Last week Jeff Babener, like Kevin Thompson before him, wrote a great analysis on the Burn Lounge decision handed out by the 9th Circuit. I believe there is much to be learned fro this decision no matter how one views network marketing if they are willing to study the courts decision.
BurnLounge Appeal Decision:
Guidance on Pyramid v. Legitimate MLM and the Role of Personal Use in Pyramid Analysis
By Jeffrey A. Babener
You can read the full article at MLM Legal! Here at MLM Help Desk, I am going to print what I feel are the most important points Babener makes.
Major Impact of the BurnLounge Case.
The BurnLounge decision will become a guiding legal precedent in the direct selling field and will become known for several significant legal signals, including the following:
(1) The operative facts of the BurnLounge program made it a pyramid scheme.
(2) The court ended a multi-decade legal debate on “personal use,” in which it recognized that “personal use” of product/service by distributors as a legitimate end destination for product/service in which distributors are accepted as “ultimate users” under a long line of cases that differentiates pyramid v. legitimate direct selling based on an analysis of whether or not program rewards are “unrelated to sales to ultimate users.”
(3) The court established a going forward pyramid test that is fact driven, and which balances whether distributor payments and commissions are driven by recruitment, on the one hand, or sales to ultimate users on the other hand, i.e., are distributor product/service purchases incidental to the business opportunity?
(4) The court’s decision provides common ground that would allow the FTC and the direct selling industry to reconcile on an acceptable standard to both interests based on principles enunciated by the FTC in a 2004 Advisory Memorandum to the Direct Selling Association. The door is now open to “codifying” such a standard.
Jeffrey A. Babener is the principal attorney in the law firm of Babener & Associates. Mr. Babener is a graduate of the University of Southern California Law School and a member of both the California and Oregon State Bars. Mr. Babener was a member of the editorial board of the University of Southern California Law Review and has served on various state and American Bar Association committees, including chairmanship of the Oregon State Bar Committee on Judicial Administration. For a detailed biography of Mr. Babener you can read his Biographical Profile from Martindale-Hubbell.
He has represented many members of the Washington, D.C. based Direct Selling Association where he serves on the Lawyer’s Council and Government Relations Committee and he is corporate counsel for the industry’s other trade association, the Multi-Level Marketing International Association of Irvine, California.