In re. Amway Corp.

In re. Amway Corp. is a 1979 ruling by the United States Federal Trade Commission (93 F.T.C. 618). The ruling concerned the business practices of Amway, a multi-level marketing (MLM) company.

The FTC ruled in 1979 on five counts:
*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.

Amway was ordered to stop retail price fixing and allocating customers among distributors. The FTC stated Amway was not an illegal pyramid scheme since the Amway system is based on retail sales to consumers. Amway has avoided the abuses of pyramid schemes by::#not having a headhunting fee; :#making product sales a precondition to receiving the performance bonus; :#buying back excessive inventory;:#requiring that products be sold to consumers; and:#not being in business to sell distributorships.Amway's buy­back, 70-percent, and ten-customer rules deter unlawful inventory loading.

In the opinion section of ruling Commissioner Pitofsky stated:

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.

In 1986, Amway was ordered to pay $100,000 as a penalty for violating the ruling.

References

* [http://www.ftc.gov/os/decisions/docs/vol93/FTC_VOLUME_DECISION_93_(JANUARY_-_JUNE_1979)PAGES_618-738.pdf In re. Amway Corp. decision (.pdf format)]
* [http://www.mlmlaw.com/library/cases/mlm/ftc/amway.htm In re. Amway Corp. decision (.html format)]
* [http://www.ftc.gov/speeches/other/dvimf16.htm#N_19 Speech by Debra A. Valentine, FTC general counsel] , May 13, 1998