BILL REQ. #:  S-4293.1 

Read first time 01/29/2004.   Referred to Committee on Commerce & Trade.

     AN ACT Relating to prohibiting pyramid promotional schemes; adding a new chapter to Title 19 RCW; and repealing RCW 19.102.010 and 19.102.020.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Appropriate inventory repurchase program" means a program by which a plan or operation repurchases, upon request at the termination of a participant's business relationship with the plan or operation and based upon commercially reasonable terms, current and marketable inventory purchased and maintained by the participant for resale, use, or consumption, and such plan or operation clearly describes the program in its recruiting literature, sales manual, or contracts with participants, including the manner in which the repurchase is exercised, and disclosure of any inventory that is not eligible for repurchase under the program.
     (2) "Commercially reasonable terms" means the repurchase of current and marketable inventory within twelve months from the date of purchase at not less than ninety percent of the original net cost to the participant, less appropriate set-offs and legal claims, if any. In the case of service products, the repurchase of the service products must be on a pro rata basis (unless clearly disclosed otherwise to the participant) to be within the meaning of "commercially reasonable terms".
     (3) "Compensation" means a payment of any money, thing of value, or financial benefit.
     (4) "Consideration" means the payment of cash or the purchase of goods, services, or intangible property, and does not include:
     (a) The purchase of goods or services furnished at cost to be used in making sales and not for resale; or
     (b) Time and effort spent in pursuit of sales or recruiting activities.
     (5) "Current and marketable" includes inventory that, in the case of consumable or durable goods, is unopened, unused, and within its commercially reasonable use or shelf-life period; and in the case of services and intangible property, including internet sites, represents the unexpired portion of any contract or agreement. "Current and marketable" does not include inventory that has been clearly described to the participant prior to purchase as seasonal, discontinued, or special promotion products not subject to the plan or operation's inventory repurchase program.
     (6) "Inventory" includes both goods and services, including company-produced promotional materials, sales aids, and sales kits that the plan or operation requires independent salespersons to purchase.
     (7) "Inventory loading" means that the plan or operation requires or encourages its independent salespersons to purchase inventory in an amount that unreasonably exceeds that which the salesperson can expect to resell for ultimate consumption, or to use or consume, in a reasonable time period.
     (8) "Participant" means a person who joins a plan or operation.
     (9) "Person" includes an individual, a corporation, a partnership, or any association or unincorporated organization.
     (10) "Promote" means to contrive, prepare, establish, plan, operate, advertise, or to otherwise induce or attempt to induce another person to be a participant.
     (11) "Pyramid promotional scheme" means any plan or operation in which a participant gives consideration for the right to receive compensation that is derived primarily from the recruitment of other persons as participants in the plan or operation, rather than from the sales of goods, services, or intangible property to participants or by participants to others.

NEW SECTION.  Sec. 2   No person may establish, promote, operate, or knowingly participate in any pyramid promotional scheme.

NEW SECTION.  Sec. 3   Nothing in this chapter may be construed to prohibit a plan or operation, or to define such a plan or operation as a pyramid promotional scheme, based upon the fact that participants in the plan or operation give consideration in return for the right to receive compensation based upon purchases of goods, services, or intangible property by participants for personal use, consumption, or resale, and the plan or operation does not promote inventory loading and implements an appropriate inventory repurchase program.

NEW SECTION.  Sec. 4   The legislature finds that the practices covered by this chapter are matters vitally affecting the public interest for the purpose of applying the consumer protection act, chapter 19.86 RCW. A violation of this chapter is not reasonable in relation to the development and preservation of business and is an unfair or deceptive act in trade or commerce and an unfair method of competition for the purpose of applying the consumer protection act, chapter 19.86 RCW.

NEW SECTION.  Sec. 5   Sections 1 through 4 of this act constitute a new chapter in Title 19 RCW.

NEW SECTION.  Sec. 6   The following acts or parts of acts are each repealed:
     (1) RCW 19.102.010 (Definitions) and 1973 1st ex.s. c 33 s 1; and
     (2) RCW 19.102.020 (Chain distributor schemes prohibited -- Unfair practice) and 1973 1st ex.s. c 33 s 2.