On March 31, 2008 the Commissioner of Competition (the
Commissioner) issued a draft Information Bulletin entitled
Multi-level Marketing and Scheme of Pyramid Selling,
Sections 55 and 55.1 of the Competition Act. Once
finalized, this bulletin will replace existing 1996 guidance on
the same topic. Written comments on the draft Bulletin will be
accepted by the Competition Bureau until June 30, 2008.
Section 55 of the Competition Act (the
Act) criminally prohibits an operator of or
participant in a multi-level marketing (MLM) plan from making
representations about compensation under the plan other than
those that constitute or include "fair, reasonable and
timely" disclosure relating to compensation actually
received or likely to be received by "typical
participants" in the plan. In addition, section 55
obligates MLM plan operators to ensure that compensation
representations made by plan participants to prospective plan
participants meet this "fair, reasonable and timely"
disclosure standard, subject to a due diligence defence.
Section 55.1 of the Act defines when an MLM comprises
a "scheme of pyramid selling," and prohibits a person
from establishing, operating, advertising or promoting a scheme
of pyramid selling. Both sections 55 and 55.1 are criminal
provisions featuring a maximum sentence for conviction on
indictment of five years in prison and/or a fine in the
discretion of the court, and a maximum sentence on summary
conviction of one year in prison and/or a fine of $200,000.
The draft Bulletin revises and extends the Bureau's
1996 guidance. However, it does not appear to signal any
significant change in the Commissioner's approach to
interpreting and enforcing sections 55 and 55.1 of the
Beyond rearranging and refining the contents of the 1996
guidance, the following additional material is included in the
Bureau definitions for "operator,"
"prospective participant," "non-typical
participant" and "operator's or
a more detailed description of communication that in the
Bureau's view comprises a "representation
relating to compensation";
additional examples of conduct that in the
Bureau's view comprises or may comprise a
"scheme of pyramid selling," in particular related
prohibited compensation for the recruitment of others to
an MLM plan,
prohibited purchase requirements as a condition of
participation in an MLM plan, and
inadequate rights for participants in an MLM plan to
return products for substantial reimbursement;
a list and description of information required in support
of a written advisory opinion from the Bureau concerning an
MLM plan; and
a list and description of circumstances under which the
Bureau will refuse to provide a written advisory opinion
concerning an MLM plan.
The new draft Bulletin undoubtedly improves upon the 1996
Bulletin. It is more comprehensive and carefully crafted, and
the additional examples of suspect conduct are a helpful
elaboration on the Bureau's views. Moreover, the
description of information required by the Bureau for an
advisory opinion and the description of when such an opinion
will not be rendered will be of genuine practical assistance to
anyone proposing an MLM plan.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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