Like every other industry, the MLM/direct
selling industry is reinventing itself electronically on the internet.
For many leading companies, e-commerce will dominate sales and relationships
with distributors and customers. MLM companies will be dramatically
impacted by new legislation such as the Uniform Electronics Transactions
Act and proposed legislation such as the Uniform Commercial Information
and Transactions Act.
legal question is whether a click of a mouse indicating agreement
to terms is a valid and enforceable acceptance of an agreement."
The origins are low tech.
Historically, you cannot find a business
more low tech than direct selling. By its very definition, direct
selling has meant person-to-person selling. A general scenario has
been one-to-one, one at a time. This has not been the business of
telemarketing, infomercials, saturation catalog marketing or mass
merchandising. Rather, its success has been built one customer and
one recruit at a time.
Times are changing.
But, that doesn't mean that the tools
of the trade for network marketers are not crossing the bridge to
the 21st Century. Today, network marketers sell and recruit by fax
on demand, voice mail, e-mail, internet, and every other method
of electronic telecommunication. They fax in orders, enter orders
by touch tone phone and even sign up new distributors and sell through
web sites on the internet.
This brings us to an interesting crossroad
in legal history. Are all of those digital and electronic impulses
sufficient to create legally binding agreements to join network
marketing companies and to order products - all done in a physical
place that doesn't even exist, Cyberspace? When the distributor\customer
goes "click-click" with their mouse, what is happening
legally? This is a question that many of us, including lawyers and
judges, will be asking in the next few years. The answer is that
this train of commerce is in motion, and it is going with or without
Is it an agreement?
We have reached the point that all
of a company's policies and procedures can be placed on the web
page for the potential distributor's review prior to indicating
his or her assent. The likely situation will be that the web page
will ask a question such as "I agree to review, become familiar
with and to abide by company policies and procedures." The
web page will then have two boxes that will allow the potential
distributor to indicate whether or not he or she agrees with the
terms and still wishes to become a distributor. The legal question
is whether a click of a mouse indicating agreement to terms is a
valid and enforceable acceptance of an agreement.
Contracts are made by phone every
day, such as the purchase of merchandise from catalog sellers, or
when a company is taking orders over the phone with a credit card
guaranteeing payment. Effectively, contracts over the internet are
basically contracts over the phone. Basically, they should be acceptable.
There are some legal glitches, however,
with electronic contracts. The first is the problem of enforceability
of a contract where the terms are set by one party without discussion;
and the second problem is the problem of authentication, or what
type of signature is required to create a binding agreement.
Take it or leave it.
When one party sets the terms of a
contract and the other party has no real opportunity to negotiate
terms, the contract is sometimes referred to as a "contract
of adhesion." Such contracts sometimes, particularly where
they are unfair or overly one-sided, have been held to be unenforceable.
Rather than being bargained for in a normal contract fashion, they
are on a "take it or leave it" basis and sometimes contain
terms unknown to one of the contracting parties. However, the situation
where a potential distributor clicks an assent button without having
the entire policies and procedures in front of the person is no
different from the situation where a person signs up to become a
distributor without having a sales kit. It would seem that by continuing
as a distributor after receiving a sales kit, the new distributor
has exhibited acceptance of the terms.
Look to the computer industry.
Since there are no answers to be found
at this time in the direct selling industry, a good direction to
look for high tech answers is in the computer industry. For instance,
one federal court recently upheld the enforceability of "shrink-wrap"
licenses contained in boxes of software. The court held that the
vendor is "master of the offer," and "may invite
acceptance by conduct ... a buyer may accept by performing the acts
the vendor proposes to treat as acceptance."
The court listed numerous, similar
examples where such contracts are upheld. For example, the purchase
of insurance where the policy is delivered after payment of the
premium, the purchase of an airline ticket where the customer receives
it later, complete with a long list of terms. In the case of many
consumer goods, disclaimer of warranty is often included inside
the box. The court noted that it was basically trying to avoid returning
"transactions to the horse-and-buggy age."
What is the best approach for network
marketing companies? Probably, the best approach is to include the
company's entire agreements and policies and procedures in an Online
application form and to require acceptance of these terms explicitly
before considering a contract form.
Is it absolutely essential? Probably
not, as cases are developing. It is simply the best route to go.
The electronic signature.
But what about the signature? Everyone
knows that you have to have a signature to have an enforceable contract.
Well, actually that's not true. Under the Uniform Commercial Code,
which has been adopted in all states and governs commercial transactions,
a signature is required for the sale of goods priced more than $500.
This is an outgrowth as what is known as Statute of Frauds first
passed in England in 1677. Of course, they didn't have e-mail and
fax communication in 1677. We have come a long way.
Although this legislation may be applicable
to the purchase of goods, it probably is not applicable, says many
courts, to distributorship agreements themselves. Nevertheless,
it is best to have a signature on a distributor agreement.
But what is a signature?
As times have changed, courts have
recognized different methods of "assent" as signatures.
For instance, in 1869, courts held that a typed signature at the
end of a telegram constituted a signature. In the 1980s, courts
held that the faxed signature was a signature. Later, courts held
that photocopied signatures were signatures. Thus, it is comforting
to know that all of those facsimile distributor agreements that
distributors have been sending in to companies over the years are
What about those e-mail messages and
those mouse clicks? Are those electronic signatures? Well it appears
the courts are headed in that direction. And so is Congress. Congress
recently passed the Uniform Electronics Transactions Act, which
approves electronic signatures made from electronic signature pads.
MLM's use click agreements.
Electronic signatures with electronic
signature pads are a different issue than the so-called "Click
Wrap" agreements for consumers which require affirmative answers
to enter into some type of transaction.
In general, a strong trend in the
courts is to hold electronic documents enforceable. There is pending
before the states a proposed bill called UCITA, Uniform Commercial
Information and Transactions Act. It would deal with "Click
Wrap" agreements. However, there are at least half the attorneys
general who have registered opposition to such legislation.
How do leading MLM companies handle
this? Some require a click through of answers, credit card information,
they provide the consumer a downloadable pdf of the agreement, and
later they require that a signed contract be submitted. Others,
though, require paper contracts in telephone sign-ups, but not with
respect to internet sign-ups. With respect to internet sign-ups,
they collect credit card information and personal identity information
for future identification use, such as a mother's maiden name.
At this time, it was agreed at a recent
Internet Council of the Direct Selling Association that the best
policy with distributors is:
(1) To require the prospective distributor
to "click" through the various portions of the distributor
agreement and policies with an indication of understanding and
(2) Collect credit card or other
personal identity information, and
(3) Require the submission at a
later date of a signed distributor agreement.
Back to the future.
So, will low tech direct selling embrace
high technology? The answer is that the industry has no choice if
it is to remain a viable channel of distribution. Although, getting
signed distributor agreements and orders is probably the best and
safest policy for network marketing companies, it appears that the
future will welcome digital signatures and electronic commerce by