Case Herbalife vs FTC- consequences?
10.09.2016
Over the years Federal Trade Commission (FTC) has stated a rather strict position on personal use. The culmination of that was reached in the FTC v. Herbalife settlement on July 14, 2016. This settlement brought a multiyear investigation to a close and despite it can be seen as a victory for Herbalife, it also defined a set of rules by which Herbalife would conduct its direct selling business.
Several of the rules would be extremely demanding and challenging if they would be applied to the industry as a whole. Problematic issues are for example requirement that only one-third of distributor purchases for personal use may be credited for sales volume for commission purposes and the prohibition of requirements of distributor minimum personal sales (other than sales to nonparticipants) and programs that allow distributor monthly standing orders. Somewhat more simple requirements would be avoiding earnings hype in advertising or other claims of fast wealth or easy money, simplifying earnings disclosures and emphasizing sales, not recruitment
Settlement focuses on restrictions for compensation plan credit for personal use by distributor. In the USA rule on commissions has mainly been based on sales to ultimate users and pyramid cases are decided by a fact-based analysis of whether or not purchases by distributors are merely done because of a need for the product for resale or personal use or is the primary motivation to qualify for rewards and recruit others. Even in FTC´s most aggressive case, where it stated that 50% of sales should come from nonparticipants, FTC has never prior to this settlement suggested that nonparticipant sales must be 67%.
It is important to remember that this settlement is not case precedent, an FTC rule, a statute and not consistent with case authority or previous FTC public positions on legal standards for pyramids. It is also not legal precedent beyond Herbalife, nor binding on other direct selling companies even though FTC announced that it intended to issue its guidance for the industry.
