In re Amway Corp.

Last updated September 11, 2023

In re Amway Corp. (93 F.T.C. 618; full name In the Matter of Amway Corporation, Inc., et al.) is a 1979 ruling by the United States Federal Trade Commission concerning the business practices of Amway, a multi-level marketing (MLM) company. The FTC ruled that Amway was not an illegal pyramid scheme according strictly to the statutory definition of a pyramid scheme, but ordered Amway to cease price fixing and cease misrepresenting to its distributors (participants) the average participant's likelihood of financial security and material success.

Complaint

The FTC filed a complaint on March 25, 1975, alleging five counts of violating Section 5 of the Federal Trade Commission Act:^[1]

Count I of the complaint alleged that Amway engaged in resale price maintenance.
Count II alleged that Amway allocated customers among distributors and restricted the distributors' source of supply as well as the retail outlets through which they may resell;
Count III alleged that Amway restricted the distributors' advertising.
Count IV alleged that Amway misrepresented that substantial income may be obtained from geometrical increases in the number of distributors in the chain recruiting operation of the Amway distribution plan.
Count V alleged that Amway misrepresented the profitability of a distributorship and the potential for recruiting new distributors and failed to disclose the substantial business expense involved and the high turnover of distributors.

Oral arguments were heard on June 6, 1978.^[2]

Results

The FTC stated that Amway was not an illegal pyramid scheme since the Amway system is based on retail sales to consumers. Amway avoided being defined as a pyramid scheme by:

not requiring an entry ("headhunting") fee;^[3]
making product sales a precondition to receiving the performance bonus;^[4]
requiring the buying back of excessive inventory;^[3]^[4] and
requiring that products be sold to retail consumers.^[3]

The administrative law judge (ALJ) also found that "Amway is not in business to sell distributorships and is not a pyramid distribution scheme."^[5]

In the opinion section of the ruling, Commissioner Robert Pitofsky wrote:

Two other Amway rules serve to prevent inventory loading and encourage the sale of Amway products to consumers. The "70 percent rule" provides that "[every] distributor must sell at wholesale and/or retail at least 70% of the total amount of products he bought during a given month in order to receive the Performance Bonus due on all products bought…." This rule prevents the accumulation of inventory at any level. The "10 customer" rule states that "[i]n order to obtain the right to earn Performance Bonuses on the volume of products sold by him to his sponsored distributors during a given month, a sponsoring distributor must make not less than one sale at retail to each of ten different customers that month and produce proof of such sales to his sponsor and Direct Distributor." This rule makes retail selling an essential part of being a distributor. The ALJ found that the buyback rule, the 70-percent rule, and the ten-customer rule are enforced, and that they serve to prevent inventory loading and encourage retailing.
— — 93 F.T.C. 618: Opinion, page 716

The ALJ found, and the FTC opinion agreed, that Amway engaged in:

resale price maintenance, through explicit agreements on wholesale prices and through practices "designed to insure adherence" to its suggested retail prices even though former explicit agreements on retail prices had been discontinued;^[6] and
misleading sales and earning claims.^[7]

In the Final Order, issued on May 8, 1979, Amway and its representatives were ordered to:

cease allocating customers among their distributors;^[1]
cease retail price fixing;^[8]
print a specific disclaimer on any suggested retail price list;^[8] and
cease misrepresenting profits, earnings, or sales; and stop implying other than average results, unless the average results or the percentage of distributors actually reaching those figures is also conspicuously disclosed.^[9]

Later actions

In 1986, Amway agreed to pay a $100,000 penalty in a consent decree for violating the 1979 ruling, after Amway placed ads that represented higher-than-average distributor earnings without stating the actual average results or percentage of distributors who actually met the represented claims.^[10]

Related Research Articles

Amway is an American multi-level marketing (MLM) company that sells health, beauty, and home care products. The company was founded in 1959 by Jay Van Andel and Richard DeVos and is based in Ada, Michigan. Amway and its sister companies under Alticor reported sales of $8.9 billion in 2019. It is the largest multi-level marketing company in the world by revenue. It conducts business through a number of affiliated companies in more than a hundred countries and territories.

A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.

<span class="mw-page-title-main">Amway North America</span> American multi-level marketing company

Amway North America is an American worldwide multi-level marketing (MLM) company, founded 1959 in Ada, Michigan, United States. It is privately owned by the families of Richard DeVos and Jay Van Andel through Alticor which is the holding company for businesses including Amway, Amway Global, Fulton Innovation, Amway Hotel Corporation, Hatteras Yachts, and manufacturing and logistics company Access Business Group. After the launch of Amway Global, it replaced the Amway business in the United States, Canada and the Caribbean, with the Amway business continuing to operate in other countries around the world. On May 1, 2009, Quixtar made the name change to Amway Global and fused the various different entities of the parent company.

The list price, also known as the manufacturer's suggested retail price (MSRP), or the recommended retail price (RRP), or the suggested retail price (SRP) of a product is the price at which its manufacturer notionally recommends that a retailer sell the product.

Herbalife Nutrition Ltd., also called Herbalife International, Inc. or simply Herbalife, is a global multi-level marketing (MLM) corporation that develops and sells dietary supplements. The company was founded by Mark R. Hughes in 1980, and it employs an estimated 9,900 people worldwide. The business is incorporated in the Cayman Islands, with its corporate headquarters located in Los Angeles, California. The company operates in 95 countries through a network of approximately 4.5 million independent distributors and members. In October 2022, previous CEO Michael O. Johnson was appointed as Chairman and interim Chief Executive Officer following the departure of John Agwunobi.

Vector Marketing is a direct selling subsidiary company and the domestic sales arm of Cutco Corporation, an Olean, New York-based cutlery manufacturer. The company was founded in 1981 in Philadelphia, Pennsylvania.

Holiday Magic was a multi-level marketing organization, founded in 1964, by William Penn Patrick (1930–1973) in the United States. Originally the organization distributed goods such as home-care products and cosmetics. Company distributors were encouraged to recruit other distributors in a multilevel marketing structure, which was later characterized as a pyramid scheme.

Multi-level marketing (MLM), also called network marketing or pyramid selling, is a controversial marketing strategy for the sale of products or services in which the revenue of the MLM company is derived from a non-salaried workforce selling the company's products or services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.

MonaVie is a defunct, American multi-level marketing company that manufactured and distributed products made from blended fruit juice concentrates, powders, and purées. The company was the subject of several controversies. Health claims for its products had not been scientifically confirmed or approved by regulatory authorities, and its chairman had been previously involved in false health claims concerning another beverage company. According to Forbes, MonaVie's business plan resembled a pyramid scheme. In 2015, the company defaulted on a US$182 million loan and went into foreclosure. Florida-based Jeunesse Global took over MonaVie’s assets when it purchased the note for $15 million.

Franchise fraud is defined by the United States Federal Bureau of Investigation as a pyramid scheme.

Market America is a multi-level marketing company founded in 1992 by JR and Loren Ridinger. Headquartered in Greensboro, North Carolina, the company employed around 800 people as of 2016. The products offered by the company include household cleaning supplies, jewelry, personal care products, auto care, cosmetics, dietary supplements, custom websites, water purifiers, and weight management products. A 2017 lawsuit accused the company of being an illegal pyramid scheme.

Vemma Nutrition Company was a privately held multi-level marketing company that sold dietary supplements. The company was shut down in 2015 by the FTC for engaging in deceptive practices and pyramid scheming.

Fortune Hi-Tech Marketing (FHTM) was a Lexington, Kentucky based company which used multi-level marketing to sell consumer goods and services. The company was founded in January 2001. In January 2013, the Federal Trade Commission (FTC) and regulators for three states shut down FHTM for being a pyramid scheme.

United States v. Parke, Davis & Co., 362 U.S. 29 (1960), was a 1960 decision of the United States Supreme Court limiting the so-called Colgate doctrine, which substantially insulates unilateral refusals to deal with price-cutters from the antitrust laws. The Parke, Davis & Co. case held that, when a company goes beyond "the limited dispensation" of Colgate by taking affirmative steps to induce adherence to its suggested prices, it puts together a combination among competitors to fix prices in violation of § 1 of the Sherman Act. In addition, the Court held that when a company abandons an illegal practice because it knows the US Government is investigating it and contemplating suit, it is an abuse of discretion for the trial court to hold the case that follows moot and dismiss it without granting relief sought against the illegal practice.

LuLaRoe is a United States-based multi-level marketing scheme/company that sells women's clothing. It was founded in 2012 by DeAnne Brady and her husband Mark Stidham and is currently based in Corona, California.

Glenn Wesley Turner (1934–2020), was a salesman best known for his Orlando, Florida based multi-level marketing cosmetic company Koscot Interplanetary, Inc. Turner and Koscot became entangled in numerous legal difficulties and Koscot went out of business in the 1970s. In 1987 Turner was convicted on charges of conspiracy, fraud and operating a pyramid scheme, and sentenced to seven years in prison.

Morrison v. Amway Corp. 49 F. Supp. 2d 529 was a lawsuit concerning the enforcement of a contractual arbitration provision between the defendant Amway Corp. and the plaintiff their distributors.

References

1 2 In the Matter of Amway Corporation, Inc., et al. (93 F.T.C. 618), from FTC website. Accessed 2016-03-08.
↑ 93 F.T.C. 618: page 631
1 2 3 93 F.T.C. 618: Opinion, page 716
1 2 93 F.T.C. 618: Initial Decision, page 646
↑ 93 F.T.C. 618: Initial Decision, page 700
↑ 93 F.T.C. 618: Opinion, pages 717–718
↑ 93 F.T.C. 618: Opinion, page 735
1 2 93 F.T.C. 618: Final Order, pages 736-737
↑ 93 F.T.C. 618: Final Order, pages 736–738
↑ "Amway Corp. To Pay $100,000 Civil Penalty, Settling FTC Charges It Failed to Make Required Earnings Disclosures in Newspaper Ad" (Press release). Federal Trade Commission. 1986-05-19. Archived from the original on 2011-07-16. Retrieved 2008-12-02.

External links

In re Amway Corp. decision (.pdf format) from FTC website
Speech by Debra A. Valentine, FTC general counsel, May 13, 1998

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.

[93ftc618-1] 1 2 In the Matter of Amway Corporation, Inc., et al. (93 F.T.C. 618), from FTC website. Accessed 2016-03-08.

[2] 93 F.T.C. 618: page 631

[93ftc618-716-3] 1 2 3 93 F.T.C. 618: Opinion, page 716

[93ftc618-646-4] 1 2 93 F.T.C. 618: Initial Decision, page 646

[5] 93 F.T.C. 618: Initial Decision, page 700

[93ftc618-717-718-6] 93 F.T.C. 618: Opinion, pages 717–718

[93ftc618-735-7] 93 F.T.C. 618: Opinion, page 735

[93ftc618-order-736-737-8] 1 2 93 F.T.C. 618: Final Order, pages 736-737

[93ftc618-738-9] 93 F.T.C. 618: Final Order, pages 736–738

[10] "Amway Corp. To Pay $100,000 Civil Penalty, Settling FTC Charges It Failed to Make Required Earnings Disclosures in Newspaper Ad" (Press release). Federal Trade Commission. 1986-05-19. Archived from the original on 2011-07-16. Retrieved 2008-12-02.

[1]

[2]

[3]

[4]

[5]

[6]

[7]

[8]

[9]

[10]