ORIGINAL

RECEIVED
CATHY A. CATTERSON, CLERK
U.S. COURT OF APPEALS

FILED APR 04 1996
DOCKETED APR 05 1996

IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

U.S. Court of Appeals Docket Number: 94-16477
Lower Court Docket Number: CV-92-04133-SBA

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SHAUN WEBSTER and ROBERT LIGON, on behalf of themselves and all others similarly situated,
Plaintiffs-Appellants,

OMNITRITION INTERNATIONAL, INC., JIM FOBAIR, ROGER DALEY, CHARLES RAGUS and JERRY RUBIN
Defendants-Appellees.

BRIEF OF AMICUS CURIAE DIRECT SELLING ASSOCIATION IN SUPPORT OF PETITION FOR REHEARING AND SUGGESTION OF REHEARING EN BANC

Joseph N. Mariano, Esq.
DIRECT SELLING ASSOCIATION
166 K. St., NW
Suite 1010
Washington, DC 20006
Telephone: (202) 293-5760
Facsimile: (202) 463-4569

*John G. Roberts, Jr., Esq.
Philip C. Larson, Esq.
HOGAN & HARTSON
Columbia Square
555 – 13th Street, N.W.
Washington, DC 20004
Telephone: 202/637-5600
Facsimile: 202/637-5910

*Counsel of Record

ATTORNEYS FOR AMICUS CURIAE
DIRECT SELLING ASSOCIATION

TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ii
STATEMENT OF INTEREST OF AMICUS CURIAE 1
ARGUMENT 4
I. THE COURT ERRS IN SUGGESTING THAT, PRIMA FACIE, A MULTILEVEL MARKETING PLAN THAT CALCULATES COMPENSATION BASED ON PRODUCT ORDERS COULD BE A PYRAMID SCHEME WITHOUT REGARD TO THE EXISTENCE AND EFFECTIVENESS OF AN INVENTORY REPURCHASE POLICY AND OTHER DISTINGUISHING FEATURES. 4
II. PERSONAL USE OF THE PRODUCTS BY PLAN PARTICIPANTS IS AN IMPORTANT FACET OF MULTILEVEL MARKETING. 11
CONCLUSION 14

TABLE OF AUTHORITIES
Cases Page
In re Amway Corp., 93 F.T.C. 618 (1979) 4, 6, 7, 8, 9, 10, 11, 13, 14, 15
In re Ger-Ro-Mar, Inc., 84 F.T.C. 95 (1974) rev’d. 518 F. 2nd 33 (2d Cir. 1975) 3, 5, 6
Holiday Magic, Inc., 84 F.T.C. 748 (1974) 5, 6
Koscot Interplanetary, Inc., 86 F.T.C. 1106 (1979) aff’d mem. sub nom. Turner v. F.T.C., 580 F2nd 701 (D.C. Cir. 1978) 5, 6, 7, 10, 11, 12, 13
State ex rel. Miller v. American Professional Marketing, Inc., 382 N.W. 2d 117 (Iowa 1986) 3, 6
Webster v. Omnitrition, 96 Daily Journal. D.A.R. 2427 3, 4, 5, 11

Statutes
15 U.S.C. § 45 5
Ga. Code Ann. § 10-1-415 8
La. Admin. Code tit. 16 § III.503 8
Md. Code Ann. Bus. Reg. § 14-302 8
Mass. Ann. Laws ch. 93 § 69 (Law. Co-op.) 8
Okla. Stat. Ann., tit. 21 § 1072 8, 13
Tex. Bus. & Com. § 17.46(b) 8, 13
Wyo Stat. § 40-3-106 8
P.R. Laws Ann. tit. 10, § 997 8

Foreign Statutes
Competition Act, R.S.C. § 55 (1992) (Canada) 9
TABLE OF AUTHORITIES – Continued
C. Consumption Art. L. 122-6, 1995 (France) 9
Fair Trading Act, 1973, ch. 41 (England)
Pyramid Selling Schemes Regulation, 1990 (SI 1989, No. 2195) (England) 9
Ministere de L’Economie et des Finances, Direction Générale de la Concurrance, de la Consommation et de la Répression des Fraudes, Internal Note No. 6204, 18 Oct. 1995 (France) 9
Law on Retail Trade of 1996, ch. 22, 23 (Spain) 9

Miscellaneous
Mario Brossi & Joseph N. Mariano, Multilevel Marketing – A Legal Primer (1991) 3
Code of Ethics, Direct Selling Association § § A. 5-6 8
1992 Direct Selling Association Survey of Direct Sellers 12, 13
1995 Direct Selling Industry-Wide Growth and Outlook Survey Report 1, 2, 12, 13
Robert A. Peterson, et al., “Research Note: Consumers Who Buy From Direct Sales Companies,” 65 J. of Retailing (Summer 1989) 13
“Promises. Check ‘em Out!: Business Opportunity Fraud” (1994) 3
“Pyramid Schemes: Not What They Seem” (1991) 3
Special Issue on Direct Selling, in J. Of Marketing Channels (Bert Rosenbloom ed., Feb. 1993) 13
World Codes of Conduct (Towards Direct Sellers, Between Direct Sellers, and Between Companies), World Federation of Direct Selling Associations § B.g. 9
Thomas R. Wotruba, Direct Selling Education Foundation, Moral Suasion, Development of the US Direct Selling Association Industry Code of Ethics (1995) 13
Wotruba, “Full-time vs. Part-Time Salespeople – A Comparison on Job Satisfaction, Performance and Turnover in Direct Selling,” Int’l. J. of Research in Marketing, Issue 7 (1990) 13
TABLE OF AUTHORITIES – Continued
Wotruba, “The Effect of Goal-Setting on the Performance of Independent Sales Agents in Direct Selling,” IX The J. of Personal Sales & Sales Mgm’t, (Spring 1990) 13

STATEMENT OF INTEREST OF AMICUS CURIAE

The Direct Selling Association (DSA) is a national trade association headquartered in Washington, D.C. It represents companies which distribute products to customers through independent salespersons who personally demonstrate and explain the products to the consumer, usually in the home or work place. Direct sellers are perhaps best known to the public as person-to-person, door-to-door, or home party plan sellers. Direct selling provides an alternative distribution methodology by which companies (often small or new) may offer quality products and services to consumers without having to overcome the substantial advertising expenditures and other barriers to entry through more traditional distribution systems. Direct selling enables direct selling companies to overcome these barriers through the efforts of direct salespersons who provide personal demonstration, home delivery and a variety of other services which are not available in most retail outlets today. In 1994, over 6.3 million individuals sold directly, generating over $16.55 billion in estimated retail sales value. We estimate that DSA’s membership of 146 companies accounts for more than 90% of the industry’s annual sales volume. At least 10 members of DSA are publicly traded companies.

Over 70% of DSA members classify themselves as multilevel marketing companies. Multilevel marketing is a way of organizing a direct selling business in which customers are offered the opportunity to share with others their enthusiasm for a product and to receive rewards from sales to those consumers and from sales of and to those who they may in turn introduce to the company. Most of our salespeople and distributors use direct selling as a second, third, even fourth source of income. 76.3% of direct salespeople are female, 12.5% are African Americans, 4.7% are Hispanic Americans, 1% are Asian Americans and .5% are Native Americans. 8% of direct salespeople have a physical disability and 4.5% are over 65 years of age. There are fundamentally six types of salespeople in direct selling. Many people become involved in direct selling to buy products they like at wholesale or discount prices. These wholesale or discount buyers can make up a significant portion of a direct selling company’s customer and distributor base. Others join our companies to fulfill personal short-term objectives (e.g., working in December to earn holiday gift money.) The ease of entry into and exit from our business facilitates this type of sales activity. Others use our industry as a year round supplemental income source, but only work a few hours per week. Their extra direct selling income improves the quality of their lives, often keeping them in the middle class. Some direct sellers pursue their businesses as careers, devoting 30 hours or more per week to the business. Yet other individuals start direct selling businesses to gain social contacts or recognition otherwise missing in their lives. Finally, many direct sellers so believe in their products that they are driven to share them with family, friends and neighbors. People can move in and out of these categories and can be in more than one category simultaneously.