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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
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