THE J$.TB?CBRNEY GENERAL 

OPI‘EXAS 

February 1, 1971 

Honorable Enrique H. Pena 

County Attorney 

Room 201 Opinion No. M- 781 

City-County Building 

El Paso, Texas 79901 Re: Whether corporation licensed to 

transact business in Texas and 

whose marketing system has several levels of distributorships 

violate the Antitrust, Deceptive Trade Practice, or Lottery 

Dear Mr. Pena: Laws of Texas. 

You have requested our opinion concerning the legality of a sales plan currently being utilized by a Texas corporation. Specifically, you requested that we review the 

sales plan in light of the Antitrust, Deceptive Trade Practice and Lottery Laws of the State of Texas. 

Along with your opinion request, you submitted the 

following information describing the company's sales plan. 

The company offers for sale, at varying prices, several positions. The positions are generally referred to as distributorships. The structure of the company is in the general 

classification of a pyramid or multi-level type. 

As you know, not infrequently businesses organized 

along this structural line do engage in violations of the 

Antitrust and Deceptive Trade Practices acts of this State 

and on occasion may violate the Lottery statutes. When this 

is so, however, it is because the actions and misrepresentations engaged in by the company's representatives when 

presenting the program and the opportunities for making money, 

for a pyramid business structure is not presently, in and of 

itself, a violation of any of the three laws above named. 

Pyramid companies typically provide that goods must 

be purchased only from those people who introduce the purchaser 

to the plan and these new distributors then become a part of 

that introducing distributor's sales organization. The introducing distributor then is rewarded for all sales made within 

his organization, even those made by recruits of his distributors. This would constitute a conspiracy between two or more 

-3802. 
Honorable Enrique H. Pena, Page 2 (M-781) 

persons not to buy from or sell to another individual which 

would be in direct violation of Article 15.03(a) (11, Vernon's 

Civil Statutes which provides as follows: 

" (a) It is a conspiracy in restraint 

of trade for 

(1) two or more persons engaged in 

buying or selling tangible personal property to agree not to buy from or sell to 

another person tangible personal property;" 

Thus it is clear that if the person who is introduced 

into the plan by a certain distributor is prohibited by 

the plan from purchasing from anyone other than his introducing 

distributor, there is a violation of our law. 

Additionally, in a plan such as this there is normally a fixed price list which controls the resale price of 

goods sold by the distributors at the various levels. 

An agreement among the distributors and the company 

fixing and maintaining the resale price of the merchandise so 

that all distributors at the same level sell an item for the 

same price is also a violation of the Texas Antitrust laws. 

See Article 15.02 (b) (5) (A), Vernon's Civil Statutes, which 

provides: 

"(b) h 'trust' is a combination 

of capital, skill, or acts by two or more 

persons to 

(5) agree 

(A) not to sell, dispose of, transport, or prepare tangible personal property 

for market or transportation, or not to make 

an insurance contract, at a price below a 

common standard or figure;" 

It is clear that if prices for the product are set 

and maintained by the parent organization and the individual 

distributors are not free to choose their own resale price, 

as is normally the case in a pyramid organization if it is 

to work as outlined by the sales representatives, then there 

is another violation of our Texas Antitrust law. 

The Distributor's Manual which you supplied along with 

your request affirmatively points out that members of the program are free to purchase from whomsoever they desire at the 

best price possible and that they may resell their goods to 

anyone at any price they so choose. Whether or not such 

conditions are in fact true in this particular sales plan is 

-3803- 
Honorable Enrique H. Pena, Page 3 (M-781) 

a question of fact and one upon which this office will not 

pass. We pause to point out that the mere recitation in the 

sales manual of these facts does not control, and it is the 

actual actions of the company and its "distributors" when 

making the sales presentation and in dealing with its distributors which determines whether or not there has been a violation of our law. 

Regarding the Deceptive Trade Practices Act, it is 

not unusual for pyramid sales companies, and indeed other 

companies, to make gross misrepresentations in the sales presentation as to prospective earnings , and the ease with which 

these earnings may be accomplished. These claims are often 

made in a revival like, mass meeting referred to by some glowing name where the plans are outlined with rehearsed and theatrical precision. Unfortunately, it is not unheard of for the 

representation to be made at such a meeting that this office, 

or some other governmental agency, has approved the plan. 

Suffice it to say that where misrepresentations are made concerning the benefits of the sales plan or its approval of 

sponsorship, it is a violation of Article 5069-10.01(b) (5) 

which provides: 

” (b) 'Deceptive practices' means any 

one or more of the following: 

(5) representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or 

quantities that they do not have or that a 

person has a sponsorship, approval, status, 

affiliation, or connection that he does not 

have;" 

The material you submitted indicates that this company 

does not utilize the mass sales meeting technique. Rather, 

it seems, a company representative approaches every person 

individually and describes the sales plan on its own merit. 

Additionally, you state that each person is told how many distributors there presently are in the area and the total number 

of distributorships available for the area. Thus a prospective 

purchaser is aware at the time of his purchase of the market 

saturation, or lack thereof, in his area. Further, it appears 

from the submitted materials that realistic claims of earnings 

are presented by the company to prospective distributors rather 

than the exhorbitant and fantastic claims which all too often 

are companions to sales presentations of this type. We caution 

again that actual fraud or misrepresentation is a question of 

fact, ana we do not attempt to pass upon the question of whether 

the company actually follows the sales manual you supplied. It 

-3804- 
. - 

Honorable Enrique ii. Pena, Page 4 (M-781) 

does appear from the information that you furnished us that 

this company does not engage in such misrepresentation. It is 

elementary that if there is no misrepresentation of the product, 

the sales program involved or potential earnings, then there is 

no violation of our Deceptive Trade Practices Act. 

Finally we come to the question of whether this sales 

plan violates the Lottery Laws of the State of Texas. A lottery 

in Texas consists of three essential elements, which are consideration, prize and chance. See Griffith Amusement Company v. 

Morgan, 98 SW2d 844 (Tex.Civ.App. 1936, no writ); City of Wink 

v. Griffith Amusement Comnanv 129 Tex. 40, 100 SW2d 695 (1936); 

State v. Socony Mobil Oil ComLany, 386 SW2d 169; and Att. Gen. 

Opinion Nos. C-619 (1966) and M-343 (1969). In a plan such as 

this the problem always is one of whether or not there is chance. 

There is obvious consideration, the cozt of distributorship, and 

prize, the chance to make large earnings. The only question remaining is whether skill or chance is the dominant factor. From 

the facts given, it appears that in this plan skill and effort 

on the part of the distributor are paramount and that chance, 

if any, is minimized to that point to which any ordinary businessman would be subjected. See Atty. Gen. Opinion No. M-343 

(1969). For this reason it is the opinion of this office that 

the sales plan as presented does not constitute a violation of 

the Lottery laws of this State. 

We stress that this opinion is based upon the assumption of the truth and accuracy of the facts submitted along 

with your opinion request as pointed out above. If the company is saying one thing in their sales manual but actually 

doing another, then there might well be a violation of any 

or all of the above noted laws. In addition, since this office is without authority to determine factual questions, we 

point out that if it is caused to appear that a factual controversy is presented, the court of jury would make the ultimate factual determination. 

SUMMARY ------- 

A sales plan which does not contain a 

conspiracy not to buy from or sell to another 

individual and which does not fix resale prices 

does not violate Article 15.03(a)(l), Vernon's 

Civil Statutes. A sales plan which does not fix 

or maintain resale prices does not violate Article 15.02(b) (5) (a). A sales plan in which there 

is no deceptive sales representation does not violate 

Article 5069-10.01 et seq. A sales plan which does 

-3805. 
Honorable Enrique H. Pena, Page 5 (M-781) 

not contain the essential 

eration, chance and prize 

a lottery in violation of 

COd8. If it appears that 

._ - . . 

elements; considdoes not constitute 

Article 654, Penal 

the facts are controvertea as to any or tne elements constituting a lottery, the determination of such 

a fact question cannot be made by this office 

but is a question for a cqrt or jury. 

., " ,.' 

Vea$Xuly Yours, ./ 

AGorney/06neral of Texas 

Prepared by Robert E. Owen 

Assistant Attorney General 

APFROVED: 

OPINION COMMITTEE 

Xerns Taylor, Chairman 

W. E. Allen, Co-Chairman 

Gordon Case 

Larry Craddock 

Jim Swearingen 

Wardltm Lane 

MEADE F. GRIFFIN 

Staff Leqal Assistant 

ALFRED WALKER 

EX8CUtiV8 Assistant 

NOLA WHITE 

First Assistant 

-3806-