I find this interesting… D.J. Poyfair is the attorney representing Usana Health Sciences to the death against Barry Minkow. He is also the attorney who is representing a group of 15 “independent business owners” against Amway (Quixtar).
It appears as though Poyfair thinks Amway is an evil pyramid scheme, while Usana is …. oh, I don’t know… better? Less bad???
There was recently a hearing in California in the Quixtar IBO case, and there are a couple of interesting portions. Here’s one (bold added by me):
Poyfair: No, they understand what they’re selling, they understand what the pricing is, because they are told exactly the opposite by Amway, is that these products cannot be sold in the retail market. That they have no hope of actually selling any products to anyone other than – – well, just to consume them for themselves. That’s what they find out and that’s how they’re induced to pay the money into the bottom of the pyramid, which works its way up.
The Judge: And that is that, and reading through the history of the business relationship, as described in the Complaint, what appears to me to have occurred is that an organizational structure which might have had some viability at some point in time has, due to market conditions, lost that viability; and you can say, well, now, at this point given the rise of the big box stores, and so forth and so on, it amounts to an illegal contract, it doesn’t appear to me to have been an illegal contract in the inception. And it appears to me that it’s largely a question of market forces which have made it difficult, if not impossible, for Amway distributors to make money – – and that’s not against the law. I mean, that’s just what happens in a capitalist society where economic conditions change more and more rapidly all the time.
So I just find it very difficult to conclude that the critical aspect that one would need to show for preliminary injunction, that is, likelihood of success on substantial question on the merits is present in this case.
And here’s another:
Poyfair: The focus seems to have become pricing. The focus of this case should, I believe, become the business model that Quixtar has adopted. Every network marketing company that has any product, in response to a pyramid scheme allegation, makes the suggestion that their products are of high quality and they justify the higher prices.
In fact, in many cases what occurs is that the high prices are simply at that level not because of the quality of the product, but instead, as we’ve alleged and have proven with affidavits, instead it drives the payment of – – simply the payment of the bonuses and profit to the ownership.
There is – – throughout FTC case law, the analysis that takes place, the most fundamental analysis for a pyramid scheme is annunciated over and over and over again and that is how much of the product – – you figure out just about the quality when you look at how much of the product can be retailed outside the network.
The FTC said it should be 70% in 1979. Most network marketing companies are, legitimate ones, are in the 30’s, 40’s, 50’s and 60’s. This network marketing company has outside sales of 3.4% of outside. That’s if you accept their definition of what constitutes outside retail sales. Okay. That tells you about the quality of the products. That tells you about legitimacy of the pricing. The contention is not that the products are not of high quality, the contention is simply that prices are so high that they do not justify quality of the – – the quality of the products don’t justify the high prices.
This raises an interesting issue. I wonder what Usana’s numbers are? They certainly aren’t selling much more than 3.4% of their products to outside customers, are they? Or maybe they are…. in which case I’m sure the company would be happy to release those numbers?
I mean, if the company 30% or 40% or 50% or 60% retail sales as Poyfair notes above, and if he thinks that’s fabulous, then why doesn’t Usana just go ahead and release the numbers? Now notice that Poyfair’s mention of “legitimate” MLMs doesn’t indicate that they sell 70% of their products to bona fide retail customers. Hmmmm… are we getting closer to a number for Usana?