Multi-Level Marketing, Multi-Level Accountability
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Over 50 percent of Americans report being “inundated” online with posts advertising products from multi-level marketing (MLM) companies—a $40 billion industry that relies on person-to-person sales between contractors and their friends and family. Often, these posts make dramatic promises: rapid weight loss, financial freedom working part-time from home, or homeopathic cures for autism and COVID-19.
MLMs are subject to the same labeling and advertising laws as traditional retailers but rarely face consequences for the outlandish—and unlawful—claims made by their sales representatives, contends Alexandra J. Roberts of Northeastern University School of Law. In a forthcoming article, Roberts argues that enforcement authorities are not holding MLM companies accountable for misleading claims made by the individuals selling their products.
Roberts recommends that agencies, social media companies, and competitors use existing false advertising laws to “tamp down” the deceptive claims that Roberts contends are an intentional “feature, not a bug,” of MLM corporate strategy.
Instead of purchasing advertisements, MLMs contract with individuals to sell products and recruit downstream sellers for a commission. Because nearly all MLM sellers fail to earn a profit, however, they may be “desperate to say whatever they must in order to sell products.”
Roberts surveyed MLM sellers in the United States and reports that 40 percent of them are unaware of any laws that regulate their marketing claims. In reality, both the U.S. Federal Trade Commission (FTC) and U.S. Food and Drug Administration (FDA) regulate the advertising and labeling of MLM products.
Under the Federal Trade Commission Act and Lanham Act, the FTC prohibits companies from making false and misleading claims in advertisements. The FTC Act regulates product endorsements, which the FTC has interpreted to include influencers and MLM sellers, Roberts explains. The FTC has issued MLM-specific guidance that warns companies of their liability for deceptive statements made by sellers, “regardless of where the participant statements are made, including on social media and in small group recruiting meetings.”
The Lanham Act’s prohibitions apply only to commercial advertisements. Roberts argues that the Act covers MLM sellers’ statements about products, which are made to sell products, recruit distributors, and generate revenue. Some courts have held that speech to a single person or group, such as online direct messages, are not disseminated widely enough to count as advertising under the Lanham Act. In response, Roberts explains that MLM sellers strategically drive traffic from online posts to direct messages. The post and message jointly create an advertisement that, if misleading, falls under the Lanham Act and the FTC’s enforcement authority.
FDA only regulates prescription drug advertising, but it maintains authority over product labeling—a term courts read to include not only a product’s physical label but any accompanying text, such as a post’s caption or product’s description. In enforcement proceedings, FDA uses distributors’ online content as evidence of unlawful labeling.
FDA’s labeling authority covers wellness and personal care products, such as supplements and cosmetics, which make up nearly 50 percent of MLM sales in the United States. With prior notice to FDA, these products may include claims related to the structure or function of the body, such as that a product “supports immunity.”
Content retrieved from: https://www.theregreview.org/2025/05/14/bevan-multi-level-marketing-multi-level-accountability/.
