The Condition of MLM Legal Analysis: Be careful with what you read out there

    Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

    MLM legal landscapeThe state of MLM law is in a bit of a mess due to the conflicting agendas of both critics and proponents. Post-Ackman, there’s a thermo-nuclear war being waged over two key issues: internal consumption and retail sales. This war has led to a deluge of content from both sides claiming to have the moral high-ground. Instead of there being a serious discussion, it looks more like a food fight. While there’s some content that’s legitimately helpful, the majority is drivel written by internet trolls dressed up as experts. In my opinion, critics of the MLM model are making a serious attempt to obfuscate the law, trying to morph it into a tool that can be used to achieve a certain objective.

    If I were to summarize the two camps

    Critics: People in the MLM industry, vendors and distributors, are all corrupt scumbags that exploit people. They’ve spent time with victims and they believe, deep down in their bones, that the model is corrupt. They believe people would be better served sitting on their sofas, playing the lottery or accumulating debt for more education. Their interpretation of the law: The majority of revenue for ALL MLM programs must come via retail sales. Selling inventory “through” distributors to customers is disingenuous, used to conceal inventory loading. When distributors buy for legitimate personal use i.e. “internal consumption,” they’re not buying for legitimate reasons; thus, they’re not really “ultimate users” for purposes of pyramid scheme analysis. How do they reach this conclusion? They do it via math: This case + a little bit of that case + a little bit of this letter + this article + that case again + this tweet + another case = all MLMs are pyramid schemes. Don’t believe them or trust them? You’re simply a biased idiot. They do not reach out to industry insiders as it would impact their reputations among their supporters. And how could they with a “we’re right, they’re corrupt” attitude?

    DSA and other proponents (DSA link here): Internal consumption is fine and the degrees at which a company generates revenue via internal consumption is one factor among many to consider. Courts and the FTC recognize the legitimacy of network marketing and neither has suggested a specific amount of internal consumption is proof of pyramiding. The majority of people in this camp believe that the “case by case” approach is working fine. Those in this camp do not reach out to critics for two reasons: (1) when they do, they’re rapidly attacked; and (2) there’s the blowback of being seen as “cavorting with the enemy.” It’s literally a no-win situation. It’s like arguing with a drunk person…it’s a complete waste of energy.

    Where is the compromise? Do we need a compromise?

    I have several years of history writing about the subject, and I’ve been consistent. The critics have an agenda of obliterating the industry. Instead of uprooting a tree or two, they feel it’s best to burn down the whole forest. Whether they admit it or not, that’s the agenda. This, by itself, has afforded them minimal influence. As Abe Lincoln said in the movie Lincoln, “What good is True North if it lands you in a swamp?” The critics are in a swamp, swimming primarily with internet trolls that resort to cyber-bullying and incomprehensible degrees of nastiness. This further dampens that community’s ability to impact change or legislation. It’s a mob mentality that has led many to lose their minds. I do not agree with most of their interpretations nor do I agree with their methods. But they’re there, and they need to be acknowledged and understood.

    Regarding the DSA, I’ve been critical over the past few years. I believe that this anti-regulation tone has created the environment for this bizarre “debate” to occur. This debate has not served the industry well and we absolutely need clear standards that allow the good companies to thrive and the bad companies to die off. Responsible Federal legislation is necessary, in my opinion. We need more TRUST mechanisms in place that prevent harm. With the DSA’s mantra of “100% internal consumption is fine,” it has contributed to an environment (the DSA did not cause this environment) where scams can masquerade as legitimate network marketing programs. It’s a problem. I anticipate a splintering off of companies from the DSA in an effort to pave a better way forward. Whatever comes out of that ether, it’ll be met with the same challenges of creating a cohesive set of standards that the member companies can live under (a herculean task by itself).

    Conclusion

    As you’re reading the content that’s out there, both good and bad depending on your angle, be sure to measure the source and identify the agendas. Try to clearly identify the problems and think through the solutions. Start there and engage in a CONSTRUCTIVE discussion. What sort of ideas do you have for improving the industry?

      Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.