7. What are the definitions of "mainly from introducing new participants" and "reasonable market price" in Article 18 of the Act?
In determining the terms mainly and reasonable market price as stated in Article 18, the Commission, following discussions at its 19th Commissioners' Meeting, has decided that the terms may be analyzed in the following manner:
In relation to the "mainly":
- If the sources of profits of the participants to a MLM enterprise can be clearly divided into two, namely from introducing others to participate, and from promotion or sale of goods or service rendered, the source of the profit should be first determined. If the profit is mainly derived from introducing others to participate, then such act is in violation of Article 18 of the Act. In determining the term mainly, the Commission has used 50% as the basis for determination. Besides, the Commission will also take into account actual situations such as whether there is intent to violate the law, as well as the degree and extent of damage, when making determination in the future.
- In many instances, however, the source of profit of the participants cannot be precisely differentiated, as to how much is derived from introducing others to participate, and how much is derived from promotion or sale of goods or service rendered; the profit is a combination of these two types of payments. In this case, whether the price of the goods is a reasonable market price should be used as the basis to determine whether the act is consistent with Article 18 of the Act.
In relation to the " reasonable market price":
- Where there are similar competing goods or services in the market:
To determine whether the price is a reasonable market price, the selling price and quality standard of similar goods or services in the domestic or foreign market shall be the major sources of reference. In addition, the profit rate of the MLM enterprises, when compared to the profit rate of the other industries that do not use MLM to promote identical or similar goods, may also be used as reference. Other factors for consideration also include cost, special techniques, and quality of service.
- Where there are no similar competing goods or services in the market:
Since there are no similar competing goods or services in the market for comparison, determining the reasonable market price will be more difficult. However, where a MLM enterprise has formulated its own policy on merchandise return that is consistent with the regulations governing MLM, and where such policy is implemented in accordance with the law, the price of its goods and services may in principle be considered of reasonable market value.
Relevant article(s) of law: Multi-level Marketing Supervision Act, Article 18
Updated at：2016-02-22 16:39:43