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Amway Legal Battles

Amway has been in business for over 50 years. And just like many other companies that have been around for that long, they have had their fair share of legal issues. Of those legal battles they have had, most of them are about product liability or distributor disputes. However, not one of those legal battles has affected the tremendous growth that has occurred within Amway.

As an example, in 1997, Amway sued a polish film maker for libel. The film, Welcome to Life, purportedly defamed Amway, showing a misleading and libelous version of what muli-level marketing was all about. Amway Poland was able to obtain an injunction, preventing the film’s release, and subsequently Amway won the lawsuit.

Other relatively minor legal battles have involved some Amway distributors using copyrighted music on promotional tapes – these usually do not affect the company as a whole and most have been settled out of court. But another type of legal battle gets at the heart of what MLM is…

**Landmark decisions**

Is MLM, and Amway specifically, a pyramid scheme? In other words, is the business model illegal from the start? This is when the big time legal battles started. Losing a challenge on this subject would mean, not just fines, but a complete shutdown of operations – maybe even jail time.

Well, in 1977, Amway was subjected to just such a challenge. The US Federal Trade Commission (FTC) started investigating Amway for deceptive business practices and the charge was essentially one of operating a pyramid, or Ponzi, scheme.

The crux of the issue was this, was Amway trying to make money just from recruiting distributors or was the main business model to sell products. This is a serious charge in a serious venue – the FTC had the power to completely shut Amway down.

After over two years of investigating, the FTC ruled that the Amway business model was legit. They did criticize some of the business practices, and Amway changed some of its sales materials as a result. But the ruling was clear – there was nothing illegal about MLM and network marketing.

This one single decision by the FTC save the network marketing industry as a whole. With the validation of the FTC, network marketers could finally claim what they had always known – MLM isn’t a scam, or a deceptive business practice. Instead, it is a legitimate way to sell products and grow individual businesses.

Another win

Proctor and Gamble, Amway’s main competitor, brought suit in 1995, claiming that Amway had allowed its telephone messaging service (AmVox) to be knowingly used to harm P&G. The claim was that rumors that P&G was a Satanist organization had been spread over this service and that the company’s reputation had suffered damage because of this.

After almost a decade in the courts, and lawsuits in multiple States, the case was dismissed in 2003. P&G did win money against four individual Amway distributors in Utah in 2005, but the Amway Corporation remained untouched by the slander.

**Foreign legal battles**

While the legitimacy of the MLM model was proven in the US, occasionally, the same issue has been raised in other countries. Because Amway Global is actually global in scope, these are of interest.

2006 – India started action against Amway under their version of Ponzi scheme laws. While the case isn’t entirely settled, Amway still does business in India and has won against some of the injunctions placed upon it. The original case is still pending, but in the past four years, no grounds have been found to move forward.

2007 – British authorities brought an action against Amway for what were called, “objectionable practices.” The Department of Trade and Industry (the UK version of the FTC) has the power to shut down operations and this was a serious matter. In 2008, the investigation was complete and Amway was found to have violated no laws in Britain.

**A settled issue**

With the results in, the question of whether Amway is a pyramid scheme or not is settled. Challenges to the MLM business model have been mounted, not only in the US, but several other countries. In every major legal battle, Amway had won.

Network marketing remains a viable and completely legal way to do business. In the new millennium, with the rise of the Internet, it may in fact be one of the best ways to do business. Amway has proven their model over and over again – both in the courts and on the ground. If you wish to partner with Amway, rest assured there is no pyramid scheme, no Ponzi operation – just an exciting opportunity.

Behavioral And Keyword-triggered Ads — Legal Update For Hot-button Internet Advertising Issues

Copyright 2009 Chip Cooper

Safire’s New Political Dictionary defines “hot-button” as follows: word or issue that ignites anger, fear, enthusiasm, or other passionate response.

Safire’s definition fits two Internet advertising issues – behavioral and keyword ads – perfectly. Two developments in the first few months of 2009 show how these hot-button issues are developing, and how they may ultimately impact Internet advertising in a fundamental way.

Behavioral Advertising

Relevance is a key concept in any advertising. With it, advertisers’ messages hit home with purchasers, and conversions increase. Without it, advertisers’ messages are wasted on blind eyes and deaf ears.

Behavioral ads take Internet advertising to a new level of relevancy. Behavioral technology tracks a user’s behavior on the Web, including sites visited, length of visits, content read, and searches made. All of this data is then analyzed and a behavioral pattern is produced for a user which classifies that user by his or her online demographic. Behavioral ad networks then serve targeted ads that are relevant to that online demographic.

Recent announcements by Google (with its AdSense network) and Facebook that they will begin serving behavioral ads has triggered increased interest in related privacy issues. The concerns: the lack of transparency regarding collection practices and the risk of disclosure of the information collected, particularly sensitive information.

The Federal Trade Commission (FTC) has shown interest in privacy issues related to behavioral ads even before the announcements by Google and Facebook. In November 2007, the FTC conducted a town hall discussion to discuss privacy issues raised by online behavioral advertising. Afterward, the FTC developed proposed principles based on comments received at the town hall discussions.

In February 2009, the FTC issued a staff report entitled “Self-Regulatory Principles For Online Behavioral Advertising” (Principles). The Principles are designed to encourage industry self regulation for the protection of consumer privacy in online advertising activities.

The new development for behavioral ads is that – if three U.S. Congressmen have their way – behavioral ads will move from self-regulation to regulation by a federal statute.

It’s interesting to note that the legislative effort is bi-partisan. Rep. Cliff Stearns (R.-Fla.), Rep. Rick Boucher (D.-Va.) and Rep. Joe Barton (R.-Texas) are working to present a bill to Congress that would regulate behavioral ads. Boucher has stated that websites participating in behavioral ads should be required to obtain explicit permission from a user, plus the requirement to disclose how they collect and use data.

Keyword Advertising

In the last four years or so, cases involving keyword-triggered ads have been hotly litigated. The dispute is now a familiar one — whether a search engine such as Google should permit pay-per-click advertisers to use keywords that are also a competitor’s trademarks for purposes of triggering their ads on a search results page.

Legal issues arise when a competitor purchases a competitor’s trademark as a keyword. The Lanham Act (Federal Trademark Act) prohibits any:

* “use in commerce”, and

* “likelihood of confusion”.

In order to prevail, a plaintiff must satisfy two of the foregoing elements.

The legal battle has focused on the “use in commerce” issue, with courts being hopelessly divided on the issue. Courts finding that keyword-triggered ads are a “use in commerce” favor plaintiffs (the trademark owners). Conversely, courts finding that keyword-triggered ads are not a “use in commerce” favor the defendants (the advertisers – search engines and their advertiser customers).

Until April 3, 2009, the 2nd Circuit (Connecticut, New York, and Vermont) has held that use of a trademark in keyword-triggered ads, provided the trademark is internal and not visible, does not amount to “use in commerce” – thereby favoring defendant-advertisers.

On April 3, 2009, the 2nd Circuit reversed its position on the “use in commerce” issue. In the case of Rescuecom v. Google, the 2nd Circuit ruled on a Motion to Dismiss that Google’s recommendation and sale of Rescuecom’s trademark to competing advertisers amounted to a “use in commerce”. Although this decision went against Google, Google may still prevail in the case if the court finds later that there is no likelihood of confusion.

It’s interesting to note that the majority of Circuit Courts have previously held that similar uses of a trademark amount to a “use in commerce”. Does the reversal by the 2nd Circuit signal a trend that could significantly favor trademark owners against advertisers and close the split among the Circuits? Possibly — and that’s why this decision is so important.

Conclusion

With the foregoing update, this is where we stand on the two hot-button issues of Internet advertising:

* behavioral advertising — although the status remains unchanged at present, there is federal regulation in the works that could impose significant privacy regulations in the near future; and * keyword-triggered ads — there’s still a significant split among the Circuits; however, the split has narrowed in favor of trademark owners due to the 2nd Circuit’s ruling in the Rescuecom v. Google case. The 2nd Circuit in its decision suggested that it would make sense for Congress to resolve this split with specific legislation in the future.

This article is provided for educational and informative purposes only. This information does not constitute legal advice, and should not be construed as such.