### Amway: The Untold Story

National Music Publishers Association Lawsuit

In October of 1996 the National Music Publishers' Association filed suit against Amway Corp. and some of its top distributors. The suit alleges the "willful and systematic violation of plaintiffs' music copyrights by the Amway Corporation and a group of its highest-ranking and wealthiest distributors." Below are a press release describing the suit, and excerpts from the actual complaint that was filed. The bulk of the complaint is a listing of the 25 counts of copyright violation, which I have omitted. The "Background" section of the complaint is an excellent summarization of how the "tools" business works.

Update: According to Billboard magazine, 8/2/97, this suit has been settled. "America Online has entered into a licensing agreement with the Harry Fox office for the downloading of songs to and from AOL sites, and Amway, which used hundreds of songs in their motivational tapes, will compenstate publishers for past uses and obtain licenses for future uses..."

The article implies that it is Amway Corp. that will pay for the use of the music, even though it was the supposedly "independent" Diamond distributors who produced and sold the audio and video recordings.

NATIONAL MUSIC PUBLISHERS ASSOCIATION
711 Third Ave., New York, NY 10017
Contact: Margaret O’Keeffe (212) 922-3266

FOR IMMEDIATE RELEASE
November 25, 1996

MUSIC PUBLISHERS FILE INFRINGEMENT ACTION AGAINST AMWAY CORPORATION AND HIGH-LEVEL AMWAY DISTRIBUTORS

NEW YORK, New York -- A group of music publishers has filed suit in federal district court in Orlando, Florida alleging that the Amway Corporation and some of its highest-ranking distributors violated the music copyrights in a host of popular songs by including them in motivational videotapes that were used and distributed throughout the Amway sales network -- without the authorization of, or any compensation to, the owners of the copyrights in the songs.

The music publishers’ lawsuit alleges infringement of such well-known titles as the Beatles’ "Help" and "A Hard Day’s Night," Michael Jackson’s "Remember the Time," Gloria Estefan’s "Rhythm is Gonna Get You," Bobby McFerrin’s "Don’t Worry, Be Happy" and the classic "Rock Around the Clock." A similar action brought by a number of record companies that own the recordings used on the videotapes is also pending against Amway.

According to the music publishers, the motivational videos, produced by high-level distributors in the Amway hierarchy who are known as "Diamonds," are used at conventions and rallies attended by thousands of Amway distributors, where they sell for as much as $20 apiece. The distributors who attend such events, the plaintiffs allege, are exhorted to buy the videos as "tools" that will help them succeed in -- and recruit others into -- the Amway business.

"The defendants are using copyrighted music for commercial purposes without the copyright owner’s permission," said Ed Murphy, president and CEO of the National Music Publishers Association, Inc. (NMPA). "What is more, Murphy observed, "they are making a handsome profit from the sale of the videotapes without paying a nickel to the copyright owners." NMPA is supporting the music publishers in their action against Amway.

In addition to those distributors who made and sold the videos, the music publisher’s complaint holds the Amway Corporation responsible for the copyright infringements. According to the plaintiffs, Amway is the ultimate beneficiary of the infringing videos, and the conventions and rallies at which they are exploited, because the videos are used to help recruit new people into the Amway business and motivate those who have already joined to promote the business -- thus generating additional profits for the multibillion dollar corporation. The complaint asserts that Amway had the power and authority to stop its distributors from producing and distributing the videos, but failed to do so.

As to Amway’s role in the copyright infringements, Mr. Murphy noted: "Amway has elaborate policies in place to protect against improper use of its own intellectual property. Yet Amway has turned a blind eye to its own distributors’ unauthorized use of music publishers’ intellectual property."

The plaintiffs in the music publisher’s lawsuit include SONY/ATV Songs (owner of the Beatles songs), WB Music (part of Warner Music Group), EMI Virgin Music, MCA Publishing, Michael Jackson, Bobby McFerrin and Stevie Wonder. In addition to the Amway Corporation, the complaint names high-level Amway distributors, including Tim Foley of Florida, Hal and Susan Gooch of North Carolina, Randy Haugen of Utah and Carlos Marin of Florida.

NMPA is the principle trade association representing music publishers in the United States. The more than 600 music publisher members of NMPA and their subsidiaries and affiliates own or administer at least sixty percent of the musical compositions registered for copyright in the United States. Founded in 1917, NMPA plays a central role in safeguarding the copyright interests of music publishers in the courts and before Congress.

`UNITED STATES DISTRICT COURT`

`MIDDLE DISTRICT OF FLORIDA`
`ORLANDO DIVISION`

`AEROSTATION CORPORATION, AQUA MUSIC`
`LTD.; BMG SONGS, INC.; WAYNE A.`
`BRATHWAITE d/b/a WAYNE BRATHWAITE`
`MUSIC; CAPANO MUSIC, a division of BRITONE,`
`INCORPORATED; CAREERS-BMG MUSIC`
`PUBLISHING INTERNATIONAL, INC., a division`
`of CAREERS-BMG MUSIC PUBLISHING, INC.;`
`DUCHESS MUSIC CORPORATION; BARRY J.`
`EASTMOND d/b/a BARRY J. EASTMOND MUSIC`
`CO.; HORIPRO ENTERTAINMENT GROUP,`
`INC.; ROBERT K. McFERRIN d/b/a`
`PROBNOPROBLEM MUSIC; STEVELAND MUSIC`
`PUBLISHING, a division of MCA, INC.; MUSIC`
`CORPORATION OF AMERICA, INC.; OUT OF`
`POCKET PRODUCTIONS, LTD.; EDWARD T.`
`RILEY d/b/a DONRIL MUSIC; AND ZOMBA`
`ENTERPRISES, INC.,`

`Plaintiffs,`

`v.`

`AMWAY CORPORATION; STEVE BUMSTEAD;`
`CANDI BUMSTEAD; ESTATE OF LUIS COSTA,`
`by and through CHRIS COSTA, as personal`
`representative; CHRIS COSTA; CLIFF`
`DOBBRASTINE; CHERYL DOBBRASTINE; TIM`
`FOLEY; CONNIE FOLEY; FOLEY & CO., INC.;`
`HAL GOOCH; SUSAN GOOCH; CHRIS GOOCH;`
`GOOCH ENTERPRISES, INC.; GOOCH SUPPORT`
`SYSTEM, INC.; DAVE LEWIS; MARGE LEWIS;`
`PEDRO LIZARDI, individually; PEDRO LIZARDI`
`d/b/a PEDRO LIZARDI PRODUCTIONS; PATSY`
`LIZARDI; CARLOS MARIN; CARMEN MARIN;`
`JIM RICHARDSON; and TRISH RICHARDSON,`

`Defendants.`

`Plaintiffs, by their attorneys Gray, Harris & Robinson, P.A. and`
`Paul, Weiss, Rifkind, Wharton & Garrison, for their complaint against`
`defendants, allege upon information and belief (except as to allegations`
`regarding plaintiffs and the rights they assert herein):`

`1. This action is brought pursuant to the Copyright Act, 17 U.S.C.`
`§§ 101 et seq., for damages and injunctive relief to redress the willful and`
`systematic violation of plaintiff's music copyrights by the Amway`
`Corporation and a group of its highest-ranking and wealthiest distributors.`
`In flagrant disregard of plaintiff's rights under U.S. copyright law,`
`defendants have produced and distributed numerous videotapes containing`
`recordings of plaintiffs’ copyrighted musical compositions. Defendants have`
`produced and distributed these infringing videotapes for substantial profit`
`and without plaintiffs’ authorization or any compensation to plaintiffs for`
`the use of their songs.`

`JURISDICTION AND VENUE`

`2. This Court has jurisdiction over these claims pursuant to 28`
`U.S.C. §§ 1331 and 1338(a). Venue in this district is proper under 28 U.S.C.`
`§§ 1391(b) and (c) and 1400(a).`

`THE PARTIES`

`3. Plaintiffs are the owners or co-owners of copyrights in various`
`musical compositions used in the infringing videotapes produced by the`
`defendants. Plaintiffs have fully complied with the registration provisions`
`of the Copyright Act for each of the musical compositions at issue in this`
`action. Pursuant to section 106 of the Copyright Act, plaintiffs have the`
`exclusive right to license (or decline to license) those compositions for`
`use in and reproduction onto videotapes.`

`4. Defendant Amway Corporation ("Amway") is a Michigan corporation.`
`Amway participated in and benefitted from all of the infringing activities`
`alleged herein as more fully set forth below.`

`5. Defendants Steve Bumstead and Candi Bumstead participated in and`
`benefitted from infringing activities as more fully set forth below.`

`6. Defendant Luis Costa, now deceased, was a high-ranking Amway`
`distributor who, with defendant Chris Costa, participated in and benefitted`
`from infringing activities as more fully set forth below.`

`7. Defendant Cliff Dobbrastine is a high-ranking Amway distributor`
`who, with defendant Cheryl Dobbrastine, participated in and benefitted from`
`infringing activities as more fully set forth below.`

`8. Defendant Tim Foley is a high-ranking Amway distributor who, with`
`defendant Connie Foley, participated in and benefitted from infringing`
`activities as more fully set forth below. Foley & Co., Inc. is a Florida`
`corporation through which Tim Foley and Connie Foley conducted infringing`
`activities.`

`9. Defendants Hal Gooch and Susan Gooch are high-ranking Amway`
`distributors who, with defendant Chris Gooch, participated in and benefitted`
`from infringing activities as more fully set forth below. Gooch`
`Enterprises, Inc. and Gooch Support Systems, Inc. are North Carolina`
`corporations through which Hal Gooch and Susan Gooch conducted infringing`
`activities.`

`10. Defendant Dave Lewis is a high-ranking Amway distributor who,`
`with defendant Marge Lewis, participated in and benefitted from infringing`
`activities as more fully set forth below.`

`11. Defendant Pedro Lizardi is a high-ranking Amway distributor who,`
`with defendant Patsy Lizardi, participated in and benefitted from infringing`
`activities as more fully set forth below. Pedro Lizardi also does business`
`and conducted infringing activities as Pedro Lizardi Productions.`

`12. Defendant Carlos Marin is a high-ranking Amway distributor who,`
`with defendant Carmine Marin, participated in and benefitted from infringing`
`activities as more fully set forth below.`

`13. Defendant Jim Richardson is a high-ranking Amway distributor`
`who, with defendant Trish Richardson, participated in and benefitted from`
`infringing activities as more fully set forth below.`

`BACKGROUND`

`The Amway Business`

`14. Amway (a contraction of "The American Way") is a multilevel`
`marketing company that operates through a vast network of distributors to`
`sell consumer goods and services and to recruit new individuals into the`
`Amway business. Founded in 1959 by Richard DeVos ("DeVos") and Jay Van Andel`
`("Van Andel"), Amway is now a multibillion dollar concern with over a`
`million distributors worldwide.`

`15. Amway’s enormous financial success is a function of its broad-`
`based, multilevel distribution system, which in turn is dependent upon the`
`constant recruitment of new individuals into the business. In the Amway`
`system, a distributor’s income is contingent not just on what he or she`
`sells, but on the income generated by the persons whom that distributor has`
`recruited into the business, referred to as his or her "downline." Thus,`
`there is considerable pressure on distributors to bring new people into the`
`Amway business, and to keep recruits from leaving the business.`

`16. The vast majority of Amway distributors are at the lowest level`
`of the organization, where they earn minimal -- if any -- income and, in`
`reality, constitute a large part of Amway’s broad consumer base, since they`
`are strongly encouraged to buy Amway’s products for their own use. Those`
`relatively few distributors who have success in recruiting others into the`
`business and generating sufficient income to buy their goods directly from`
`Amway (instead of through their "upline") can rise through the Amway ranks`
`to become what are known as "Pearl," then "Ruby," "Emerald" and "Diamond"`
`distributors.`

`17. Once a distributor reaches "Diamond" status, he or she is`
`permitted under Amway rules to hold motivational events for his or her`
`downline. Thus, high-ranking distributors frequently sponsor and appear at`
`Amway conventions and conferences to show off their luxurious lifestyles and`
`hype the Amway business. Other guest "stars" at such events include DeVos`
`and Van Andel and other high-level personnel from Amway’s corporate`
`headquarters, who are often paid for making presentations to the attendees.`
`Amway conventions and conferences take place all over the country and are`
`attended by thousands of Amway distributors.`

`18. At conventions and elsewhere, Amway distributors are strongly`
`encouraged to buy various sales "tools," including books, audio tapes and`
`videotapes, produced either by Amway headquarters or well-known, high-`
`ranking distributors, to motivate and assist them in the business, including`
`their efforts to recruit others. Indeed, recruits are often instructed that`
`they will never be able to make it in the business if they do not regularly`
`invest in motivational materials.`

`19. Accordingly, many high-ranking Amway distributors, including`
`some of the defendants herein, derive a very substantial portion of their`
`profits -- if not the bulk of their Amway income -- from the sale of such`
`tools to their downlines. When sold at a convention or conference,`
`motivational books and tapes are generally sold on a cash-only basis.`

`20. In addition to being hawked at conventions, sales tools are also`
`sold down the line, with each intermediate-level distributor taking a`
`portion of the ultimate price paid by the lowest-ranking purchaser. Thus, a`
`tape may cost several times as much for a new recruit as for the distributor`
`several levels up who purchased it from a "Diamond" source.`

`21. Amway is well aware that such sales tools are being generated`
`and sold by its distributors in massive quantities. Indeed, DeVos has`
`specifically commented on the profits reaped from distributors’ sales of`
`motivational materials to their downlines and the need to "clean up" this`
`aspect of the Amway business. At the same time, DeVos has acknowledged his`
`reluctance to go after the highly profitable distributors responsible for`
`generating and selling such materials because of their importance within the`
`Amway organization.`

`22. Amway derives very substantial economic benefit in permitting`
`its distributors to sell sales tools to their downlines. Such tools are used`
`to motivate Amway distributors and recruit new people into the business,`
`generating additional profits for Amway. In addition, Amway’s willingness to`
`tolerate the highly profitable "tools" side of the business assures the`
`loyalty and staying power of some of its very largest distributors, who in`
`turn are responsible for downlines numbering in the tens of thousands.`

`Amway’s Supervision and Control Over Its Distributors`

`23. Notwithstanding its failure to "clean up" the practices of its`
`distributors with respect to the sale of motivational tapes and literature,`
`Amway can and does exercise supervision and control over its distributors. A`
`primary means by which Amway oversees the activities of its distributors is`
`the Amway Distributors Association Council ("ADAC"). Thirty Amway`
`distributors serve on the ADAC at any given time. Half are elected by their`
`fellow distributors and half are chosen from a slate nominated by the Amway`
`corporate office.`

`24. The stated mission of the ADAC is to advise and consult on all`
`aspects of Amway business and to take an active role in shaping Amway’s`
`future. Among other things, the ADAC is responsible for establishing and`
`enforcing rules of conduct for Amway distributors. To this end, the ADAC`
`comprises several standing committees, including a Legal and Ethics`
`Committee, and Business Operations Committee and an Executive Committee, the`
`last of which oversees the work of all other ADAC Committees. The ADAC has`
`the power to impose discipline on or terminate distributors who violate`
`Amway’s standards of business conduct.`

`25. Defendant Tim Foley, who participated in most of the infringing`
`activity detailed below, is or recently has been a member of the ADAC and`
`has served on its Executive Committee.`

`26. Amway advises its distributors of its rules through various`
`means, including publications such as the Business Reference Manual, which`
`sets forth in detail the standards of conduct required of Amway`
`distributors. For example, the Business Reference Manual contains rules`
`forbidding "deception or unlawful trade practices" and "operat[ing] or`
`engag[ing] in illegal or unlawful business enterprises." Violation of`
`Amway’s standards of conduct can result in termination of a distributor`
`relationship.`

`27. In addition to the above methods, Amway also exercises`
`supervision and control over its distributors by imposing very strict`
`guidelines as to what Amway distributors can and cannot say in the course of`
`selling products or to distributor prospects in the course of recruiting`
`them into the business. Indeed, Amway has a policy pursuant to which all`
`sales and solicitation materials are to be submitted to Amway corporate`
`headquarters for approval before they may be used.`

`Plaintiff’s Music Copyrights`

`28. As noted above, plaintiffs are the owners of music copyrights in`
`songs used in the infringing videotapes at issue herein.`

`29. Section 102(a)(2) of the Copyright Act affords protection to`
`"musical works, including any accompanying words." In a separate provision,`
`section 102(a)(7), the Act also protects "sound recordings" of musical`
`compositions. Thus, a recorded song embodies two distinct copyrights: the`
`copyright in the underlying musical composition -- the type of copyright`
`asserted by the plaintiffs herein -- and the copyright in the particular`
`sound recording of the composition. Each type of copyright carries with it`
`certain exclusive rights. See 17 U.S.C. §§ 106, 114.`

`30. Under the Copyright Act, a person may obtain, in exchange for a`
`royalty, a compulsory license to record a version of a song onto a`
`phonorecord -- that is, onto an audio tape or disk. See 17 U.S.C. §§`
`115. The right to record or fix a composition onto a videotape is not`
`subject to the Act’s compulsory licensing provision, however, because of the`
`visual component involved. In order to use a song on a videotape, the`
`producer of the videotape must obtain a particular type of license known as`
`a synchronization or video license from the owner of the copyright in the`
`musical composition, for a fee or royalty satisfactory to the copyright`
`owner. If the video producer is using a previously recorded version of the`
`song, he or she must also obtain a license from the owner of the copyright`
`in the sound recording to be reproduced. In either case, the copyright owner`
`has the discretion to refuse permission to license the work for use in the`
`videotape.`

`31. Similarly, the preparation of a derivative work based upon a`
`recorded song -- such as a dramatization of the song on film or video --`
`requires separate permission from the owner of the copyright in the`
`underlying composition as well as from the owner of the copyright in the`
`sound recording.`

`Defendant’s Infringing Activities`

`32. Defendants, capitalizing on the lucrative market for`
`motivational materials described above, have produced and sold numerous`
`promotional videotapes incorporating plaintiff’s copyrighted musical`
`compositions. The songs contained in the videotapes were used without the`
`permission of, or payment of compensation to, plaintiffs.`

`33. Plaintiff’s music plays a prominent role in and adds significant`
`value to the infringing videos. Some of the infringing videos present cameos`
`of "Diamond" distributors lip-synching, dancing to and/or dramatizing`
`popular songs and are, in effect, "music videos," while others portray the`
`extravagant lifestyles of successful Amway distributors and feature well-`
`known music to add to their motivational appeal.`

`34. The infringing videotapes have been distributed in large numbers`
`to Amway adherents. The high-ranking distributors responsible for producing,`
`appearing in and marketing these videos have derived very substantial`
`profits from the sale of the tapes to their downlines.`

`[Omitted: specifics of the 25 counts of copyright infringement]`

`JURY DEMAND`

`235. Plaintiffs hereby demand a trial by jury for all issues so`
`triable.`

`WHEREFORE, plaintiffs respectfully request judgement:`

`(a) Permanently enjoining defendants, their agents, employees,`
`officers and directors, and all those acting in concert and combination`
`therewith, from further infringement of plaintiffs’ copyrights.`

`(b) As to each cause of action, holding the defendants named therein`
`jointly and severally liable for infringement of the copyright described`
`therein, and, at the election of the plaintiff or plaintiffs named therein,`
`requiring the named defendants to pay to the named plaintiff or plaintiffs`
`either (i) actual damages and the profits derived by the named defendants as`
`a result of their infringing activities, or (ii) statutory damages in the`
`amount of $100,000;`

`(c) Ordering defendants to deliver up for destruction all infringing`
`materials, including all infringing videotapes and videotape masters;`

`(d) Awarding to plaintiffs their costs in this action, including`
`their reasonable attorney’s fees; and`

`[text missing or intentionally left out]`

`Dated: October 11, 1996`

`Jeffrey D. Keiner, Esquire`
`Florida Bar # 181678`
`Charles W. Sell, Esquire`
`Florida Bar #377279`
`Trial Counsel`
`GRAY, HARRIS & ROBINSON, P.A.`
`201 E. Pine St., Ste. 1200`
`Post Office Box 32802`
`Orlando, FL 32801`
`Phone: (407) 843-8880`
`Fax: (407) 244-5690`

`Carey R. Ramos, Esquire`
`Steven C. Herzog, Esquire`
`Jacqueline C. Charlesworth, Esquire`
`PAUL, WEISS, RIFKIND, WHARTON,`
`& GARRISON`
`1285 Avenue of the Americas`
`New York, NY 10019-6064`
`Phone (212) 373-3000`

`Attorneys for Plaintiffs`

`and`

`Charles J. Sanders, Esquire`
`The Harry Fox Agency`
`711 Third Avenue`
`New York, NY 10017`

`Of Counsel`