[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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