Diet and Health Care Products

Multi-level Marketing and Scheme of Pyramid Selling

A multi-level marketing company distributing diet and health-care products sought an advisory opinion in November 2003, on whether a proposed multi-level marketing plan would raise concerns under the Competition Act.

The Competition Bureau examined the proposal and based on its understanding of the facts, determined that if the company implemented the plan as proposed, the Commissioner would have sufficient grounds to commence an inquiry for the following reasons:

• As part of its marketing plan, the company required participants to make a minimum monthly purchase of $100 worth of products, in order to receive compensation under the plan;
• The company also made income and lifestyle representations in its business plan which could give the impression that participating in the plan would allow a person to significantly increase his or her income and improve his or her lifestyle.

The requirement that participants must purchase a specified amount of a product to receive compensation under the plan constitutes a prohibited scheme of pyramid selling as defined by paragraph 55.1(1)(b) of the Competition Act. Compensation should be based on product sales, not on required purchases. Also, the business plan did not contain any information about the compensation a typical participant could actually or likely receive, as required by section 55(2) of the Competition Act.

For the above reasons, on March 18, 2004, the Bureau provided a negative opinion.

(3076720)