Guest Post by Greg Boudonck
If you are involved with any multilevel marketing company, I will first say you should say a thanks to Amway, the Federal Trade Commission and the ruling that was made back in 1979.
If not for this ruling, multilevel marketing just might have been illegal in today’s United States.
The case was a long one.
Essentially, it was a test case that would define the business world as we now know it.
While I cannot go into every single item within this case, there are certain facts that we all should be aware of.
So in today’s post, I am going to provide the top 10 facts from the 1979 FTC vs. Amway case.
Fact #1: It lasted for 4 years
While many would assume a case such as this would only last just a matter of months at the longest, this case dragged out for a very long time. It first entered the court dockets on March 25th, 1975 and was finalized on May 8th, 1979.
Fact #2: A plethora of lawyers were involved
Both the Federal Trade Commission and Amway Corporation had many attorneys representing them.
Federal Trade Commission
Fact #3: The complaint by the FTC alleged 5 violations of the Federal Trade Commission Act by Amway Corporation
The counts the FTC claimed against Amway Corporation were:
That Amway engages in resale price maintenance.
That Amway has their customer base among distributors, and that they restrict the distributor’s supply source and the outlets for resale.
That Amway restricts distributor’s advertising.
That Amway misrepresented that substantial income can be made by distributors with geometrical increases.
That Amway misrepresented distributorship profitability by failing to disclose business expenses and high turnover rates.
Fact #4: Amway wins the case
It took 4 years, but the final ruling said that while Amway is a pyramid scheme, it is not an illegal pyramid scheme.
Fact #5: Headhunting is a prime determination for an illegal pryamid scheme
The process of “headhunting” was one of the primary issues looked at in the Amway case. It was determined that Amway did not require entry fees which is what headhunting stands for. While some multilevel marketing companies have distributors purchase business starter kits, they are receiving something for their money. If a fee was charged without any tangible item in return, that would be headhunting.
Fact #6: Amway receives orders from FTC
While it was determined that Amway did not engage in an illegal pyramid scheme, they did receive certain orders from the FTC. They were:
Stop allocating customers from among the distributor base.
Stop misrepresenting profits or sales. Stop implying anything other than average results, and the average results must be shown in a conspicuous manner.
Stop retail price fixing.
Print a disclaimer on suggested retail price lists.
Fact #7: Amway uses a safeguards rules
With the ruling, Amway developed a set of safeguards rules that many other multilevel marketing companies also use. They are:
Distributors are part of the 10 retail customer policy. It requires representatives to have 10 sales to retail customers to be able to receive commissions on sales made by down-line members.
Distributors must sell a minimum of 70% of their previously purchased products before they can place a new order.
Amway has a buy-back policy for unsold and unused products. It includes a slight restocking fee, and there are maximum time limits.
Fact #8: Amway fined $100,000
In 1986, Amway was found to be in violation of the 1979 ruling. In an advertisement, Amway exaggerated distributor earnings and they were fined $100,000. They have followed this rule closely ever since.
Fact #9: This case has become the standard for measuring multilevel marketing companies
It has become widely understood that the FTC vs. Amway case has become the standard in the United States in judging if multilevel marketing companies are legal or illegal.
The wise MLM start-ups research Amway and imitate their pattern so they stay within the law. And, the FTC uses this case in further determinations.
Fact #10: Influences the Direct Selling Association
When companies join the Direct Selling Association, they use the FTC vs. Amway case to instill in these companies the proper techniques to use in their multilevel marketing companies. They also closely monitor companies to make sure they are within the guidelines that this case showed.
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This case opened the united States to multilevel marketing as a viable business opportunity. When you are considering joining a company, it is wise to look at the FTC vs. Amway case to make sure the company you are joining is within the legal boundaries.
What are your thoughts on this case? Do you agree or disagree with the FTC’s findings?
If you have anymore you would add or any comments, just post them in the comments area. If you have any questions, you can post them there too, and I will do my best to provide an answer.
Disclaimer: Neither I nor the Online MLM Community is affiliated in any way or form with Amway. This is not a paid review. It is written strictly for your information.
- Legitimate Direct Selling vs. Illegal Pyramid Schemes
- In re Amway Corp.
- Federal Trade Commission – Pyramid Schemes
- The Landmark Amway Case
- IN THE MATTER OF AMWAY CORPORATION, lNC, ET AL. FINAL ORDER, OPINION. ETC., IN REGARD TO ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT
- Q&A – Illegal Pyramid Schemes
- The Truth About Amway And Their Brushes With The Law
About the Author
Greg Boudonck is a freelance writer and the author of over 50 books. He writes on many different topics, but business subjects are one of his primary areas of writing expertise. You can see more about Greg and his work by visiting his website at Lancerlife.com.
To Your Success,
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