Lyoness / Lyconet declared a “pyramid scheme” in Swiss court (case file: EV 2016 42)!

Also in Switzerland a judgement of the Canton of Zug was delivered with brilliant reasons on 09/20/2016.

Below you can find an extract of the judgement:

If the conditions for the offense of unfairness as a norm of conduct have been met, this leads to the legal consequence of ineffectiveness (Hilty, Basler comment, 2013, Art. 2 of the unfair competition Law (UWG) N° 57). In a pyramid scheme, funds of later recruited persons are typically transferred to persons at the top of the pyramid, whereby a certain product or service distribution serves as a cover, e.g. by forcing new members to purchase goods at excessive prices and to resell these at excessive prices to third parties for refinancing purposes (Ferrari HoferNasella, legal comment Swiss civil law, UWG, 3. Y. 2016, margin comment 123 on art. 3 of the UWG). Without mentioning them explicitly, art. 3 par. 1 letter r of the UWG declares distribution or marketing systems, that means revenue and sales promotion systems working under a snowball, avalanche or pyramid scheme, to be prohibited and per se unfair. Generally, the legislator targets structures in which participants already in the system can obtain a pecuniary advantage primarily if they manage to recruit new members and convince them to also participate in the system. Those new to the system usually pay a sometimes considerable entry payment, of which at least a certain amount is transferred to the respective recruiter and members already participating, according to predefined rules (Arpagaus, Basler comment, 2013, art. 3 par. 1 letter. R, UWG N° 2 ff.).

4.1.1 The defendant constitutes a purchasing community with a clearly non-transparent business model. The participants have the opportunity to obtain certain benefits by purchasing goods and services at Lyoness partner companies.  The members are entitled to participate in the Lyoness Loyalty Program, enjoy member´s benefits and receive a friendship bonus. Each member can recommend the loyalty program to new consumers and recruit them as new members. However, the member doesn’t have the obligation to recommend the program (a. 1/3, p. 1, preamble and N° 1.2). The loyalty program is marketed through the distribution system Lyconet. The Lyconet agreement allows members to promote the dissemination and use of the loyalty program as freelance, commercially active intermediaries and to obtain benefits thereof. After closing the Lyconet agreement, the member obtains the status of a freelance Lyconet Marketer. The promotion of dissemination and use of the loyalty program is achieved by recruiting new members and by supporting existing members, by recruiting and supporting new marketers, as well as by recruiting new SME partner companies and supporting existing ones. In return, the marketer obtains a remuneration according to the Lyconet Compensation Plan (a. 5/1, preamble, N° 1.1 & 1.3). This constitutes a distribution system based on a pyramid scheme.

The Lyoness concept promises to deliver goods and to grant benefits including bonuses (shopping points, bonuses, vouchers, cashback, friendship bonuses, partner bonuses, etc.). Lyoness as a provider offers to close a contractual relation under certain conditions. The pyramid system in itself is not unfair, but the conditions that it contains make it unfair.

(will acquire legal force on 10/20/2016)