IS THIS LEGAL?

State Sales Referral Laws.

In the aftermath of the door-to-door aluminum siding cases, almost every state adopted a sales referral law which prohibits in the course of a consumer transaction
the promise to a consumer of some type of reward in exchange for recommending another consumer, and where the reward is contingent upon the second consumer
purchasing product. Although almost all states have sales referral laws, few states have attempted to apply sales referral laws to multilevel marketing programs. In one
such case, the State of Iowa attempted to apply its sales referral law to a company called American Professional Marketing, and the court rejected the prosecution.
As a general matter, such laws would appear to be inapplicable to multilevel marketing programs because distributors receive their compensation in their capacity as
"independent contractor distributors" and not in their capacity as consumers referring other consumers. The typical language of these statutes is as follows:

"Referral selling prohibited. No seller or lessor may give or offer a rebate, discount, or anything of value to a buyer or lessee as an inducement for a sale or lease in
consideration of his giving to the seller or lessor the names of prospective purchasers or lessees, or otherwise aiding the seller or lessor in making a sale to another
person, if the earning of the rebate, discount, or other thing of value is contingent upon the occurrence of an event subsequent to the time the buyer or lessee agrees
to the sale or lease."

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In the leading COURT decisions in this subject area, a variety of abuses have been targeted as potential elements of illegal
marketing plans:

1. Products which have "no real world" marketplace.

2. Products which are sold at inflated prices.

3. Mandatory purchases of company product.

4. Plans which result in inventory loading distributors.

5. Substantial cash investment requirements.

6. Mandatory purchases of peripheral or accessory products or services.

7. Plans in which company products are totally or substantially consumed only by distributors.

8. Plans in which distributors are left with substantial unsold inventory upon cancellation of participation.

9. Plans in which distributors purchase products in order to further the marketing plan rather than out of genuine desire and need for the product.

10. Plans which would fail without purchases by participants.

11. Plans which make no effort to emphasize retail sales to the ultimate non participant consumer.

12. Plans which require no meaningful participation by distributors after becoming a distributor.

13. Plans in which fees are paid to distributors for headhunting.

14. Plans in which commissions are not based on actual retail product sales.

15. Plans in which emphasis is on recruitment rather than sale of product.

16. Plans which contain elements of a lottery rewarding participants based on chance rather than on bona fide sales efforts.

17. Earnings misrepresentations or inflated earnings representations.

Credit for the above article goes to : mlm-law

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THE ABOVE ARTICLE WERE SOME REAL REFERENCES TO A
BUNCH OF COURT RULINGS OR COURT DECISIONS REGARDING
MLM / NETWORK MARKETING SYSTEMS

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