The FTC. v. Burnlounge decision is expected to be published any day now. The court’s decision, depending on which way they decide, could dramatically impact the network marketing industry. It’s not very often that a network marketing case goes the distance to the point of a final decision from a court. Usually, these things get buried in confidential arbitration proceedings.

I’ve made 2 predictions about how this decision will go down:

1) Companies cannot pay commissions on sales aids.

In Burnlounge, the company charged $450 at registration. With that fee, distributors had the rights to use a personal website to sell music. Customers could hit the site, download music, and the distributors got paid. However, the majority of money in BL’s compensation plan allegedly came from the registration fees from distributors, not from customer sales.

Issue being decided: Can a company pay a commission on items that are only relevant for its distributors i.e. sales aids?

Prediction: No. Companies can only pay commissions on items that have a legitimate market value outside the distributor network. Most companies understand this already. If you purchase a sales kit from Avon, Mary Kay, Amway, etc, there is no point value assigned to it…they’re “non-commissionable” because they’re only relevant for the sales force, which means you would only be able to make money from selling it by recruiting more distributors, which should not be the proper emphasis.

2) Compensation plans need to be driven primarily by customer sales.

Issue being decided: What is the definition of “customer?” 

Prediction: Customer will be defined as someone outside the distributor network. There’s currently a huge split in authority over this issue, so any clarification from the court in Burnlounge will go a long way.  I agree with Gerald Nehra, fellow MLM lawyer, about his definition of “Customer.”  He defined customer as “an end user consumer of the products or services of the company, and in this strict definition, does not have any opportunity to make money with the company through any later action or conduct.”  I think that sort of definition will be held as the standard.

Tags: burnlounge, ftc, kevin thompson, mlm attorney