[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 3 Introduced in Senate (IS)]

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115th CONGRESS
  2d Session
                                  S. 3

     To amend the Federal Trade Commission Act to prohibit pyramid 
   promotional schemes to ensure that compensation is not based upon 
recruitment of participants into a plan or operation, but instead based 
   primarily on sales to individuals who use, resell, or consume the 
  products or services sold, protect participants, prohibit inventory 
                    loading, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            December 3, 2018

   Mr. Hatch introduced the following bill; which was read twice and 
   referred to the Committee on Commerce, Science, and Transportation

_______________________________________________________________________

                                 A BILL


 
     To amend the Federal Trade Commission Act to prohibit pyramid 
   promotional schemes to ensure that compensation is not based upon 
recruitment of participants into a plan or operation, but instead based 
   primarily on sales to individuals who use, resell, or consume the 
  products or services sold, protect participants, prohibit inventory 
                    loading, 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 2018''.

SEC. 2. PROHIBITION ON PYRAMID PROMOTIONAL SCHEMES; OTHER REQUIREMENTS.

    The Federal Trade Commission Act (15 U.S.C. 41 et seq.) is amended 
by inserting after section 5 the following:
    ``Sec. 5A. (a) It shall be unlawful for any person to establish, 
operate, promote, or cause to be promoted a pyramid promotional scheme.
    ``(b) It shall be unlawful for any person to establish, operate, 
promote, or cause to be promoted any plan or operation which sells or 
solicits the sale of consumer products or services in the home or 
otherwise than in a permanent retail establishment, and which sells 
products or services directly or indirectly to independent salespeople 
for resale, to operate without a bona fide inventory repurchase 
agreement.
    ``(c) It shall be unlawful for any person to establish, operate, 
promote, or cause to be promoted a plan or operation which causes 
inventory loading.
    ``(d) Nothing in this Act may be construed to prohibit a plan or 
operation, or to define a 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 or services or intangible property by 
participants for personal use, consumption, or resale so long as the 
plan or operation does not cause inventory loading and the plan or 
operation implements a bona fide inventory repurchase agreement.
    ``(e) A violation of subsection (a), (b), or (c) shall be treated 
as a violation under section 5.''.

SEC. 3. DEFINITIONS.

    Section 4 of the Federal Trade Commission Act (15 U.S.C. 44) is 
amended by adding at the end the following:
    ```Bona fide inventory repurchase agreement' means a program by 
which a plan or operation--
            ``(1) repurchases, on commercially reasonable terms, 
        current and marketable inventory purchased and maintained by a 
        participant for resale, upon request at the termination of the 
        participant's business relationship with the plan or operation; 
        and
            ``(2) clearly communicates such terms in its recruiting 
        literature, sales manual, or contracts with participants, 
        including the manner in which the repurchase is to be exercised 
        and disclosure of any inventory not eligible for repurchase 
        under the program.
    ```Commercially reasonable' means, with respect to the terms of 
repurchase by a plan or operation of current and marketable inventory 
from a participant, that the inventory is repurchased not later than 12 
months after the 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.
    ```Compensation' means the payment of any money, thing of value, or 
financial benefit.
    ```Consideration'--
            ``(1) means the payment of money or another thing of value 
        or the purchase of a product, good, service, or intangible 
        property; and
            ``(2) does not include--
                    ``(A) the purchase of a product or service 
                furnished at cost to be used in making a sale and not 
                for resale; or
                    ``(B) any time and effort spent in pursuit of sales 
                or recruiting activities.
    ```Current and marketable'--
            ``(1) means, with respect to inventory, that the 
        inventory--
                    ``(A) in the case of consumable or durable goods, 
                is unopened, unused, and within its commercially 
                reasonable use or shelf-life period; and
                    ``(B) in the case of services and intangible 
                property, including internet sites, represents the 
                unexpired portion of any contract or agreement; and
            ``(2) does not include inventory that has been clearly 
        described by a plan or operation to a participant prior to 
        purchase as discounted, seasonal, a special promotion item, or 
        not subject to the plan or operation's bona fide inventory 
        repurchase agreement.
    ```Inventory' means both goods and services, including company-
produced promotional material, sales aids, and sales kits that a plan 
or operation requires participants to purchase.
    ```Inventory loading' means a practice in which a plan or operation 
requires or encourages its participants to purchase inventory in an 
amount exceeding that which the participant can reasonably expect to 
use, consume, or resell to ultimate users.
    ```Participant' means a person who joins a plan or operation.
    ```Pyramid promotional scheme' means any plan or operation in which 
individuals pay consideration for the right to receive compensation 
that is primarily based upon recruiting other individuals into the plan 
or operation rather than related to the sale of products or services to 
ultimate users.
    ```Ultimate user' means, with respect to a product or service sold 
by a plan or operation, an individual who consumes or uses the product 
or service, whether or not the individual is a participant in the plan 
or operation.''.

SEC. 4. LIMITATIONS.

    (a) Other Violations of Federal Law.--Nothing in this Act or the 
amendments made by this Act shall be construed to limit the authority 
of any Federal official from proceeding against pyramid promotional 
schemes (as defined in section 4 of the Federal Trade Commission Act 
(15 U.S.C. 44)) for other violations of Federal law, including the 
Federal Trade Commission Act.
    (b) State Law.--Nothing in this Act or the amendments made by this 
Act prohibits an authorized State official from proceeding in a State 
court of competent jurisdiction on the basis of an alleged violation of 
any civil or criminal statute of such State.
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