Network Marketing and COVID: Where are the boundaries?

    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.

      TLDR; There is zero gray here.
      THE FIELD CANNOT COMMINGLE ANY CONTENT WITH COVID.
      Companies need to increase their efforts to police content referencing COVID; educate the field to avoid referencing COVID; leverage every online tool available to blast the message as far and wide as possible i.e. email newsletters, splash disclaimers on the homepage, zoom trainings, etc.

    Selling Dietary Supplements During a Pandemic

    The FTC has spoken loud and clear. Rather than choose surgery with a scalpel, they picked up a sledgehammer. Their message is clear: Steer clear of COVID. Do not even flirt with the line. In mid-April, I specifically mentioned on my Facebook Page the need for the FTC to reference ambiguous claims to make their positions more clear. As the saying goes, be careful what you wish for…

    On Friday, the FTC sent warning letters to 10 network marketing companies. These letters were all identical with the exception of the referenced claims associated with the company. The letters demanded that each recipient respond within 48 hours via email regarding the “specific actions taken to address the FTC’s concerns.”

    This notice is consistent with what the FTC has been doing since early March. The FTC has created a separate page that contains all of the warnings sent out regarding dietary supplements/income opportunities and COVID. Currently, 70 warnings have been sent out, 10 to network marketing companies.

    The Rule

    It’s legal for sellers of dietary supplements to make “structure function” claims. What is a structure function claim? Taken from the FDA’s website,

    “Structure/function claims may describe the role of a nutrient or dietary ingredient intended to affect the normal structure or function of the human body, for example, ‘calcium builds strong bones.’ In addition, they may characterize the means by which a nutrient or dietary ingredient acts to maintain such structure or function, for example, ‘fiber maintains bowel regularity,’ or ‘antioxidants maintain cell integrity.'”

    I’ll add an example to the FDA’s list above: “Supports a healthy immune system” would be an appropriate structure function claim. This assumes there’s adequate substantiation to support the claim.

    Translated into English: It’s legal to suggest that a supplement can “support” a bodily function. It’s not legal to suggest that a supplement can “fix” a broken bodily function or even improve it. I know, it’s complicated. But them the breaks. So when distributors for various companies suggest that consumers should take an “immune booster” to better prepare for the coronavirus, the FTC has made their position clear. STEER CLEAR. There is no gray.

    The Challenge

    “But our product does support the immune system…and people need a strong immune system to fight off illness….so…..why can we not talk about it?”

    It’s a fair question. The entire point of “supporting an immune system” is to put the consumer in a better position to defend against illness. After all, the healthcare system is undergoing serious challenges on the brink of collapse. The cost of healthcare is exceeding peoples’ ability to pay and people are reticent to go to clinics for check-ups due to costs and fear of contracting illnesses. This is leading people to explore alternative ways to minimize healthcare risks i.e. focusing on prevention. It’s led to a massive opportunity for network marketing, e-commerce and retail companies that sell wellness-related products.

    Discussing support for the immune system is fine. Stating or implying that a consumer can ENHANCE one’s immune system to be better positioned to fight COVID — not fine.

    The Bottom Line

    Companies should not try to “thread the needle” and weigh the pros and cons associated with leveraging the pandemic for gain. There needs to be STRICT measures in place to prevent any sort of reference to COVID or anything loosely connected i.e. coronavirus, COVID-19, quarantine, shutdown, pandemic, epidemic, etc. Hashtags that also reference COVID should also be avoided.

    These are some solutions companies are exploring in real-time right now:

  • Splashing a disclaimer on the homepage;
  • Distributing newsletters to the entire organization;
  • Widening the search parameters on social media to catch references;
  • Adding segments on Zoom conferences regarding compliance training. This is something I’m doing for existing clients on a monthly basis;
  • Lowering tolerance for infractions;
  • Modifying the P&Ps to specifically account for COVID-related content;
  • Adding disclaimers across all web-properties to make it clear the products cannot be used to mitigate risk with COVID (or any other disease).
  • Promoting an Income Opportunity During a Pandemic

    If I were to prioritize concerns, it’s my opinion that the FTC is primarily concerned with dietary supplement sellers leveraging the pandemic to sell product. If there’s bad information in the market regarding the prevention and treatment of COVID, the results could be deadly.

    But the FTC did not stop there. They also highlighted several instances of inappropriate income claims commingled with COVID. Here, there’s really nothing “new” to discuss. Without a legally sufficient income disclosure, the FTC considers income claims of above-average results to be misleading. Period. The FTC’s recent warning just makes it clear that (a) they’re going to hold companies accountable for statements made in the field; and (b) they find it highly offensive when people leverage COVID to promote an income opportunity without utilizing an income disclosure. See below for two examples provided:

    “[company] is always open for business even during quarantine! I’ve been working from home for over 3 years now and still making money when other people aren’t ! Isn’t it about time you found out what it is I do and how this company really works ? . . . #workfromhome #financialfreedom.”

    “So much uncertainty in the world right now but our team is NOT struggling. We are having the biggest month EVER and it’s only the 4th! sooooo many people changing their LIFE right now and are pushing to earn a $15,000 and $20,000 bonuses! Working from home has never been such a blessing. Does anyone else need an income working from home right now?!”

    Conclusion

    The product message must never be commingled with COVID. Regarding the income opportunity, the same principle applies: Promoting the income opportunity while directly or loosely referencing the pandemic is, according to the FTC, offensive. Companies need to “up their game” to prevent an ocean of claims — claims currently out there and those yet to come.

    There is an ocean of opportunity out there right now, despite the unraveling of so much of our economy. The future belongs to companies and distributors that can see around the corners, build with integrity, trust their advisors and provide significant value for consumers.

      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.