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 Act.

Beyond rearranging and refining the contents of the 1996 guidance, the following additional material is included in the draft Bulletin:

  • Bureau definitions for "operator," "prospective participant," "non-typical participant" and "operator's or seller's cost";
  • 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 to:
  • 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.