The Study on the Payment of Consideration Under
A Multilevel Sales Scheme

Abstract

Through the ban of several so called “dual-tier” multilevel marketing practices in Chinese Taipei, the regulation of which practices attract the public attention. The major issues in debate are those concerned with the enforcement of the Fair Trade Law and the Regulation Rules relating to Multilevel Marketing Practices. In addition to the details related to regulation rules, the definitions of “reasonable price” under Article 23 and “consideration” provided under Article 8 of the Fair Trade Law are probably the issues of the most important. Therefore, the main theme to be addressed in this paper is the definition of ‘consideration“ and its relation with the enforcement of Article 23 of the Fair Trade Law.

According to Article 8 of the Fair Trade Law , participant’s contribution of “consideration” is one of the element in defining the “multilevel marketing practices.” Some thought that the provisions of Article 8 might mislead the public to “believe” it is necessary for multilevel marketing practice to ask the participant to “pay something” for the participation of the program and the sharing of profits, while only those practices violating Article 23 of the Fair Trade Law are illegal.

According to Article 23, a multilevel marketing practice is illegal when the main sources of its participants’ income are not gained from the promotion or the sale of the goods. However, it is difficult to determine what the “main source” means. What kind of the earnings can be counted as incomes. All these problems has long troubled the Fair Trade Commission when dealing with the relevant cases. Indeed, a regulatory structure like this might not be able to satisfy the need and the goal of multilevel marketing regulation.

In the United States, while different sates might have different ways in establishing a case, both the federal and state laws include the payment of “consideration” as one of the requisite elements in defining an “illegal multilevel marketing practices.” Taking the American experiences as examples, this paper tries to study on the issues relating to “the definition of multilevel marketing practices”, “background,” “case analysis” and “the definition of consideration.” Besides, the relationship between Article 8 and Article 23 is also addressed in this paper. Based on which, some policy initiatives as well as a regulatory framework are proposed.