The FTC Commissioners Meeting on September 15, 1999 discussed the allegation against the Taiwan branch of Rexall Showcase International Inc. of the United States for violating Article 2, 2 of the Fair Trade Law and the Supervisory Regulation of Multi-level Sales.

The Rexall brought large advertising spaces in newspapers in March 1998 and used its Internet websites to circulate information about its multi-level sales operation in Taiwan and the contact addresses and telephones of its distributors. The FTC received more than one complaint that Rexall engaged in activities before being approved in an attempt to affect competition in the multi-level sales market in Taiwan.

Many multi-level sales enterprises are operating on a global basis, and have adopted international sponsorship systems for promotion activities outside the countries where they are incorporated. These enterprises might have internal rules regulating pre-approval activities and prohibitions. Many consider that acts purely to explore business opportunities not to be considered multi-level sales activities. Only when there are contracts entered into by participants, products sold, and compensation paid that can deem the multi-level sales activities have taken place.

The FTC investigation found that before the branch office was duly incorporated, the Rexall Taiwan branch had arranged product seminars on a regular basis, circulated Chinese-language introductions, and initiated many programs to promote multi-level sales. The branch also prepared the participant application and agreements for distributors to sign and pass to their sponsors to join directly under the Rexall of the United States. Orders, delivery of products, and the payment of compensations are all handled by the upline sponsors. Therefore, the distributors, without leaving the country, can engage in trading of Rexall products and receive compensation. Despite repeated statements that it prohibited its distributors from engaging in pre-approval activities before obtaining approval in the particular markets, Rexall distributors in Taiwan have acted in ways clearly in violation of regulations on pre-approval activities, as stipulated in the parent company as well as adopted by the industry. These acts cause direct impact on the competition order in Taiwan's multi-level sales market, which falls under the application of the Fair Trade Law.

The U.S. Rexall regulations on international recruitment prohibit its distributors from engaging in pre-approval activities in yet-to-open markets. However, in view of acts of those distributors from Rexall of the United States, these distributors only sent letters, made telephone calls, or paid visits to violators to ask them stop pre-approval multi-level sales activities, without giving disciplinary actions to these violations. So, even though Rexall of the United States did not lead or encourage these distributors to engage in multi-level sales activities in Taiwan, it cannot be excused for making tacit consent to these violations.

In conclusion, the FTC Commissioners Meeting on September 15, 1999 decided that Rexall of the United States and its Taiwan Branch, before obtaining approvals from the FTC, have given tacit approval for violations outside its duly incorporated areas. This combined with the fact that such acts by its distributors have recruited participants in Taiwan to join directly to the U.S. company and to engage in multi-level sales in Taiwan have caused direct impact on the competition order in Taiwan's multi-level sale market. Such an act has violated Article 3, Paragraph 1 of the Supervisory Regulation of Multi-level Sales, and the penalty is levied in accordance with Article 42 of the Fair Trade Law that the company shall be given a fine of NT$300,000.

(The revised Supervisory Regulation for Multi-level Sales, promulgated on June 16, 1999 and taking effect on July 1, stipulates in Article 24 that the Regulation shall apply to foreign multi-level enterprises for sales in the territory of the Republic of China, and that the participants or the introducers who bring the participants into the multi-level sales programs or operation plans shall be governed by the Regulation as well.)