On Wednesday, May 1, the Federal Trade Commission (FTC) staff released updated business guidance for multi-level marketing (MLM), which revises previous guidance from 2018. According to an article from Kelley Drye:
“Yesterday FTC Staff released updated Business Guidance Concerning Multi-Level Marketing that provides a detailed account of their current perspective on applicable standards governing the direct selling and multi-level marketing (MLM) industry. The new Guidance updates guidance from January 2018 (that we covered here) and lays out several principles and issues that Staff intend to consider in evaluating whether MLMs constitute illegal pyramid schemes and/or are otherwise engaged in unfair or deceptive acts or practices, including through misleading earnings and lifestyle claims and potential agency liability.
For followers of this blog and the FTC, the Guidance will ring familiar as another recent attempt by the FTC to declare law through guidance, analogous to the FTC’s revised Health Products Compliance Guidance in December 2022. Despite its length, the Guidance conspicuously omits any reference to last fall’s landmark decision in FTC v. Neora where the district court rejected many of the same theories that Staff now recasts as guidance, such as an amorphous prohibition against a “focus” on recruitment. As noted in our earlier coverage of the Neora decision (here), we expected the Commission to remain undeterred and regroup to lay the groundwork for future litigation—which the Guidance certainly appears to be issued with an eye toward.
Some of these principles were previewed in last month’s letters to the Direct Selling Association and the Direct Selling Self-Regulatory Council, which we discussed here. Others are more detailed and provocative pronouncements on longstanding issues; others appear at least somewhat new. We address a few highlights below but note that there is a lot to unpack here.
While the legal standard for pyramiding has never been black and white and has always been fact-specific, the Guidance muddies the water further – at least as to the FTC’s perspective of the law – by appearing to diminish the importance of retail sales validation and differentiation between distributors and customers, both practices that the FTC has long encouraged and required as injunctive relief in the Herbalife settlement.”
To continue reading the full article from Kelly Drye and learn more about the updated business guidance for MLMs provided by the FTC, click here.
