a product by the participants in the plan in order to earn compensation made the registration fee a payment for the right to receive compensation for the recruitment of people into the plan and therefore enables a scheme of pyramid selling as described by paragraph 55.1(1)(a) of the Act.

Date: June 24, 2009

(3103441)

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