What does it take to convince the FTC that the balancing test favors retail selling over recruitment. To be honest, this is a subjective test and the answer vacillates at the FTC over time with change of Commissioners, staff and in reaction to court decisions. Some insight may derive from various pre-Herbalife/Advocare FTC settlements that demanded non-participant retail sales to be 50 percent or higher.
And it should be remembered that court case law constitutes “the law” as opposed to FTC policy statements which are helpful, but are just that, ie. they are important policy positions, but are not law. In fact, the FTC policy language is often stated in terms “compensation tied to sales to non-participant retail customers” in contrast to actual case law, emanating from the Koscot case, and updated in the BurnLounge case, which also takes into account distributor personal use purchases that are in reasonable amounts.
After the last adjudicated FTC pyramid case, it became clear that the “balancing test” was fact driven and nuanced, with “retail sales” as an important factor, among many factors, to be considered in what the court described as a fact driven analysis.

The following is an excerpt of an analysis article on the state of case law.

https://mlmlegal.com/Burnlounge%20Appeal.html

BurnLounge Establishes a “Fact Driven” Balancing Standard: Recruitment v. Sales.
The BurnLounge Ninth Circuit Appeals 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?
Or rephrased: Is the focus in promoting the program, rather than selling products to ultimate users?
If one reads the trial court decision, listens to the oral argument before the Ninth Circuit or reads the Ninth Circuit opinion, the words “primarily” or “predominant” are frequently used to discuss the motivation of distributor purchasing, in order to determine if they should be included in the category of ultimate users.
The central inquiry will always be:

What do they pay, and why do they pay it?

And the ultimate standard of inquiry going forward in pyramid cases will be:

What is the predominant or primary motive of distributors in making purchases?

Is the primary motivation:

For purposes of resale or personal use?

Or, as a gateway purchase to qualify for rewards in the MLM opportunity and compensation plan?
What is clear after the BurnLounge case is that “personal use” purchases become somewhat “neutral,” i.e., such purchases, which are not incidental to the opportunity, are not to be excluded in the analysis of sales to ultimate users. And, on the other hand, the mere presence of some personal use purchases or even some sales to retail customers, will not, in itself, be determinative of legitimacy. With that in mind, many other factors will need examination.
How will this work in future cases? It is fairly simple. Get out a piece of paper and make two columns for the “good facts” and the “bad facts.” In a simplistic sense, the winner of pyramid v. legitimate or recruitment v. sales, will be the dominant list. Well, actually, it is not all that simple, because a court will likely choose to ascribe more weight to designated items on each list.
Clearly, the “bad” list will include, but is not limited to, such factors as:
Front-end loading or inventory loading,
Large upfront fees,
Mandated purchases to qualify for commissions or rank advancement,
Bogus product or service,
Inflated prices,
No buyback policy,
No mandate for retail sales by distributors,
No restrictions on “over” ordering,
Unsubstantiated earnings representations,
No evidence of product consumption by ultimate users, either by outside customers or distributors,
Payment of commissions for training or sales tools as opposed to being based on product sales to ultimate users,
Evidence of unsold product in the marketplace characterized by “garage loading,”
Actual headhunting or recruitment fees,
Mandatory purchases of peripheral or accessory products or services,
And the list will continue with any abusive practice that does not focus rewards primarily driven by sales to ultimate users,

And the “good list” … again, some, but certainly not all the important factors:
High quality goods and services,
Demonstration of a “real world” marketplace for the product or service,
Goods and services that are fairly priced,
No upfront mandated investment or payment other than a modestly priced sales kit,
No inventory requirements,
Demonstration that product/service is used by consumers, whether they be retail customers or distributors,
Sales commissions and rank advancement strictly based on sales of product or service to ultimate users,
Emphasis on sales and use to ultimate users, including retail customers and personal use by distributors,
Amway Safeguard: Buyback policy for terminating distributors,
Amway Safeguard: Anti-inventory loading rule, such as 70% rule, prohibiting purchases unless distributors have sold or used a specified amount of previously purchased product,
Amway Safeguard: Mandate of some specified level of retail sales to outside customers as a condition for qualifying for commissions and rank advancement,
Avoidance of Earnings Representations/Potentials/Hypotheticals/Testimonials unless a transparent average earnings disclosure is provided to potential distributors,
Above all, emphasis on rewards on sales of product/service to ultimate users (retail customers or distributor personal use in reasonable amounts) rather than rewards arising from recruitment of other distributors,
Requirement that any personal use purchases by distributors be in reasonable amounts,
Requirement that any product purchases for resale be in commercially reasonable amounts and subject to buy back policy for terminating distributors,
Quality training to distributors that emphasizes both product sales as well as recruit development,
In the end, any court will be required to conduct this balancing test. And it will seek assistance not only from the parties and the evidence, but, as noted in the BurnLounge Ninth Circuit decision, from qualified direct selling experts. Those experts will assist in fact finding, but they not will be the fact finder nor the author of the legal standard … this role is for the trial court.

Sent from my iPad