Michigan v. Koscot , 37 Mich. App. 447 (1972)

Does the marketing plan of Koscot constitute a lottery, deceptive trade practice, or an activity against public policy?

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The Michigan Court of Appeals held that Koscot was a lottery, deceptive trade practice and was against public policy. The elements of a lottery were all present in Koscot's marketing plan: consideration, chance and prize. The distributors had to buy into the system and chance was a significant factor to the distributor's success. Because of the constant need to expand, the Court reasoned that it must fail at some point. When that point was reached, the people at the bottom would lose, those higher up would win, and your position in the scheme was largely the product of chance. Koscot represented to potential recruits that the number of distributorships in the states was limited based on population, but in fact the number was limited on the basis of the entire state, and not individual geographic regions. Some areas had become saturated with distributors, while others were relatively untapped. This was not revealed to new recruits, a violation of the state deceptive trade practices act. Finally, the entire scheme was found to be so unseemly as to violate the state's public policy.

Full case and case summary available at: http://www.mlmlegal.com/legal-cases/Michigan_v_Koscot.php

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Published In: MLM / Direct Sales Updates, MLM Consulting / Network Marketing Updates

Reference Info:State, 6th Circuit, Michigan | United States

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