Industry News
September 2009
New provision concerning snowball schemes in Germany
THE German Government has implemented the EU-Directive 2005/29 against unfair competition (UGP-Directive) into the already existing German Unfair Competition Law (UWG) in December 2008.
Concerning the snowball schemes a law already exists which prohibits the motivation of consumers to participate in a progressive sales system. Progressive is the sales system if purchased products have to be sold to third parties promising that these third parties will receive benefits by doing the same.
Additional to this regulation the Government introduced section No.14 of the annex I of the EU Directive into the German UWG. This annex is named as ‘Black List’ and has become linked with this nickname.
With the German version of No.14 the Government has overshot the mark. Those matters without any progressive character like some MLM structures or customer promotion programmes might also infringe the law.
This is now the case if the operators, introducing persons or the promoters of a selling system suggest that benefits could be achieved alone or mainly by introducing further participants into the selling system.
No progressive structure and no personal investment are required to meet the conventional definition of snowball schemes. This will cause some irritation to Direct Selling Companies being active in Germany.
But, the German version of No.14 has to be seen in the light of the EU Directive. In that version it is only the consumer to whom it is suggested to obtain benefits by introduction of new consumers and less by consuming products. With regard to the French and English version of the EU directive any payment combined with the expectation to receive benefits is required and last but not least the Reasons of the German Government Draft Paper confirm that the progressive structure is still required to commit the offence of No.14.
It seems that the broad formulation of No.14 has not handicapped the already complicated legal situation of pyramid schemes as initially thought. But it is still a challenge for MLM companies in Germany to be aware of the quite slim borderline between permitted and prohibited selling systems especially in case of binary systems and usual activation offers.
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