Medifast litigation

Count me among those who are thoroughly convinced that "multi-level marketing programs" are inherently suspect. The Medifast Inc. litigation concerning "Take Shape for Life" is only the latest superfluous piece of evidence.

Multi-level marketing (MLM) programs are those in which a salesperson makes a portion of revenue from sales of the product, but also gets a cut from sales of the product made by those persons whom he/she has persuaded to become salespeople. Such an arrangement is not at law necessarily a fraudulent pyramid schemes. After years of litigation with Amway in the 1970s, the FTC defined the line thus. A MLM business is lawful, and so by definition not a pyramid scheme, so long as the company buys back the goods of terminating distributors, requires the distributors to have sales to at least ten customers per month, and and requires distributors to sell 70% of their products each month to non-distributors.

So "selling" only to those you have persuaded to join the team, who then "sell" to the tier further down, whom they persuaded to join the team, is verbotten. In that case of course the "product" is just a pretext for the chain letter.

The Amway case, and its 70/30 rule, have given a cloak of legitimacy to an industry. But, in my view and that it seems of most of those who have looked at the matter dispassionately, the distinction between lawful MLM and unlawful pyramids is itself something of a sham. MLM systems as defined above inevitably create a context in which the success stories are the sales people at the top of the chain, and those at the bottom are their suckers. The success stories are held up as role models, and this is used to generate more suckers.

Certain MLM systems, such as Amway's itself, appear to last for a long time. That appearance in turn suggests that they are legitimate, and are selling valuable products to the general public. This, though, is illusory. Amway regularly starts new products, which function as new pyramids, and it lets the older pyramids collapse. The reality is not of continuity but of a lot of short-lived schemes sharing a brand name.

So we return to Medifast, and its lawsuit against a variety of people who have made points like that abstractly made in the above paragraphs, but who have made them with specific reference to its "Take Shape for Life" program.

These lawsuits are classic SLAPPS (Strategic Lawsuits Against Public Participation). California has an anti-SLAPP law in its Code of Civil Procedure. In essence this allows for a special motion to strike a cause of action that arises from any act of the defendant (like, say, speaking the truth about MLM) in furtherance of the defendant's right of free speech under the constitutions of the US and of California.

So Medifast has brought a lawsuit, and the defendants have moved that it be striken under the anti-SLAPP law, which in essence requires Medifast to make an early showing that it will "probably" prevail on the merits.

Medifast now seems to be confirming the growing skepticism about MLMs in general, by its delaying tactics in regard to the anti-SLAPP motion. As one of the defendants sensibly enough asks: "If they’re so sure of their claims… and if we’ve told lies about them… and if they can prove it… why not proceed with the anti-SLAPP motions? Probably because the longer Medifast can drag this out and the more they cost the defendants in legal fees, the better their chances of shutting us up (and also shutting up any other citizen who dares to challenge the validity of the multi-level marketing business model)."