[Federal Register Volume 74, Number 78 (Friday, April 24, 2009)]
[Notices]
[Pages 18712-18715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-9440]
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FEDERAL TRADE COMMISSION
Public Workshop: Business Opportunity Rule An FTC Workshop
Analyzing Business Opportunity Disclosure Form and Other Proposed
Changes to the Business Opportunity Rule
AGENCY: Federal Trade Commission
ACTION: Notice announcing public workshop, revised disclosure document,
and request for public comment.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is
planning to hold a public workshop
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relating to the March 26, 2008 Revised Notice of Proposed Rulemaking
(``RNPR'') that announced proposed changes to the trade regulation rule
entitled ``Business Opportunity Rule,'' 16 CFR Part 437 (the ``Rule'').
The workshop will explore issues relating to the effectiveness of the
proposed revised Business Opportunities Disclosure Form attached to
this Notice as a means of conveying material information to prospective
purchasers of business opportunities. The workshop is also anticipated
to develop the record related to certain issues raised in the comments
received in response to the RNPR.
DATES: The public workshop will be held on June 1, 2009, from 9:00 a.m.
until 5:00 p.m. at the FTC's Satellite Building Conference Center,
located at 601 New Jersey Avenue, NW, Washington, DC. Requests to
participate as a panelist must be received by May 4, 2009. Any written
comments related to the agenda topics and the issues discussed by the
panelists at the workshop must be received by June 15, 2009. The
workshop is open to the public, and there is no fee for attendance. For
admittance to the Conference Center, all attendees will be required to
show valid photo identification such as a driver's license.
ADDRESSES: Registration information can be found in Section III of this
Notice. In order to facilitate the organization of comments and
requests to participate, comments and requests to be panelists should
respectively refer to ``Business Opportunity Rule Workshop--Comment,
Project No. P084405'' or to ``Business Opportunity Rule Workshop--
Request to Participate, Project No. P084405.'' A comment or request to
participate as a panelist may be filed electronically or in paper form.
Please note that your comment--including your name and your state--will
be placed on the public record of this proceeding, including on the
publicly accessible FTC Website, at (http://www.ftc.gov/os/publiccomments.shtm).
Because comments will be made public, they should not include any
sensitive personal information, such as an individual's Social Security
Number; date of birth; driver's license number or other state
identification number, or foreign country equivalent; passport number;
financial account number; or credit or debit card number. Comments also
should not include any sensitive health information, such as medical
records or other individually identifiable health information. In
addition, comments should not include any ``[t]rade secret or any
commercial or financial information which is obtained from any person
and which is privileged or confidential. . . .,'' as provided in
Section 6(f) of the Federal Trade Commission Act (``FTC Act''), 15
U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). Comments
containing material for which confidential treatment is requested must
be filed in paper form, must be clearly labeled ``Confidential,'' and
must comply with FTC Rule 4.9(c), 16 CFR 4.9(c).\1\
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\1\ The comment must be accompanied by an explicit request for
confidential treatment, including the factual and legal basis for
the request, and must identify the specific portions of the comment
to be withheld from the public record. The request will be granted
or denied by the Commission's General Counsel, consistent with
applicable law and the public interest. See FTC Rule 4.9(c), 16 CFR
4.9(c).
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Because paper mail addressed to the FTC is subject to delay due to
heightened security screening, please consider submitting your comments
and requests to participate in electronic form. Comments filed in
electronic form should be submitted by using the following weblink:
(https://secure.commentworks.com/ftc-businessopportunityworkshop) (and
following the instructions on the web-based form). To ensure that the
Commission considers an electronic comment, you must file it on the
web-based form at the weblink (https://secure.commentworks.com/ftc-businessopportunityworkshop). If this Notice appears at (http://www.regulations.gov/search/index.jsp), you may also file an electronic
comment through that website. The Commission will consider all comments
that regulations.gov forwards to it. Requests to participate filed in
an electronic form should be submitted by e-mail to:
[email protected]. You may also visit the FTC Website
at http://www.ftc.gov to read the Notice and the news release
describing it.
A comment or request to participate as a panelist filed in paper
form should include the ``Business Opportunity Rule Workshop--Comment,
Project No. P084405'' or ``Business Opportunity Rule Workshop--Request
to Participate, Project No. P084405'' reference both in the text and on
the envelope, and should be mailed or delivered, with two complete
copies, to the following address: Federal Trade Commission, Office of
the Secretary, Room H-135 (Annex S), 600 Pennsylvania Avenue, NW,
Washington, DC 20580. The FTC is requesting that any comment filed in
paper form be sent by courier or overnight service, if possible,
because U.S. postal mail in the Washington area and at the Commission
is subject to delay due to heightened security precautions.
The FTC Act and other laws the Commission administers permit the
collection of public comments to consider and use in this proceeding as
appropriate. The Commission will consider all timely and responsive
public comments that it receives, whether filed in paper or electronic
form. Comments received will be available to the public on the FTC
Website, to the extent practicable, at (http://www.ftc.gov/os/publiccomments.shtm). As a matter of discretion, the Commission makes
every effort to remove home contact information for individuals from
the public comments it receives before placing those comments on the
FTC Website. More information, including routine uses permitted by the
Privacy Act, may be found in the FTC's privacy policy, at (http://www.ftc.gov/ftc/privacy.shtm).
Comments on any proposed filing, recordkeeping, or disclosure
requirements that are subject to paperwork burden review under the
Paperwork Reduction Act should additionally be submitted to: Office of
Information and Regulatory Affairs, Office of Management and Budget
(``OMB''), Attention: Desk Officer for Federal Trade Commission.
Comments should be submitted via facsimile to (202) 395-5167 because
U.S. postal mail at the OMB is subject to delays due to heightened
security precautions.
FOR FURTHER INFORMATION CONTACT: Kathleen Benway (202) 326-2024,
Division of Marketing Practices, Bureau of Consumer Protection, Federal
Trade Commission, 600 Pennsylvania Avenue, NW, Room H-286, Washington,
DC 20580.
SUPPLEMENTARY INFORMATION:
I. Background
As part of the Commission's overall policy of periodic review of
its trade regulation rules, the Commission, in 1995, commenced a
regulatory review of its Trade Regulation Rule (``TRR'') entitled
``Disclosure Requirements and Prohibitions Concerning Franchising and
Business Opportunity Ventures'' (the ``Franchise Rule''). This Rule, as
originally promulgated, covered, in a single Code of Federal
Regulations part, two distinct types of offerings: franchises and
business opportunity ventures. Many of the very familiar national fast-
food restaurants and hotels, for example, are franchises; business
opportunity ventures include vending machine routes, rack display
operations, and medical billing
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ventures. Business opportunity ventures, unlike franchises, typically
do not involve the right to use a trademark or other commercial symbol,
and generally do not involve a long-term reciprocal relationship
between the seller and the purchaser of the venture. Nevertheless,
these ventures typically do call for the business opportunity seller to
provide purchasers with locations for machines or equipment or with
clients.
Much of the information revealed by the regulatory review focused
on the differences between franchises and business opportunity
ventures, and the distinct regulatory challenges presented by these two
types of offerings. One result of the periodic review was that, based
on the record amassed during the review proceeding, the Commission
determined a need to create two separate rules--one covering the sale
of franchises and one to govern the sale of non-franchise business
opportunities. Accordingly, in February 1997, the Commission published
an Advance Notice of Proposed Rulemaking soliciting comment on several
proposed Rule modifications, including the creation of a separate TRR
governing the sale of business opportunities.\2\
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\2\ 62 FR at 9115 (Feb. 28, 1997).
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In 2006, the Commission published an Initial Notice of Proposed
Rulemaking (``Initial NPR'') announcing its intention to proceed with
its proposal for a separate Business Opportunity Rule (``Initial
Proposed Business Opportunity Rule'' or ``IPBOR'').\3\ In response to
the Initial NPR, the Commission received more than 17,000 comments, the
overwhelming majority of which came from the multi-level marketing
(``MLM'') industry.\4\ MLM companies, their representatives and trade
associations, as well as individual participants in various MLM plans,
expressed grave concern about the burdens the IPBOR would impose on
them, and urged the Commission to narrow the scope of the IPBOR, to
implement various safe harbor provisions, and/or to reduce the required
disclosures.\5\
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\3\ Business Opportunity Rule NPR, 71 FR 19054 (Apr. 12, 2006).
\4\ Multi-level marketing is one form of direct selling, and
refers to a business model in which a company distributes products
through a network of distributors who earn income from their own
retail sales of the product and from retail sales made by the
distributors' direct and indirect recruits. Because they earn a
commission from the sales their recruits make, each member in the
MLM network has an incentive to continue recruiting additional sales
representatives into their ``down lines.'' See Peter J. Vander Nat &
William W. Keep, Marketing Fraud: An Approach to Differentiating
Multilevel Marketing from Pyramid Schemes, 21 J. Pub. Pol'y &
Marketing (Spring 2002) at 140.
\5\ The Commission also received approximately 187 comments,
primarily from individual consumers or consumer groups, in favor of
the IPBOR. Only a handful of comments from non-MLM companies and
industry groups expressed concerns about obligations that the IPBOR
would impose upon them.
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On March 30, 2007, while the Business Opportunity proceeding was
underway, the Commission published the Amended Franchise Rule that
separated the Franchise Rule into two distinct CFR parts--part 436,
governing the sales of business format franchises, and a new part 437,
the Business Opportunity Rule, governing the sales of non-franchise
business opportunities. Part 437 is identical to the original Franchise
Rule, with all of the definitional elements and references regarding
business format franchising deleted. Part 437 continues to govern sales
of non-franchise business opportunities, pending completion of the
ongoing proceedings to amend it.
After an extensive analysis of the public comments received in
response to the Initial NPR and a reassessment of its law enforcement
experience, the FTC, on March 26, 2008, issued a Revised Notice of
Proposed Rulemaking (``RNPR'') that proposed a Revised Proposed
Business Opportunity Rule (``RPBOR'')\6\ more narrowly tailored than
the IPBOR. In addition to minor wording and punctuation changes to
improve clarity, the RPBOR modified the IPBOR in six significant ways:
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\6\ Business Opportunity Rule Revised NPR, 73 FR 16110 (Mar. 26,
2008)
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It narrowed the scope of the proposed Rule to avoid
broadly sweeping in sellers of multi-level marketing opportunities,\7\
while retaining coverage of those business opportunities sellers
historically covered by the FTC's original Franchise Rule (and by the
FTC's current Business Opportunity Rule), as well as coverage of
sellers of work-at-home schemes;
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\7\ The RNPR did not exempt MLMs from coverage of the RPBOR.
Instead, it narrowed the scope of the IPBOR by significantly
revising Section 437.1 by redefining the term ``business
opportunity.'' The RNPR noted that while some MLMs do engage in
unfair or deceptive acts or practices, including the operation of
pyramid schemes or unsubstantiated earnings claims that cause
consumer harm, commenters generally agreed that the IPBOR's required
disclosures would not help consumers identify a fraudulent pyramid
scheme. In the RNPR, the Commission stated its belief that consumer
harm flowing from deceptive practices in the MLM industry could be
more effectively addressed through the use of Section 5 of the FTC
Act.
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It cured a potential overbreadth problem that may have
inadvertently swept in companies using traditional product distribution
arrangements;
It eliminated the previously proposed requirement that a
covered business opportunity seller disclose the number of cancellation
and refund requests it received;
It eliminated the proposed requirement to disclose
litigation history of certain sales personnel (while retaining the
requirement to disclose litigation history of the business opportunity
seller, its principals, officers, directors, and sales managers, as
well as any individual who occupies a position or performs a function
similar to an officer, director, or sales manager);
It added a proposed requirement to include a citation to
the Rule in the title of the required disclosure document; and
It added a proposed prohibition against misrepresenting
that the government or any law forbids providing business opportunity
prospects with a list of prior purchasers.
The RNPR sought public comment on these proposed changes and on
alternatives the Commission could consider.
The RNPR also included a proposed one-page Business Opportunity
Disclosure Form (``proposed Disclosure Form'') that sellers of business
opportunities would be required to provide to prospective purchasers.
Section 437.2 of the RPBOR would require ``sellers'' of covered
business opportunities to provide potential purchasers with the
proposed Disclosure Form at least seven calendar days before they sign
a contract or pay any money toward a purchase. The proposed Disclosure
Form is intended to provide prospective purchasers with material
information with which to make an informed decision about the potential
business opportunity, including information about earnings claims,
legal actions, existence of cancellation or refund policies, and
references. The RNPR announced that the Commission had engaged a
consultant with expertise in document design and comprehension to
evaluate the proposed Disclosure Form to ensure that it adequately
conveyed to consumers information material to the prospective business
opportunity, and to determine whether the overall presentation of the
information in the proposed Disclosure Form could be improved to make
it more useful and understandable. The RNPR also invited public comment
on the proposed Disclosure Form.\8\ Following publication of the RNPR,
the consultant conducted extensive consumer testing of the proposed
Disclosure Form that
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resulted in substantial improvement to both the layout and the wording
of the form, e.g., the consultant suggested revising the preamble to
clarify that the information on the proposed Disclosure Form relates
specifically to the business opportunity that the reader is being
offered, and suggested adding a note below the signature line stating
that the FTC requires that the business opportunity seller give the
reader at least seven calendar days before asking him or her to sign a
purchase contract. The format and language of the revised proposed
Business Opportunity Disclosure Form (``revised proposed Disclosure
Form'') is set forth in Appendix A to this Notice.\9\ More information
about the testing of the proposed Disclosure Form may be found at:
(http://www.ftc.gov/bcp/workshops/bizopps/disclosure-form-report.pdf).
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\8\ In response to the RNPR, the Commission received no public
comments about the language or the layout of the proposed form.
\9\ The version of the revised proposed Disclosure Form that was
tested by the expert inadvertently omitted the phrase ``or pay any
money'' from the conclusion of the penultimate sentence of the
revised proposed Disclosure Form. The expert engaged by the FTC
determined that this omission had no effect on the results of its
testing.
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II. Issues for Discussion at the Workshop
The primary focus of the workshop will be on the efficacy of the
revised proposed Disclosure Form to convey critical material
information to prospective purchasers of business opportunities. The
workshop will explore the form as a whole, as well as specific aspects
or sections of the form--for example, whether the required disclosures
regarding legal actions and cancellation or refund policies are
adequate. The workshop also will provide participants with an
opportunity to discuss some general issues raised in the comments
received in response to the RNPR, including: the implications of the
RPBOR for businesses and consumers; whether certain definitions
proposed in the RNPR accomplish the Commission's purposes stated in the
RNPR; and the RPBOR's compatibility with existing federal and state
policies. A more detailed agenda will be published at a later date, in
advance of the scheduled workshop.
III. Public Participation Information
A. Registration Information
The public workshop will consist of a roundtable discussion on the
issues described above by those individuals selected to be panelists. A
court reporter will be present to record the proceedings so that a
transcription can be made for the public record. The FTC will accept
pre-registration for this workshop. Pre-registration is not necessary
to attend, but is encouraged so that staff may better plan this event.
To pre-register, please email your name and affiliation to
[email protected]. When you pre-register, the FTC
collects your name, affiliation, and e-mail address. We will use this
information to estimate how many people will attend and better
understand the likely audience for the workshop, and will dispose of it
following the workshop. We may use your e-mail address to contact you
with information about the workshop. The FTC Act and other laws the
Commission administers permit the collection of this contact
information to consider and use for the above purposes. Under the
Freedom of Information Act or other laws, we may be required to
disclose the information you provide to outside organizations. For
additional information, including routine uses permitted by the Privacy
Act, see the Commission's privacy policy at (http://www.ftc.gov/ftc/privacy.shtm).
B. Requests to Participate as a Panelist
The workshop will consist of a roundtable format with participation
by panelists selected by the FTC staff. Other attendees also will have
an opportunity to comment and ask questions. Requests to participate as
a panelist must be received on or before May 4, 2009. Persons selected
as panelists will be notified on or before May 15, 2009.
Requests to participate as a panelist at the workshop should be
submitted electronically to [email protected], or, if
mailed, should be submitted in the manner detailed in the ADDRESSES
section of this Notice, and should be captioned ``Business Opportunity
Workshop--Request to Participate, Project No. P084405.'' Parties are
asked to include in their requests a brief statement setting forth
their expertise in or knowledge of the issues on which the workshop
will focus as well as their contact information, including a phone
number, facsimile number, and e-mail address (if available), to enable
the FTC to notify them if they are selected. For requests filed in
paper form, an original and two copies of each document should be
submitted to Federal Trade Commission/Office of the Secretary, Room
135-H (Annex S), 600 Pennsylvania Ave, NW, Washington, DC, 20580, and
must be received on or before May 4, 2009. The Commission will also
accept requests to participate received at the following e-mail
address: [email protected].
C. Written and Electronic Comments
The submission of comments is not required for participation in the
workshop. If a person wishes to submit written or electronic comments
about the topics to be discussed at the workshop, such comments should
be filed as prescribed in the ADDRESSES section above, and must be
received on or before June 15, 2009. To read the FTC's policy on how it
handles the information you submit, please visit (http://www.ftc.gov/ftc/privacy.shtm).
By direction of the Commission.
Donald S. Clark
Secretary
[FR Doc. E9-9440 Filed 4-23-09: 8:45 am]
BILLING CODE 6750-01-S