First Substitute H.B. 269

Senator Howard A. Stephenson proposes the following substitute bill:

1 SALES MARKETING REQUIREMENTS
2 2005 GENERAL SESSION
3 STATE OF UTAH
4 Sponsor: Michael E. Noel
5
6 LONG TITLE
7 General Description:
8 This bill amends the Pyramid Scheme Act to clarify the elements of those operations
9 that are not unlawful schemes. This bill provides definitions of terms used in referring
10 to the operations. This bill sets forth the operations' required functions, which include
11 providing for the repurchase of inventory from the participant under specified terms.
12 The bill also requires that the operations do not promote inventory loading.
13 Highlighted Provisions:
14 This bill:
15 . includes definitions of:
16 . an appropriate inventory repurchase program for participants;
17 . terms for repurchase of inventory from participants;
18 . consumable or durable goods that are current and marketable for purposes of
19 repurchase; and
20 . inventory loading, which requires or encourages a participant to purchase an
21 unreasonable amount of inventory; and
22 . provides that an operation involving participants' giving consideration to an
23 operation for the right to receive compensation based upon purchases of goods or
24 services by participants is not a pyramid promotional scheme if the operation:
25 . includes an appropriate inventory repurchase program for participants; and

26 . does not promote inventory loading.
27 Monies Appropriated in this Bill:
28 None
29 Other Special Clauses:
30 None
31 Utah Code Sections Affected:
32 AMENDS:
33 76-6a-1, as enacted by Chapter 89, Laws of Utah 1983
34 76-6a-2, as enacted by Chapter 89, Laws of Utah 1983
35 76-6a-3, as enacted by Chapter 89, Laws of Utah 1983
36 76-6a-4, as last amended by Chapter 38, Laws of Utah 1993
37 76-6a-5, as enacted by Chapter 89, Laws of Utah 1983
38 76-6a-6, as enacted by Chapter 89, Laws of Utah 1983
39
40 Be it enacted by the Legislature of the state of Utah:
41 Section 1. Section 76-6a-1 is amended to read:
42 CHAPTER 6a. PYRAMID PROMOTIONAL SCHEME ACT
43 76-6a-1. Title.
44 This [act shall be] chapter is known [and may be cited] as the "Pyramid Promotional
45 Scheme Act."
46 Section 2. Section 76-6a-2 is amended to read:
47 76-6a-2. Definitions.
48 As used in this chapter:
49 (1) "Appropriate inventory repurchase program" means a program by which an
50 operation repurchases inventory, upon a participant's request and at the termination of the
51 participant's business relationship with the operation, if:
52 (a) the repurchase program is based upon commercially reasonable terms;
53 (b) the inventory is current and marketable inventory purchased and maintained by the
54 participant for resale, use, or consumption; and
55 (c) the operation has clearly described the repurchase program in its recruiting
56 literature, sales manual, or its contracts with participants, including in the description:

57 (i) how the repurchase is exercised; and
58 (ii) any inventory that is not eligible for repurchase under the program.
59 (2) (a) "Commercially reasonable terms" means the repurchase of current and
60 marketable inventory within 12 months from the date of the participant's original purchase of
61 the inventory, and at not less than 90% of the original net cost to the participant, minus any
62 appropriate set-offs and legal claims.
63 (b) If the inventory is service products, the repurchase program for these products shall
64 be on a pro rata basis in order to qualify as commercially reasonable terms, unless the operation
65 has clearly disclosed otherwise to the participant.
66 [(1)] (3) "Consideration" includes a payment of any money, or the purchase of goods,
67 services, or intangible property, but does not include:
68 (a) payment for sales demonstration equipment and materials furnished at cost for use
69 in making sales and not for resale[,]; or
70 (b) time or effort spent in selling or recruiting activities.
71 [(2)] (4) "Compensation" means [money bonuses, commissions, overrides, prizes, or
72 other real or personal property, tangible or intangible.] a payment of any money, thing of value,
73 or financial benefit.
74 (5) "Current and marketable":
75 (a) includes consumable or durable goods inventory that is unopened, unused, and
76 within its commercially reasonable use or shelf-life period, if that period is clearly and
77 conspicuously disclosed to the participant;
78 (b) means, regarding services and intangible property, including Internet sites, the
79 unexpired portion of any contract or agreement regarding the services or intangible property;
80 and
81 (c) does not include inventory that has been clearly and conspicuously described to the
82 participant, prior to purchase, as seasonal, discontinued, or special promotion products not
83 subject to the operation's inventory repurchase program.
84 (6) "Inventory" means both goods and services, and includes organization-produced
85 promotional materials, sales aids, and sales kits that the operation requires independent
86 salespersons to purchase.
87 (7) "Inventory loading" means that the operation requires or encourages its participants

88 to purchase inventory in an amount that unreasonably exceeds that which the participant can
89 expect to resell for ultimate consumption, or to use or consume, in a reasonable time period.
90 (8) "Participant" means a natural person who joins an operation.
91 [(3)] (9) "Person" includes a business trust, estate, trust, joint venture, or any other
92 legal or commercial entity.
93 (10) "Promote" means to contrive, prepare, establish, plan, operate, advertise, or
94 otherwise induce or attempt to induce another person to be a participant.
95 [(4)] (11) "Pyramid promotional scheme" means any [sales device or plan under]
96 operation in which a [person] participant gives consideration [to another person in exchange
97 for compensation or] for the right to receive compensation [which] that is derived primarily
98 from the [introduction] recruitment of other persons as participants into the [sales device or
99 plan] operation rather than from the sale of goods, services, or other intangible property.
100 Section 3. Section 76-6a-3 is amended to read:
101 76-6a-3. Schemes prohibited -- Violation as deceptive consumer sales practice --
102 Prosecution of civil violations.
103 (1) A person may not organize, establish, promote, or administer any pyramid
104 promotional scheme.
105 (2) A criminal conviction under this chapter is prima facie evidence of a violation of
106 Section 13-11-4 [,] of the Utah Consumer Sales Practices Act.
107 (3) Any violation of this chapter constitutes a violation of Section 13-11-4 [,] of the
108 Utah Consumer Sales Practices Act.
109 (4) All civil violations of this chapter shall be investigated and prosecuted as
110 prescribed by [the] Title 13, Chapter 11, Utah Consumer Sales Practices Act.
111 (5) This section and any administrative rules made pursuant to this section do not
112 prohibit an operation or define an operation as a pyramid promotional scheme based on the fact
113 that the participants in the operation give consideration in return for the right to receive
114 compensation based upon purchases of goods, services, or intangible property by participants
115 for personal use, consumption, or resale, if the operation:
116 (a) implements an appropriate inventory repurchase program; and
117 (b) does not promote inventory loading.
118 Section 4. Section 76-6a-4 is amended to read:

119 76-6a-4. Operation as felony -- Investigation -- Prosecution.
120 (1) Any person who knowingly organizes, establishes, promotes, or administers a
121 pyramid promotional scheme is guilty of a third degree felony.
122 (2) The appropriate county attorney or district attorney has primary responsibility for
123 investigating and prosecuting criminal violations of this chapter.
124 Section 5. Section 76-6a-5 is amended to read:
125 76-6a-5. Operation provisions not constituting defenses.
126 It is not a defense to an action brought under this chapter if:
127 (1) the sales [device or plan] operation limits the number of persons who may be
128 introduced into it;
129 (2) the sales [device or plan] operation includes additional conditions affecting
130 eligibility for introduction into it or when compensation is received from it; or
131 (3) a person receives property or services in addition to the compensation or right to
132 receive compensation in connection with a pyramid promotion scheme.
133 Section 6. Section 76-6a-6 is amended to read:
134 76-6a-6. Rights of persons giving consideration in pyramid promotional scheme.
135 (1) (a) Any person giving consideration in connection with a pyramid promotional
136 scheme may, notwithstanding any agreement to the contrary, declare his giving of
137 consideration and the related sale or contract for sale void, and may bring a court action to
138 recover the consideration.
139 (b) In the action, the court shall, in addition to any judgment awarded to the plaintiff,
140 require the defendant to pay to the plaintiff interest as provided in Section 15-1-4 , reasonable
141 attorneys' fees, and the costs of the action reduced by any compensation paid by the defendant
142 to the plaintiff in connection with the pyramid scheme.
143 (2) (a) The rights, remedies, and penalties provided in this chapter are independent of
144 and supplemental to each other and to any other right, remedy, or penalty available in law or
145 equity. [Nothing contained in this]
146 (b) This chapter [shall] may not be construed to diminish or abrogate any other right,
147 remedy, or penalty.