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Monthly Archive for: ‘December, 2010’

Intellectual Property – What is It?

When you mention intellectual property, the odds are pretty good that you will be met with a blank stare. After all, our common perception of property is something that we can physically possess.

The law, however, has an entirely different concept of property. To the law, property is considered a bundle of rights, which include the right to use something, the right to possess that thing, the right to dispose of that thing, and the right to prevent other people from interfering with your rights respecting that thing.

Read more about intellectual property and how it affects MLMs here.

FTC Staff Report Recommends Expanding Coverage of Business Opportunity

The Federal Trade Commission has released a staff report that recommends expanding the coverage of the FTC’s Business Opportunity Rule include work-at-home opportunities such as envelope stuffing, medical billing, and product assembly, many of which have not been covered before. 

The FTC staff also recommends streamlining the disclosures required by the Business Opportunity Rule so that companies or individuals selling business opportunities make important disclosures to consumers on a simple, easy-to-read document. 

The purpose of the changes is to make it less burdensome for legitimate sellers to comply with the Rule, while still protecting consumers from “widespread and persistent” business opportunity fraud.  Public comments on the staff report will be accepted until January 18, 2011.

The current Rule is an interim rule dating to March 2007.  Up until then, the FTC’s  Franchise Rule covered both franchises and certain business opportunities.  Franchises typically are expensive, involve complex contractual relationships, and can include the right to use a trademark or other commercial symbol.  Business opportunities, on the other hand, often are less costly and involve simpler purchase agreements.

In 2006, the FTC proposed creating a separate Business Opportunity Rule. This staff report summarizes the rulemaking record to date, analyzes various alternatives, and presents staff’s recommendations for the proposed final Business Opportunity Rule and disclosure form.

FDA Announces New Actions to Stop Tainted Products Marketed as Dietary Supplements

The Food and Drug Administration has announced new steps intended to keep consumers safe from harmful products that are marketed as dietary supplements and that contain undeclared or deceptively labeled ingredients.

According to the FDA, these products are often promoted for weight loss, sexual enhancement, and bodybuilding.

The new steps FDA has taken include:

  • A letter from Commissioner of Food and Drugs Margaret A. Hamburg to the dietary supplement industry emphasizing its legal obligation and responsibilities to prevent tainted products from reaching the U.S. market.
  • A new rapid public notification system (RSS Feed) on its website to more quickly warn consumers about these products.
  • A mechanism for industry to alert FDA about potentially tainted products and about the firms that make them.

Among the substances found in products that are marketed as dietary supplements and that contain hidden or deceptively labeled ingredients, the FDA cites:

  • the active ingredients in FDA-approved drugs or their analogs (closely-related drugs).
  • other compounds, such as novel synthetic steroids, that do not qualify as dietary ingredients.

Where FDA investigations have discovered tainted products marketed as dietary supplements, the agency has issued warning letters and conducted seizures and criminal prosecutions.

FDA has also alerted consumers to hundreds of products with these often deceptively labeled and harmful ingredients, including more than 80 products marketed for sexual enhancement, more than 70 products marketed for weight loss, and more than 80 products marketed for bodybuilding.

Picking Your Partners

Among the top reasons why MLM startups fail is clashes among the business partners. Did you put as much thought and planning into choosing the right business partners as you did working through the planning around your product line, your compensation plan, your marketing strategy, and the hundreds of other big and small decisions that you made along the way? Read more about the critical issues you should address before choosing your partners when you start an MLM in our MLM Startup Guide.

Melaleuca Suffers Setback in Lawsuit Against Former IMEs

A Judge in Idaho has denied a motion for summary judgment filed by Melaleuca in litigation between the company and two of its former Independent Marketing Executives. 

Melaleuca filed the lawsuit against Rick and Natalie Foeller in April of 2009 after it learned that they had recruited other Melaleuca IMEs for a competing multilevel marketing program, a violation of the IME Agreement between Melaleuca and the Foellers.  In its lawsuit, Melaleuca is asking the court to order the Foellers to return commissions that Melaleuca had paid them dating back to June of 2008-the date that the Foellers first violated the nonsolicitation terms of the IME Agreement.  Because there was no apparent dispute between the parties regarding the Foellers’ violation of the nonsolicitation provisions, Melaleuca filed a motion for summary judgment for return of the commissions.

Like most MLM companies, Melaleuca’s IME Agreement contains provisions restricting IMEs from recruiting other IMEs or Melaleuca customers for competing MLM programs.  Unlike most MLM companies that we work with, the Melaleuca IME Agreement states that a violation of the nonsolicitation provisions constitutes “the forfeiture by the Marketing Executive of all commissions and bonuses payable for and after the calendar month in which the violation occurred.”  Based on this language, Melaleuca sought to claw-back all of the commissions it had paid to the Foellers after they first violated the IME Agreement. 

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FTC Proposes Revised Green Guides

The FTC has proposed revisions to the “Green Guides” designed to update them and make them easier for companies to understand and use.

The changes include new guidance on the use of product certifications and seals of approval, “renewable energy” claims, “renewable materials” claims, and “carbon offset” claims. The FTC is taking public comments until December 10, 2010, after which it will decide which changes to make final.

The revised Guides caution against making blanket, general claims that a product is “environmentally friendly” or “eco-friendly.” The FTC’s consumer perception study found that such claims suggest that the product has specific and far-reaching environmental benefits when very few products, if any, have all the attributes consumers perceive from such claims. Therefore, the FTC reasons, these claims are nearly impossible to substantiate.

The proposed Guides also caution against using certifications or seals of approval that do not specify the basis for the certification. The Guides state that unqualified product certifications and seals of approval likely constitute general environmental benefit claims and advise that the qualifications applied to certifications or seals should be clear, prominent and specific.

The proposed revisions advise marketers how consumers are likely to understand certain environmental claims, including that a product is degradable, compostable, or “free of” a particular substance. For example, if a marketer claims that a product that is thrown in the trash is “degradable,” it should decompose in a “reasonably short period of time” – no more than one year.

New information in the proposed revision includes advice about the use of “renewable materials” and “renewable energy” and carbon offset claims.

The proposed Guides do not address use of the terms “sustainable,” “natural,” and “organic” either because the FTC says it lacks a sufficient basis to provide meaningful guidance or because they want to avoid proposing guidance that duplicates rules or guidance of other agencies. Organic claims made for textiles and other products derived from agricultural products, for example, are covered by the U.S. Department of Agriculture’s National Organic Program.