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FTC Revised Proposed
Business Opportunity Rule
Jeffrey Babener, Babener and Associates
In April 2006, the FTC released a sweeping proposed
change in its FTC Business Opportunity Rule. The proposal was immediately
and strongly criticized by representatives of and experts in the MLM, Direct
Sales, Direct Selling, Network Marketing and Party Plan industry. The
process to a completed Rule was expected to last 18 months to 3 years. For
extensive analysis, text of the actual FTC Proposed Business Opportunity
Rule and ongoing updates, please visit www.mlmlegal.com.
During the following two year period, the FTC received more than 17,000
comments on its proposed rule, the majority of which were from companies,
representatives and distributors in the MLM industry. The vast majority of
comments raised serious concerns regarding the onerous and burdensome nature
of the proposed rules as well as extending the scope of the rule to the MLM
/Direct Selling industry. In addition, scores of members of Congress weighed
in with concerns about the impact on a well-established industry that
involved millions of home-based businesses.
On March 18, 2008, the FTC responded favorably to constructive criticism,
and announced that it was seeking to modify the Proposed Business
Opportunity Rule to exempt MLM companies. (As part of its explanation of MLM
exemption, the FTC cited comments from the editor of
Babener & Associates.) The FTC issued a Revised Proposed Business
Opportunity Rule for comment. The revised draft, announced with the intent
of exempting MLM companies, is still flawed in that its wording may still
inadvertently create applicability to many leading MLM companies because
proposed "definitions" section 437.1(c)(3)(ii) may mistakenly include
MLM/Direct Selling companies that assist in customer gathering on the web,
in print, institutional or co-op advertising campaigns or other customer
lead generation programs. However, the proposed rule represents a good faith
start to narrow the scope of the Proposed FTC Business Opportunity Rule and
invite comments from the public to assist in this process. At the very
least, the FTC was unequivocal in its stated intent to exempt the MLM
industry, noting in its public statement:
On balance, based on this record and its law enforcement experience, the
Commission does not believe it is practicable or sufficiently beneficial to
consumers to attempt to apply the proposals advanced in this rulemaking
against multi-level marketing companies, particularly when considering the
burdens upon industry. The Commission, therefore, has determined that at
this point, it will continue to use Section 5 to challenge unfair and
deceptive acts or practices in the MLM Industry.
The actual text of the FTC Press Release is set forth
below and a link is provided to the actual language of the FTC formal
Publication discussing its rationale, and Invitation to submit comments on
the FTC Revised Proposed Business Opportunity Rule.
For Your Information: March 18, 2008
FTC Approves Federal Register Notice
Seeking Comments on Revised Proposed
Business Opportunity Rule
Commission approval of Federal Register notice: The Commission has approved
the publication of a Federal Register notice seeking comments on a revised
proposal for a new trade regulation rule governing business opportunities.
Dating from 1978, the FTC historically has had a single rule covering two
distinct types of offerings: franchises and business opportunity ventures.
Many of the very familiar national fast-food restaurants and hotels, for
example, are franchises, business opportunity ventures include vending
machine routes, rack display operations, and medical billing schemes
ventures. These ventures, unlike franchises, typically do not involve the
right to use a trademark or other commercial symbol. Nevertheless, they do
call for the opportunity seller to provide purchasers with locations for
machines, or with accounts, or clients, and have been covered by the
In April 2006, the Commission proposed a separate Business Opportunity Rule
that would cover just business opportunities ventures. Part of the proposal
was to expand coverage to business arrangements that were not formerly
covered by the Franchise Rule and to streamline disclosure obligations.
(Business opportunities formerly covered by the Franchise Rule remain
covered under an interim Business Opportunity Rule.) The revised notice
announced today modifies the April 2006 proposal for the Business
Opportunity Rule. The revised notice of proposed rulemaking (RNPR) will be
published soon and is available now on the FTC’s Web site and as a link to
this press release.
After evaluating the comments received on the April 2006 notice, the
Commission has decided to issue an RNPR that is more narrowly focused than
the April 2006 proposal. As proposed now, the Business Opportunity Rule
would still cover those schemes currently covered by the interim Business
Opportunity Rule, and it would expand coverage to include work-at-home
schemes. The revised proposal, however, would not reach multi-level
marketing companies or certain companies that may have been swept
inadvertently into scope of the April 2006 proposal. The revised proposed
rule also streamlines the requirement to disclose material information by
eliminating requirements to disclose the number of cancellations and refund
requests that a business opportunity seller receives or the litigation
history of sales personnel.
The Commission will be accepting comments on the RNPR until May 27, 2008.
Thereafter, rebuttal comments can be made by June 16, 2008.
The Commission vote approving publication of the notice was 5-0. (FTC File
No. R511993; the staff contact is Monica E. Vaca, Bureau of Consumer
Protection, 202-326-2245; see related press release dated
April 5, 2006.)
Link to Actual Text of FTC Revised Notice of
Rulemaking on the Proposed Business Opportunity Rule, complete with detailed
explanation and analysis and proposed revised language:
On any given day you can catch Jeffrey Babener, editor of
www.mlmlegal.com, lecturing on Network Marketing at the University of Texas or the University of Illinois, addressing thousands of distributors in Los Angeles, Bangkok, Tokyo and Russia, or writing a new book on Network Marketing, an article for Entrepreneur Magazine or a chapter for a University textbook. Over two decades he has served as marketing and legal advisor to some of the world's largest direct selling companies, the likes of Avon, Nikken, Shaklee, Tupperware, Prepaid Legal, Longaberger, Melaleuca, Discovery Toys, Usana, Amazon Herb, NuSkin, Cell Tech, Sunrider…. and he has provided counsel to the most successful telecom network marketing companies...Excel, ACN, World Connect, ITI, Acceris, AOL Select and Network 2000. An active spokesperson for the industry, he has assisted in new legislation and served on the Lawyer's Council, Government Relations Committee and Internet Task Force of the Direct Selling Association (DSA) as well as serving as General Counsel for the Multilevel Marketing International Association. He is an MLM attorney supplier member of the DSA and has served as legal counsel and MLM consultant on MLM law issues for many DSA companies. He is author of multiple books, including, Network Marketing: What You Should Know, Network Marketer's Guide To Success, Tax Guide for MLM/Direct Sellers, Starting and Running the Successful MLM Company, The MLM Corporate Handbook and Window of Opportunity. He is author of countless articles on network marketing, many of which can be found at
www.mlmlegal.com where he is the editor. You will see his articles and interviews in such publications as Money, Atlantic Monthly, Success, Entrepreneur, Business Startups, Home Office Computing, Inc., Money Makers Monthly, etc. He has been chairman of numerous industry conference series, including, Starting and Running the Successful MLM Company, The MLM Entrepreneur Series and The MLM Masters series. He has served as the close advisor to scores of MLM Companies and their distributors, comprising millions of distributors and billions of dollars in sales. Mr. Babener is a graduate of the University of Southern California Law School, where he served as editor of the USC Law Review. After an appointment to be an advisor law clerk to a U.S. Federal Judge, he went on to become a member of the California and Oregon State Bar, where he has also served as chairman of the Oregon State Bar Committee on Judicial Administration. He has exclusively practiced in the area of direct selling for over 20 years.
A Regulatory Update for MLM,Direct Selling, Network Marketing, Direct Sales, Party Plan Independent
Distributors and Companies