IN THE SENATE OF THE UNITED STATES
December 3, 2018
Mr. Hatch introduced the following bill; which was read twice and referred to the Committee on Commerce, Science, and Transportation
To amend the Federal Trade Commission Act to prohibit pyramid promotional schemes to ensure that compensation is not based upon recruitment of participants into a plan or operation, but instead based primarily on sales to individuals who use, resell, or consume the products or services sold, protect participants, prohibit inventory loading, and for other purposes.
This Act may be cited as the
Anti-Pyramid Promotional Scheme Act of 2018.
Prohibition on pyramid promotional schemes; other requirements
The Federal Trade Commission Act (15 U.S.C. 41 et seq.) is amended by inserting after section 5 the following:
It shall be unlawful for any person to establish, operate, promote, or cause to be promoted a pyramid promotional scheme.
It shall be unlawful for any person to establish, operate, promote, or cause to be promoted any plan or operation which sells or solicits the sale of consumer products or services in the home or otherwise than in a permanent retail establishment, and which sells products or services directly or indirectly to independent salespeople for resale, to operate without a bona fide inventory repurchase agreement.
It shall be unlawful for any person to establish, operate, promote, or cause to be promoted a plan or operation which causes inventory loading.
Nothing in this Act may be construed to prohibit a plan or operation, or to define a plan or operation as a pyramid promotional scheme, based upon the fact that participants in the plan or operation give consideration in return for the right to receive compensation based upon purchases of goods or services or intangible property by participants for personal use, consumption, or resale so long as the plan or operation does not cause inventory loading and the plan or operation implements a bona fide inventory repurchase agreement.
A violation of subsection (a), (b), or (c) shall be treated as a violation under section 5.
Section 4 of the Federal Trade Commission Act (15 U.S.C. 44) is amended by adding at the end the following:
Bona fide inventory repurchase agreement means a program by which a plan or operation—
repurchases, on commercially reasonable terms, current and marketable inventory purchased and maintained by a participant for resale, upon request at the termination of the participant’s business relationship with the plan or operation; and
clearly communicates such terms in its recruiting literature, sales manual, or contracts with participants, including the manner in which the repurchase is to be exercised and disclosure of any inventory not eligible for repurchase under the program.
Commercially reasonable means, with respect to the terms of repurchase by a plan or operation of current and marketable inventory from a participant, that the inventory is repurchased not later than 12 months after the date of purchase at not less than 90 percent of the original net cost to the participant, less appropriate set-offs and legal claims, if any.
Compensation means the payment of any money, thing of value, or financial benefit.
means the payment of money or another thing of value or the purchase of a product, good, service, or intangible property; and
does not include—
the purchase of a product or service furnished at cost to be used in making a sale and not for resale; or
any time and effort spent in pursuit of sales or recruiting activities.
Current and marketable—
means, with respect to inventory, that the inventory—
in the case of consumable or durable goods, is unopened, unused, and within its commercially reasonable use or shelf-life period; and
in the case of services and intangible property, including internet sites, represents the unexpired portion of any contract or agreement; and
does not include inventory that has been clearly described by a plan or operation to a participant prior to purchase as discounted, seasonal, a special promotion item, or not subject to the plan or operation’s bona fide inventory repurchase agreement.
Inventory means both goods and services, including company-produced promotional material, sales aids, and sales kits that a plan or operation requires participants to purchase.
Inventory loading means a practice in which a plan or operation requires or encourages its participants to purchase inventory in an amount exceeding that which the participant can reasonably expect to use, consume, or resell to ultimate users.
Participant means a person who joins a plan or operation.
Pyramid promotional scheme means any plan or operation in which individuals pay consideration for the right to receive compensation that is primarily based upon recruiting other individuals into the plan or operation rather than related to the sale of products or services to ultimate users.
Ultimate user means, with respect to a product or service sold by a plan or operation, an individual who consumes or uses the product or service, whether or not the individual is a participant in the plan or operation.
Other violations of Federal law
Nothing in this Act or the amendments made by this Act shall be construed to limit the authority of any Federal official from proceeding against pyramid promotional schemes (as defined in section 4 of the Federal Trade Commission Act (15 U.S.C. 44)) for other violations of Federal law, including the Federal Trade Commission Act.
Nothing in this Act or the amendments made by this Act prohibits an authorized State official from proceeding in a State court of competent jurisdiction on the basis of an alleged violation of any civil or criminal statute of such State.