HB 162 — AN ACT TO AMEND TITLE 6 OF THE DELAWARE CODE RELATING TO MULTILEVEL DISTRIBUTION COMPANIES.

and penalties for violations.

(a) At the time the purchaser signs a business opportunity contract or prior to the receipt of any consideration by the seller, whichever occurs first, the seller or the seller’s representative must provide the prospective purchaser a written document, updated quarterly, that clearly and conspicuously discloses the following:

(1) A first page that contains only the following language:

a.

“DISCLOSURE REQUIRED BY DELAWARE LAW.”.

b.

“YOU HAVE THE RIGHT TO CANCEL THIS CONTRACT FOR ANY REASON WITHIN THREE MONTHS OF SIGNING IT.”.

(2) The name of the seller, the name under which the seller is doing or intends to do business, and the name of any parent or affiliated company that will engage in a business transaction with a purchaser or accept responsibility for a multilevel marketing program.

(3) A complete description of the compensation plan, including any inventory purchase requirements.

(4) A full and detailed description of the actual service the seller will undertake to perform for the purchaser.

(5) When the seller makes any statement concerning earnings or range of earnings that may be made through the multilevel marketing program, the statement:

“No guarantee of earnings or range of earnings can be made.” (6) If training is promised by the seller, a complete description of the training and the length of the training.

(7) If the seller promises services to be performed in connection with the placement of the equipment, product, or supplies at a location where they will be sold or used, the full nature of those services as well as the nature of the agreements to be made with the owner or manager of the location where the purchaser’s equipment, product, or supplies will be placed.

(8) If the seller represents, when soliciting, offering for sale, or selling or leasing a multilevel marketing program, that there is a “buy-back” arrangement or that the initial payment is protected from loss or “secured,” the entire and precise nature of the “buy-back”, “protection”, or “security” arrangement.

(9) How many other purchasers are selling in the State.

(10) The percentage of buyers who earn more than the initial payment and all inventory purchase requirements.

(11) The median and typical earnings of every person involved in the program.

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(c) A multilevel distribution company may not require a participant in its marketing program to buy a good or service or pay any other consideration to participate in the marketing program unless the multilevel distribution company agrees to repurchase the goods, in the same form of payment as originally purchased, that are in resalable condition.

(d) A multilevel distribution company must state in writing in each contract of participation in its marketing program all of the following:

(1) A participant may cancel the contract for any reason within 3 months after the date of entering into the contract or the receipt of goods or services first ordered by notice to the multilevel distribution company.

Notice may be sent by electronic mail or first-class mail.

(2) On cancellation, the multilevel distribution company will repurchase the goods in the same form of payment as originally purchased.

(3) The repurchase price will be at least 90% of the original price paid by the participant.

(e) Any person who suffers damage or injury as a result of a violation of this section has a cause of action to recover 3 times the amount of actual damages, court costs, and reasonable attorney’s fees.

Such treble damages shall be in addition to any other damages to which the victim is entitled pursuant to common law or other provisions of the Delaware Code.

SYNOPSIS This Act defines a multilevel distribution company and multilevel marketing program for purposes of this Subchapter.

It sets forth mandatory disclosures that must be made by a multilevel distribution company to any potential purchaser that discloses details about the company, sometimes based on certain representations that the company makes.

It sets forth that a multilevel distribution company may not require a participant in its marketing program to buy a good or service or pay any other consideration to participate in the marketing program unless it agrees to repurchase the goods, under certain conditions.

It provides cancellation rights and guidelines.

It permits a civil penalty to be imposed for violations of the required disclosures.

It provides a private right of action for violation of the repurchase requirement, including treble damages, attorneys’ fees and costs to be awarded for a prevailing plaintiff.

House Substitute No.

1 for House Bill 162 is different from the original in that it reduces some disclosure requirements, specifically the timing, the number of participants who have received the earnings in the amount or range specified within the last 3 years and the total number of participants who have entered into the contract with the seller within the last 3 years;

introduces the standard of “clear and conspicuous” for disclosures while removing some specific requirements such as font size to allow for flexibility with a standard;

and places the Act in a separate subchapter of Title 6.

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