[Federal Register Volume 74, Number 78 (Friday, April 24, 2009)]
[Notices]
[Pages 18712-18715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-9440]


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FEDERAL TRADE COMMISSION


Public Workshop: Business Opportunity Rule An FTC Workshop 
Analyzing Business Opportunity Disclosure Form and Other Proposed 
Changes to the Business Opportunity Rule

AGENCY: Federal Trade Commission

ACTION: Notice announcing public workshop, revised disclosure document, 
and request for public comment.

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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is 
planning to hold a public workshop

[[Page 18713]]

relating to the March 26, 2008 Revised Notice of Proposed Rulemaking 
(``RNPR'') that announced proposed changes to the trade regulation rule 
entitled ``Business Opportunity Rule,'' 16 CFR Part 437 (the ``Rule''). 
The workshop will explore issues relating to the effectiveness of the 
proposed revised Business Opportunities Disclosure Form attached to 
this Notice as a means of conveying material information to prospective 
purchasers of business opportunities. The workshop is also anticipated 
to develop the record related to certain issues raised in the comments 
received in response to the RNPR.

DATES: The public workshop will be held on June 1, 2009, from 9:00 a.m. 
until 5:00 p.m. at the FTC's Satellite Building Conference Center, 
located at 601 New Jersey Avenue, NW, Washington, DC. Requests to 
participate as a panelist must be received by May 4, 2009. Any written 
comments related to the agenda topics and the issues discussed by the 
panelists at the workshop must be received by June 15, 2009. The 
workshop is open to the public, and there is no fee for attendance. For 
admittance to the Conference Center, all attendees will be required to 
show valid photo identification such as a driver's license.

ADDRESSES: Registration information can be found in Section III of this 
Notice. In order to facilitate the organization of comments and 
requests to participate, comments and requests to be panelists should 
respectively refer to ``Business Opportunity Rule Workshop--Comment, 
Project No. P084405'' or to ``Business Opportunity Rule Workshop--
Request to Participate, Project No. P084405.'' A comment or request to 
participate as a panelist may be filed electronically or in paper form. 
Please note that your comment--including your name and your state--will 
be placed on the public record of this proceeding, including on the 
publicly accessible FTC Website, at (http://www.ftc.gov/os/publiccomments.shtm).
    Because comments will be made public, they should not include any 
sensitive personal information, such as an individual's Social Security 
Number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. Comments also 
should not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, comments should not include any ``[t]rade secret or any 
commercial or financial information which is obtained from any person 
and which is privileged or confidential. . . .,'' as provided in 
Section 6(f) of the Federal Trade Commission Act (``FTC Act''), 15 
U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). Comments 
containing material for which confidential treatment is requested must 
be filed in paper form, must be clearly labeled ``Confidential,'' and 
must comply with FTC Rule 4.9(c), 16 CFR 4.9(c).\1\
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See FTC Rule 4.9(c), 16 CFR 
4.9(c).
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    Because paper mail addressed to the FTC is subject to delay due to 
heightened security screening, please consider submitting your comments 
and requests to participate in electronic form. Comments filed in 
electronic form should be submitted by using the following weblink: 
(https://secure.commentworks.com/ftc-businessopportunityworkshop) (and 
following the instructions on the web-based form). To ensure that the 
Commission considers an electronic comment, you must file it on the 
web-based form at the weblink (https://secure.commentworks.com/ftc-businessopportunityworkshop). If this Notice appears at (http://www.regulations.gov/search/index.jsp), you may also file an electronic 
comment through that website. The Commission will consider all comments 
that regulations.gov forwards to it. Requests to participate filed in 
an electronic form should be submitted by e-mail to: 
[email protected]. You may also visit the FTC Website 
at http://www.ftc.gov to read the Notice and the news release 
describing it.
    A comment or request to participate as a panelist filed in paper 
form should include the ``Business Opportunity Rule Workshop--Comment, 
Project No. P084405'' or ``Business Opportunity Rule Workshop--Request 
to Participate, Project No. P084405'' reference both in the text and on 
the envelope, and should be mailed or delivered, with two complete 
copies, to the following address: Federal Trade Commission, Office of 
the Secretary, Room H-135 (Annex S), 600 Pennsylvania Avenue, NW, 
Washington, DC 20580. The FTC is requesting that any comment filed in 
paper form be sent by courier or overnight service, if possible, 
because U.S. postal mail in the Washington area and at the Commission 
is subject to delay due to heightened security precautions.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. The Commission will consider all timely and responsive 
public comments that it receives, whether filed in paper or electronic 
form. Comments received will be available to the public on the FTC 
Website, to the extent practicable, at (http://www.ftc.gov/os/publiccomments.shtm). As a matter of discretion, the Commission makes 
every effort to remove home contact information for individuals from 
the public comments it receives before placing those comments on the 
FTC Website. More information, including routine uses permitted by the 
Privacy Act, may be found in the FTC's privacy policy, at (http://www.ftc.gov/ftc/privacy.shtm).
    Comments on any proposed filing, recordkeeping, or disclosure 
requirements that are subject to paperwork burden review under the 
Paperwork Reduction Act should additionally be submitted to: Office of 
Information and Regulatory Affairs, Office of Management and Budget 
(``OMB''), Attention: Desk Officer for Federal Trade Commission. 
Comments should be submitted via facsimile to (202) 395-5167 because 
U.S. postal mail at the OMB is subject to delays due to heightened 
security precautions.

FOR FURTHER INFORMATION CONTACT: Kathleen Benway (202) 326-2024, 
Division of Marketing Practices, Bureau of Consumer Protection, Federal 
Trade Commission, 600 Pennsylvania Avenue, NW, Room H-286, Washington, 
DC 20580.

SUPPLEMENTARY INFORMATION:

I. Background

    As part of the Commission's overall policy of periodic review of 
its trade regulation rules, the Commission, in 1995, commenced a 
regulatory review of its Trade Regulation Rule (``TRR'') entitled 
``Disclosure Requirements and Prohibitions Concerning Franchising and 
Business Opportunity Ventures'' (the ``Franchise Rule''). This Rule, as 
originally promulgated, covered, in a single Code of Federal 
Regulations part, two distinct types of offerings: franchises and 
business opportunity ventures. Many of the very familiar national fast-
food restaurants and hotels, for example, are franchises; business 
opportunity ventures include vending machine routes, rack display 
operations, and medical billing

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ventures. Business opportunity ventures, unlike franchises, typically 
do not involve the right to use a trademark or other commercial symbol, 
and generally do not involve a long-term reciprocal relationship 
between the seller and the purchaser of the venture. Nevertheless, 
these ventures typically do call for the business opportunity seller to 
provide purchasers with locations for machines or equipment or with 
clients.
    Much of the information revealed by the regulatory review focused 
on the differences between franchises and business opportunity 
ventures, and the distinct regulatory challenges presented by these two 
types of offerings. One result of the periodic review was that, based 
on the record amassed during the review proceeding, the Commission 
determined a need to create two separate rules--one covering the sale 
of franchises and one to govern the sale of non-franchise business 
opportunities. Accordingly, in February 1997, the Commission published 
an Advance Notice of Proposed Rulemaking soliciting comment on several 
proposed Rule modifications, including the creation of a separate TRR 
governing the sale of business opportunities.\2\
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    \2\ 62 FR at 9115 (Feb. 28, 1997).
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    In 2006, the Commission published an Initial Notice of Proposed 
Rulemaking (``Initial NPR'') announcing its intention to proceed with 
its proposal for a separate Business Opportunity Rule (``Initial 
Proposed Business Opportunity Rule'' or ``IPBOR'').\3\ In response to 
the Initial NPR, the Commission received more than 17,000 comments, the 
overwhelming majority of which came from the multi-level marketing 
(``MLM'') industry.\4\ MLM companies, their representatives and trade 
associations, as well as individual participants in various MLM plans, 
expressed grave concern about the burdens the IPBOR would impose on 
them, and urged the Commission to narrow the scope of the IPBOR, to 
implement various safe harbor provisions, and/or to reduce the required 
disclosures.\5\
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    \3\ Business Opportunity Rule NPR, 71 FR 19054 (Apr. 12, 2006).
    \4\ Multi-level marketing is one form of direct selling, and 
refers to a business model in which a company distributes products 
through a network of distributors who earn income from their own 
retail sales of the product and from retail sales made by the 
distributors' direct and indirect recruits. Because they earn a 
commission from the sales their recruits make, each member in the 
MLM network has an incentive to continue recruiting additional sales 
representatives into their ``down lines.'' See Peter J. Vander Nat & 
William W. Keep, Marketing Fraud: An Approach to Differentiating 
Multilevel Marketing from Pyramid Schemes, 21 J. Pub. Pol'y & 
Marketing (Spring 2002) at 140.
    \5\ The Commission also received approximately 187 comments, 
primarily from individual consumers or consumer groups, in favor of 
the IPBOR. Only a handful of comments from non-MLM companies and 
industry groups expressed concerns about obligations that the IPBOR 
would impose upon them.
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    On March 30, 2007, while the Business Opportunity proceeding was 
underway, the Commission published the Amended Franchise Rule that 
separated the Franchise Rule into two distinct CFR parts--part 436, 
governing the sales of business format franchises, and a new part 437, 
the Business Opportunity Rule, governing the sales of non-franchise 
business opportunities. Part 437 is identical to the original Franchise 
Rule, with all of the definitional elements and references regarding 
business format franchising deleted. Part 437 continues to govern sales 
of non-franchise business opportunities, pending completion of the 
ongoing proceedings to amend it.
    After an extensive analysis of the public comments received in 
response to the Initial NPR and a reassessment of its law enforcement 
experience, the FTC, on March 26, 2008, issued a Revised Notice of 
Proposed Rulemaking (``RNPR'') that proposed a Revised Proposed 
Business Opportunity Rule (``RPBOR'')\6\ more narrowly tailored than 
the IPBOR. In addition to minor wording and punctuation changes to 
improve clarity, the RPBOR modified the IPBOR in six significant ways:
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    \6\ Business Opportunity Rule Revised NPR, 73 FR 16110 (Mar. 26, 
2008)
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     It narrowed the scope of the proposed Rule to avoid 
broadly sweeping in sellers of multi-level marketing opportunities,\7\ 
while retaining coverage of those business opportunities sellers 
historically covered by the FTC's original Franchise Rule (and by the 
FTC's current Business Opportunity Rule), as well as coverage of 
sellers of work-at-home schemes;
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    \7\ The RNPR did not exempt MLMs from coverage of the RPBOR. 
Instead, it narrowed the scope of the IPBOR by significantly 
revising Section 437.1 by redefining the term ``business 
opportunity.'' The RNPR noted that while some MLMs do engage in 
unfair or deceptive acts or practices, including the operation of 
pyramid schemes or unsubstantiated earnings claims that cause 
consumer harm, commenters generally agreed that the IPBOR's required 
disclosures would not help consumers identify a fraudulent pyramid 
scheme. In the RNPR, the Commission stated its belief that consumer 
harm flowing from deceptive practices in the MLM industry could be 
more effectively addressed through the use of Section 5 of the FTC 
Act.
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     It cured a potential overbreadth problem that may have 
inadvertently swept in companies using traditional product distribution 
arrangements;
     It eliminated the previously proposed requirement that a 
covered business opportunity seller disclose the number of cancellation 
and refund requests it received;
     It eliminated the proposed requirement to disclose 
litigation history of certain sales personnel (while retaining the 
requirement to disclose litigation history of the business opportunity 
seller, its principals, officers, directors, and sales managers, as 
well as any individual who occupies a position or performs a function 
similar to an officer, director, or sales manager);
     It added a proposed requirement to include a citation to 
the Rule in the title of the required disclosure document; and
     It added a proposed prohibition against misrepresenting 
that the government or any law forbids providing business opportunity 
prospects with a list of prior purchasers.
    The RNPR sought public comment on these proposed changes and on 
alternatives the Commission could consider.
    The RNPR also included a proposed one-page Business Opportunity 
Disclosure Form (``proposed Disclosure Form'') that sellers of business 
opportunities would be required to provide to prospective purchasers. 
Section 437.2 of the RPBOR would require ``sellers'' of covered 
business opportunities to provide potential purchasers with the 
proposed Disclosure Form at least seven calendar days before they sign 
a contract or pay any money toward a purchase. The proposed Disclosure 
Form is intended to provide prospective purchasers with material 
information with which to make an informed decision about the potential 
business opportunity, including information about earnings claims, 
legal actions, existence of cancellation or refund policies, and 
references. The RNPR announced that the Commission had engaged a 
consultant with expertise in document design and comprehension to 
evaluate the proposed Disclosure Form to ensure that it adequately 
conveyed to consumers information material to the prospective business 
opportunity, and to determine whether the overall presentation of the 
information in the proposed Disclosure Form could be improved to make 
it more useful and understandable. The RNPR also invited public comment 
on the proposed Disclosure Form.\8\ Following publication of the RNPR, 
the consultant conducted extensive consumer testing of the proposed 
Disclosure Form that

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resulted in substantial improvement to both the layout and the wording 
of the form, e.g., the consultant suggested revising the preamble to 
clarify that the information on the proposed Disclosure Form relates 
specifically to the business opportunity that the reader is being 
offered, and suggested adding a note below the signature line stating 
that the FTC requires that the business opportunity seller give the 
reader at least seven calendar days before asking him or her to sign a 
purchase contract. The format and language of the revised proposed 
Business Opportunity Disclosure Form (``revised proposed Disclosure 
Form'') is set forth in Appendix A to this Notice.\9\ More information 
about the testing of the proposed Disclosure Form may be found at: 
(http://www.ftc.gov/bcp/workshops/bizopps/disclosure-form-report.pdf).
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    \8\ In response to the RNPR, the Commission received no public 
comments about the language or the layout of the proposed form.
    \9\ The version of the revised proposed Disclosure Form that was 
tested by the expert inadvertently omitted the phrase ``or pay any 
money'' from the conclusion of the penultimate sentence of the 
revised proposed Disclosure Form. The expert engaged by the FTC 
determined that this omission had no effect on the results of its 
testing.
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II. Issues for Discussion at the Workshop

    The primary focus of the workshop will be on the efficacy of the 
revised proposed Disclosure Form to convey critical material 
information to prospective purchasers of business opportunities. The 
workshop will explore the form as a whole, as well as specific aspects 
or sections of the form--for example, whether the required disclosures 
regarding legal actions and cancellation or refund policies are 
adequate. The workshop also will provide participants with an 
opportunity to discuss some general issues raised in the comments 
received in response to the RNPR, including: the implications of the 
RPBOR for businesses and consumers; whether certain definitions 
proposed in the RNPR accomplish the Commission's purposes stated in the 
RNPR; and the RPBOR's compatibility with existing federal and state 
policies. A more detailed agenda will be published at a later date, in 
advance of the scheduled workshop.

III. Public Participation Information

A. Registration Information

    The public workshop will consist of a roundtable discussion on the 
issues described above by those individuals selected to be panelists. A 
court reporter will be present to record the proceedings so that a 
transcription can be made for the public record. The FTC will accept 
pre-registration for this workshop. Pre-registration is not necessary 
to attend, but is encouraged so that staff may better plan this event. 
To pre-register, please email your name and affiliation to 
[email protected]. When you pre-register, the FTC 
collects your name, affiliation, and e-mail address. We will use this 
information to estimate how many people will attend and better 
understand the likely audience for the workshop, and will dispose of it 
following the workshop. We may use your e-mail address to contact you 
with information about the workshop. The FTC Act and other laws the 
Commission administers permit the collection of this contact 
information to consider and use for the above purposes. Under the 
Freedom of Information Act or other laws, we may be required to 
disclose the information you provide to outside organizations. For 
additional information, including routine uses permitted by the Privacy 
Act, see the Commission's privacy policy at (http://www.ftc.gov/ftc/privacy.shtm).

B. Requests to Participate as a Panelist

    The workshop will consist of a roundtable format with participation 
by panelists selected by the FTC staff. Other attendees also will have 
an opportunity to comment and ask questions. Requests to participate as 
a panelist must be received on or before May 4, 2009. Persons selected 
as panelists will be notified on or before May 15, 2009.
    Requests to participate as a panelist at the workshop should be 
submitted electronically to [email protected], or, if 
mailed, should be submitted in the manner detailed in the ADDRESSES 
section of this Notice, and should be captioned ``Business Opportunity 
Workshop--Request to Participate, Project No. P084405.'' Parties are 
asked to include in their requests a brief statement setting forth 
their expertise in or knowledge of the issues on which the workshop 
will focus as well as their contact information, including a phone 
number, facsimile number, and e-mail address (if available), to enable 
the FTC to notify them if they are selected. For requests filed in 
paper form, an original and two copies of each document should be 
submitted to Federal Trade Commission/Office of the Secretary, Room 
135-H (Annex S), 600 Pennsylvania Ave, NW, Washington, DC, 20580, and 
must be received on or before May 4, 2009. The Commission will also 
accept requests to participate received at the following e-mail 
address: [email protected].

C. Written and Electronic Comments

    The submission of comments is not required for participation in the 
workshop. If a person wishes to submit written or electronic comments 
about the topics to be discussed at the workshop, such comments should 
be filed as prescribed in the ADDRESSES section above, and must be 
received on or before June 15, 2009. To read the FTC's policy on how it 
handles the information you submit, please visit (http://www.ftc.gov/ftc/privacy.shtm).
    By direction of the Commission.

Donald S. Clark
Secretary
[FR Doc. E9-9440 Filed 4-23-09: 8:45 am]
BILLING CODE 6750-01-S