H. R. 1220
To prohibit pyramid promotional schemes, and for other
IN THE HOUSE OF REPRESENTATIVES
March 12, 2003
Mr. BARTON of Texas (for himself, Mr. HALL, Mr. FROST,
Mrs. MYRICK, Mr. ENGLISH, Ms. PRYCE of Ohio, Mr. SESSIONS, Mr. TIBERI,
and Mr. EHLERS) introduced the following bill; which was referred
to the Committee on Energy and Commerce
To prohibit pyramid promotional schemes, and for other
Be it enacted by the Senate and House of Representatives
of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the `Anti-Pyramid Promotional
Scheme Act of 2003'.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) Pyramid promotional schemes, chain letters, and
related schemes are enterprises--
(A) that finance returns to participants through sums
taken from newly attracted participants;
(B) in which new participants are promised large returns
for their investments; and
(C) involve unfair and deceptive sales tactics, and
lead to the victimization of unwitting individuals.
(2) Pyramid promotional schemes, chain letters, and
related schemes constitute a threat in interstate commerce and to
the financial well-being of the citizens of the United States.
(3) The advent of the global Internet makes pyramid
promotional schemes international threats.
(4) The Ninth Circuit Court of Appeals erred in defining
a pyramid promotional scheme in Webster v. Omnitrition Int'l, Inc.
(79 F.3d 776; 9th Cir. 1996).
SEC. 3. DEFINITIONS.
In this Act:
(1) APPROPRIATE INVENTORY REPURCHASE PROGRAM- The
term `appropriate inventory repurchase program' means a program
by which a plan or operation repurchases, upon request at the termination
of a participant's business relationship with the plan or operation
and based upon commercially reasonable terms, current and marketable
inventory purchased and maintained by the participant for resale,
use, or consumption, and such plan or operation clearly describes
the program in its recruiting literature, sales manual, or contracts
with participants, including the manner in which the repurchase
is exercised, and disclosure of any inventory that is not eligible
for repurchase under the program.
(2) COMMERCIALLY REASONABLE TERMS- The term `commercially
reasonable terms' means the repurchase of current and marketable
inventory within 12 months from date of purchase at not less than
90 percent of the original net cost to the participant, less appropriate
set-offs and legal claims,if any. In the case of service products,
the repurchase of such service products must be on a pro rata basis
(unless clearly disclosed otherwise to the participant) to be within
the meaning of `commercially reasonable terms'.
(3) COMPENSATION- The term `compensation' means a
payment of any money, thing of value, or financial benefit.
(4) CONSIDERATION- The term `consideration' means
the payment of cash or the purchase of goods, services, or intangible
property, and does not include--
(A) the purchase of goods or services furnished at
cost to be used in making sales and not for resale; or
(B) time and effort spent in pursuit of sales or recruiting
(5) CURRENT AND MARKETABLE-
(A) The term `current and marketable' includes inventory
(i) in the case of consumable or durable goods, is
unopened, unused, and within its commercially reasonable use or
shelf-life period; and
(ii) in the case of services and intangible property,
including Internet sites, represents the unexpired portion of any
contract or agreement.
(B) The term `current and marketable' does not include
inventory that has been clearly described to the participant prior
to purchase as seasonal, discontinued, or special promotion products
not subject to the plan or operation's inventory repurchase program.
(6) INVENTORY- The term `inventory' includes both
goods and services, including company-produced promotional materials,
sales aids, and sales kits that the plan or operation requires independent
salespersons to purchase.
(7) INVENTORY LOADING- The term `inventory loading'
means that the plan or operation requires or encourages its independent
salespersons to purchase inventory in an amount that unreasonably
exceeds that which the salesperson can expect to resell for ultimate
consumption, or to use or consume, in a reasonable time period.
(8) PARTICIPANT- The term `participant' means a person
who joins a plan or operation.
(9) PERSON- The term `person' means an individual,
a corporation, a partnership, or any association or unincorporated
(10) PROMOTE- The term `promote' means to contrive,
prepare, establish, plan, operate, advertise, or to otherwise induce
or attempt to induce another person to be a participant.
(11) PYRAMID PROMOTIONAL SCHEME- The term `pyramid
promotional scheme' means any plan or operation in which a participant
gives consideration for the right to receive compensation that is
derived primarily from the recruitment of other persons as participants
in the plan or operation, rather than from the sales of goods, services,
or intangible property to participants or by participants to others.
SEC. 4. RULES TO PROHIBIT OPERATING PYRAMID
(a) IN GENERAL- Not later than 1 year after the date
of the enactment of this Act, the Federal Trade Commission shall
promulgate a rule under section 18(a) of the Federal Trade Commission
Act (15 U.S.C. 57a(a)) providing that it shall be an unfair or deceptive
act or practice under section 5 of such Act (15 U.S.C. 45) for any
person, by the use of any means or instrumentality of transportation
or communication in interstate or foreign commerce, to promote,
offer, sell, or attempt to sell a participation or the right to
participate in a pyramid promotional scheme.
(b) LIMITATION- Nothing in this Act or in the rule
to be promulgated pursuant to this section shall be construed to
prohibit a plan or operation, or to define such plan or operation
as a `pyramid promotional scheme', based upon the fact that participants
in the plan or operation give consideration in return for the right
to receive compensation based upon purchases of goods, services,
or intangible property by participants for personal use, consumption,
or resale, and the plan or operation does not promote inventory
loading and implements an appropriate inventory repurchase program.
SEC. 5. STATE ENFORCEMENT.
(a) ACTIONS UNDER STATE LAW- Nothing in this Act or
the Federal Trade Commission Act prohibits an authorized State official
from proceeding in State court on the basis of an alleged violation
of any civil or criminal statute of such State.
(b) ACTIONS UNDER FEDERAL LAW- The attorney general
of any State or territory of the United States may, upon finding
any person is engaged or is about to engage in any act or practice
that constitutes a pyramid promotional scheme in violation of the
rule promulgated under section 4, bring an action in the appropriate
district court of the United States to enjoin such act or practice
and to obtain other appropriate relief. The attorney general of
a State or territory of the United States may seek such relief on
behalf of residents of such State or territory, and an authorized
Federal official may seek such relief on behalf of residents of
all such States and territories. Such court may grant a temporary
restraining order, or a preliminary or permanent injunction, or
other appropriate relief.
SEC. 6. NO LIMITATION ON OTHER FEDERAL CLAIMS.
Nothing in this Act or the rule promulgated under
it shall limit the authority of any Federal official from proceeding
against pyramid promotional schemes for other violations of Federal