108th CONGRESS
1st Session

H. R. 1220

To prohibit pyramid promotional schemes, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES
March 12, 2003

Mr. BARTON of Texas (for himself, Mr. HALL, Mr. FROST, Mrs. MYRICK, Mr. ENGLISH, Ms. PRYCE of Ohio, Mr. SESSIONS, Mr. TIBERI, and Mr. EHLERS) introduced the following bill; which was referred to the Committee on Energy and Commerce

A BILL

To prohibit pyramid promotional schemes, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Anti-Pyramid Promotional Scheme Act of 2003'.

SEC. 2. FINDINGS.

The Congress finds the following:

(1) Pyramid promotional schemes, chain letters, and related schemes are enterprises--

(A) that finance returns to participants through sums taken from newly attracted participants;

(B) in which new participants are promised large returns for their investments; and

(C) involve unfair and deceptive sales tactics, and lead to the victimization of unwitting individuals.

(2) Pyramid promotional schemes, chain letters, and related schemes constitute a threat in interstate commerce and to the financial well-being of the citizens of the United States.

(3) The advent of the global Internet makes pyramid promotional schemes international threats.

(4) The Ninth Circuit Court of Appeals erred in defining a pyramid promotional scheme in Webster v. Omnitrition Int'l, Inc. (79 F.3d 776; 9th Cir. 1996).

SEC. 3. DEFINITIONS.

In this Act:

(1) APPROPRIATE INVENTORY REPURCHASE PROGRAM- The term `appropriate inventory repurchase program' means a program by which a plan or operation repurchases, upon request at the termination of a participant's business relationship with the plan or operation and based upon commercially reasonable terms, current and marketable inventory purchased and maintained by the participant for resale, use, or consumption, and such plan or operation clearly describes the program in its recruiting literature, sales manual, or contracts with participants, including the manner in which the repurchase is exercised, and disclosure of any inventory that is not eligible for repurchase under the program.

(2) COMMERCIALLY REASONABLE TERMS- The term `commercially reasonable terms' means the repurchase of current and marketable inventory within 12 months from date of purchase at not less than 90 percent of the original net cost to the participant, less appropriate set-offs and legal claims,if any. In the case of service products, the repurchase of such service products must be on a pro rata basis (unless clearly disclosed otherwise to the participant) to be within the meaning of `commercially reasonable terms'.

(3) COMPENSATION- The term `compensation' means a payment of any money, thing of value, or financial benefit.

(4) CONSIDERATION- The term `consideration' means the payment of cash or the purchase of goods, services, or intangible property, and does not include--

(A) the purchase of goods or services furnished at cost to be used in making sales and not for resale; or

(B) time and effort spent in pursuit of sales or recruiting activities.

(5) CURRENT AND MARKETABLE-

(A) The term `current and marketable' includes inventory that--

(i) in the case of consumable or durable goods, is unopened, unused, and within its commercially reasonable use or shelf-life period; and

(ii) in the case of services and intangible property, including Internet sites, represents the unexpired portion of any contract or agreement.

(B) The term `current and marketable' does not include inventory that has been clearly described to the participant prior to purchase as seasonal, discontinued, or special promotion products not subject to the plan or operation's inventory repurchase program.

(6) INVENTORY- The term `inventory' includes both goods and services, including company-produced promotional materials, sales aids, and sales kits that the plan or operation requires independent salespersons to purchase.

(7) INVENTORY LOADING- The term `inventory loading' means that the plan or operation requires or encourages its independent salespersons to purchase inventory in an amount that unreasonably exceeds that which the salesperson can expect to resell for ultimate consumption, or to use or consume, in a reasonable time period.

(8) PARTICIPANT- The term `participant' means a person who joins a plan or operation.

(9) PERSON- The term `person' means an individual, a corporation, a partnership, or any association or unincorporated organization.

(10) PROMOTE- The term `promote' means to contrive, prepare, establish, plan, operate, advertise, or to otherwise induce or attempt to induce another person to be a participant.

(11) PYRAMID PROMOTIONAL SCHEME- The term `pyramid promotional scheme' means any plan or operation in which a participant gives consideration for the right to receive compensation that is derived primarily from the recruitment of other persons as participants in the plan or operation, rather than from the sales of goods, services, or intangible property to participants or by participants to others.

SEC. 4. RULES TO PROHIBIT OPERATING PYRAMID PROMOTIONAL SCHEME.

(a) IN GENERAL- Not later than 1 year after the date of the enactment of this Act, the Federal Trade Commission shall promulgate a rule under section 18(a) of the Federal Trade Commission Act (15 U.S.C. 57a(a)) providing that it shall be an unfair or deceptive act or practice under section 5 of such Act (15 U.S.C. 45) for any person, by the use of any means or instrumentality of transportation or communication in interstate or foreign commerce, to promote, offer, sell, or attempt to sell a participation or the right to participate in a pyramid promotional scheme.

(b) LIMITATION- Nothing in this Act or in the rule to be promulgated pursuant to this section shall be construed to prohibit a plan or operation, or to define such plan or operation as a `pyramid promotional scheme', based upon the fact that participants in the plan or operation give consideration in return for the right to receive compensation based upon purchases of goods, services, or intangible property by participants for personal use, consumption, or resale, and the plan or operation does not promote inventory loading and implements an appropriate inventory repurchase program.

SEC. 5. STATE ENFORCEMENT.

(a) ACTIONS UNDER STATE LAW- Nothing in this Act or the Federal Trade Commission Act prohibits an authorized State official from proceeding in State court on the basis of an alleged violation of any civil or criminal statute of such State.

(b) ACTIONS UNDER FEDERAL LAW- The attorney general of any State or territory of the United States may, upon finding any person is engaged or is about to engage in any act or practice that constitutes a pyramid promotional scheme in violation of the rule promulgated under section 4, bring an action in the appropriate district court of the United States to enjoin such act or practice and to obtain other appropriate relief. The attorney general of a State or territory of the United States may seek such relief on behalf of residents of such State or territory, and an authorized Federal official may seek such relief on behalf of residents of all such States and territories. Such court may grant a temporary restraining order, or a preliminary or permanent injunction, or other appropriate relief.

SEC. 6. NO LIMITATION ON OTHER FEDERAL CLAIMS.

Nothing in this Act or the rule promulgated under it shall limit the authority of any Federal official from proceeding against pyramid promotional schemes for other violations of Federal law.

END