I 
108TH CONGRESS 
1ST SESSION H. R. 1220
To prohibit pyramid promotional schemes, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 12, 2003
Mr. BARTON of Texas (for himself, Mr. HALL, Mr. FROST, Mrs. MYRICK, Mr. 
ENGLISH, Ms. PRYCE of Ohio, Mr. SESSIONS, Mr. TIBERI, and Mr. 
EHLERS) introduced the following bill; which was referred to the Com-
mittee on Energy and Commerce 
A BILL 
To prohibit pyramid promotional schemes, and for other 
purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Anti-Pyramid Pro-
motional Scheme Act of 2003’’. 
SEC. 2. FINDINGS. 
The Congress finds the following: 
(1) Pyramid promotional schemes, chain letters, 
and related schemes are enterprises—
(A) that finance returns to participants 
through sums taken from newly attracted par-
ticipants; 
(B) in which new participants are prom-
ised large returns for their investments; and 
(C) involve unfair and deceptive sales tac-
tics, and lead to the victimization of unwitting 
individuals. 
(2) Pyramid promotional schemes, chain letters, 
and related schemes constitute a threat in interstate 
commerce and to the financial well-being of the citi-
zens of the United States. 
(3) The advent of the global Internet makes 
pyramid promotional schemes international threats. 
(4) The Ninth Circuit Court of Appeals erred 
in defining a pyramid promotional scheme in Web-
ster v. Omnitrition Int’l, Inc. (79 F.3d 776; 9th Cir. 
1996). 
SEC. 3. DEFINITIONS. 
In this Act: 
(1) APPROPRIATE
INVENTORY
REPURCHASE 
PROGRAM.—The term ‘‘appropriate inventory repur-
chase program’’ means a program by which a plan 
or operation repurchases, upon request at the termi-
nation 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 re-
sale, use, or consumption, and such plan or oper-
ation clearly describes the program in its recruiting 
literature, sales manual, or contracts with partici-
pants, 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.—The 
term ‘‘commercially reasonable terms’’ means the re-
purchase of current and marketable inventory within 
12 months from date of purchase at not less than 
90 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 such 
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.—The term ‘‘compensa-
tion’’ means a payment of any money, thing of 
value, or financial benefit. 
(4) CONSIDERATION.—The term ‘‘consider-
ation’’ 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 fur-
nished 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.—
(A) The term ‘‘current and marketable’’ 
includes inventory that—
(i) in the case of consumable or dura-
ble goods, is unopened, unused, and within 
its commercially reasonable use or shelf-life 
period; and 
(ii) in the case of services and intan-
gible property, including Internet sites, 
represents the unexpired portion of any 
contract or agreement. 
(B) The term ‘‘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.—The term ‘‘inventory’’ in-
cludes 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.—The term ‘‘inven-
tory loading’’ means that the plan or operation re-
quires or encourages its independent salespersons to 
purchase inventory in an amount that unreasonably 
exceeds that which the salesperson can expect to re-
sell for ultimate consumption, or to use or consume, 
in a reasonable time period. 
(8) PARTICIPANT.—The term ‘‘participant’’ 
means a person who joins a plan or operation. 
(9) PERSON.—The term ‘‘person’’ means an in-
dividual, a corporation, a partnership, or any asso-
ciation or unincorporated organization. 
(10) PROMOTE.—The term ‘‘promote’’ means 
to contrive, prepare, establish, plan, operate, adver-
tise, or to otherwise induce or attempt to induce an-
other person to be a participant. 
(11) PYRAMID
PROMOTIONAL
SCHEME.—The 
term ‘‘pyramid promotional scheme’’ means any plan 
or operation in which a participant gives consider-
ation for the right to receive compensation that is
derived primarily from the recruitment of other per-
sons 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. 
SEC. 4. RULES TO PROHIBIT OPERATING PYRAMID PRO-
MOTIONAL SCHEME. 
(a) IN GENERAL.— Not later than 1 year after the 
date of the enactment of this Act, the Federal Trade Com-
mission shall promulgate a rule under section 18(a) of the 
Federal Trade Commission Act (15 U.S.C. 57a(a)) pro-
viding that it shall be an unfair or deceptive act or practice 
under section 5 of such Act (15 U.S.C. 45) for any person, 
by the use of any means or instrumentality of transpor-
tation or communication in interstate or foreign com-
merce, to promote, offer, sell, or attempt to sell a partici-
pation or the right to participate in a pyramid promotional 
scheme. 
(b) LIMITATION.—Nothing in this Act or in the rule 
to be promulgated pursuant to this section shall be con-
strued to prohibit a plan or operation, or to define such 
plan or operation as a ‘‘pyramid promotional scheme’’, 
based upon the fact that participants in the plan or oper-
ation give consideration in return for the right to receive 
compensation based upon purchases of goods, services, or 
intangible property by participants for personal use, con-
sumption, or resale, and the plan or operation does not 
promote inventory loading and implements an appropriate 
inventory repurchase program. 
SEC. 5. STATE ENFORCEMENT. 
(a) ACTIONS UNDER STATE LAW.—Nothing in this 
Act or the Federal Trade Commission Act prohibits an 
authorized State official from proceeding in State court 
on the basis of an alleged violation of any civil or criminal 
statute of such State. 
(b) ACTIONS UNDER FEDERAL LAW.—The attorney 
general of any State or territory of the United States may, 
upon finding any person is engaged or is about to engage 
in any act or practice that constitutes a pyramid pro-
motional scheme in violation of the rule promulgated 
under section 4, bring an action in the appropriate district 
court of the United States to enjoin such act or practice 
and to obtain other appropriate relief. The attorney gen-
eral of a State or territory of the United States may seek 
such relief on behalf of residents of such State or territory, 
and an authorized Federal official may seek such relief 
on behalf of residents of all such States and territories. 
Such court may grant a temporary restraining order, or 
a preliminary or permanent injunction, or other appro-
priate relief.