[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1220 Introduced in House (IH)]






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.
                                 <all>