Cosmetics sales is the core of cosmetics enterprises to realize the value of cosmetics. In order to occupy a larger market share, cosmetics enterprises have launched incentive competition in sales channels construction, price strategy formulation, promotion measures implementation and other sales links. From the perspective of the market, competitive behavior brings vitality to the economy, promotes the development of production and social progress. However, competition is accompanied by many improper behaviors, such as monopoly, commercial bribery, pyramid schemes and so on. The above behavior damages the legitimate rights and interests of cosmetics competitors, infringes the interests of consumers, and destroys the healthy economic order of the cosmetics industry. From the operator's point of view, the above behavior has also brought great business risks to the enterprise, which can lead to economic losses and criminal responsibility, resulting in the difficult situation of enterprise management. The greatest value of law is to guide operators to adopt appropriate ways to achieve commercial purposes within the boundaries. This article will discuss the three major minefields which are easy to trigger in the cosmetic sales link from the Angle of law and operation, for the reference of operators.

Cosmetics sales regulation and regulatory agencies

Cosmetics sales supervision means that regulatory bodies supervise the sales of cosmetics according to law, and investigate the legal responsibilities of cosmetics enterprises and relevant responsible persons according to law. The supervision of cosmetics sales ensures the orderly development of the cosmetics industry and protects the legitimate rights and interests of consumers, which is indispensable for the development of the cosmetics industry. At present, China's cosmetics sales regulatory agencies are mainly national market supervision and management departments. Market supervision and administration departments are mainly responsible for: supervision and administration of market transactions, online commodity transactions and related services; To supervise and manage the quality of commodities in the field of circulation, organize and carry out consumer rights protection work in the field of service, and investigate and punish illegal acts such as counterfeiting and shoddy products; Investigate and punish cases of illegal direct selling and pyramid selling, supervise and administer direct selling enterprises, direct sellers and their direct selling activities according to law; We will investigate and punish illegal economic activities such as unfair competition and commercial bribery according to law. At the same time, the Ministry of Commerce and the public security department also bear specific regulatory responsibilities for the cosmetic sales behavior, such as the administrative license of cosmetics direct selling enterprises is responsible for the Ministry of Commerce; Public security departments are responsible for cracking down on criminal cases such as pyramid selling, producing and selling cosmetics that do not meet health standards.

Distribution and pyramid schemes

Cosmetics are fast moving consumer goods with high consumption frequency and large consumption base, so the marketing model is of great significance to cosmetics sales. Pyramid marketing refers to a form of commodity sales developed on the basis of direct selling, also known as "multi-level pyramid marketing". According to the Regulations on the Administration of the Prohibition of pyramid Selling, pyramid selling refers to the development personnel of organizers or operators who seek illegal benefits and disturb economic order by calculating and paying remuneration to the developed personnel based on the number or sales performance of the developed personnel directly or indirectly, or requiring the developed personnel to pay a certain fee as a condition of membership. Behavior that affects social stability. Pyramid selling seriously disturbs social order and affects social stability. China's "Prohibition of pyramid selling Regulations" and "Criminal Law" are expressly prohibited pyramid selling. According to China's criminal law, in the name of business activities such as selling goods and providing services, organizations and leaders require participants to pay fees or purchase goods and services to obtain membership qualifications, and form hierarchies in a certain order, directly or indirectly using the number of development personnel as the basis for remuneration or rebates, luring or coerce participants to continue to develop others to participate, and defrauding property. Whoever engages in pyramid selling activities that disrupt economic and social order shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention and shall also be fined; If the circumstances are serious, he shall be sentenced to fixed-term imprisonment of not less than five years and shall also be fined. Distribution refers to a mode of commodity circulation, that is, the producer sells the product to the consumer through a certain channel, which is the process of the product movement from the producer to the seller. Cosmetics manufacturers sell cosmetics to end consumers through distribution to achieve economic benefits. The distribution channels of cosmetics are mainly composed of the starting point of the distribution channels, the intermediate agents and the end consumers. China has a vast territory, large regional differences, and many business challenges. Under the direct operation mode, the brand has high requirements for financial strength, human resources allocation, business management ability and supply chain management level, which is not convenient for rapid market development. In the distribution model, the brand side with the intermediary agent landing, less investment, high efficiency, fast and flexible, so in the field of cosmetics sales in China distribution is an important circulation model. In the distribution mode, according to the different trading conditions and market risk distribution, it can be divided into consignment, purchase and sale modes. The essential difference between distribution and pyramid selling is that pyramid selling belongs to financial activities, which realize illegal profits by collecting membership fees and team remuneration and belong to the category of crime; Distribution is a commercial activity, through the sale of products to achieve commercial purposes, there is no team remuneration problem, belongs to the category of marketing. In the practice of cosmetics business, especially the wechat business channel, it is necessary to standardize the sales model and carefully avoid the risk of pyramid marketing, so as not to cause unnecessary legal liability.

In April 2018, a platform called "Bestie Mall" launched the "membership + light entrepreneurship" model, claiming that "buy money from yourself and share money", which is actually a typical pyramid scheme model. The platform has six levels of chairman, president, operator, director, manager, and store manager, of which the president, director, manager, and store manager respectively need to pay 500,000 yuan, 110,000 yuan, 21,000 yuan, and purchase 399 yuan of skincare set threshold fees to qualify. Then, by pushing the registered member information to the offline line, the offline line actively contacts the registered members of the platform through wechat and recommends the project "Bestie mall" to earn commission. Recruiting a director can be paid 25,000 yuan, and recruiting a manager can be paid 5,000 yuan. Through the commission model, "Girlfriends mall" only took less than six months to obtain illegal profits of more than 300 million yuan. Victims have taken to online reporting platforms for alleged pyramid schemes. According to the Shandong Public Security Bureau, "Bishi Mall" is a social e-commerce platform under the Moreng Group, and "Beijing Qianshui Technology Co., LTD." is the main body of its operation. In November 2018, more than 40 members of the management and team leaders of Moneng Group were taken away by the public security organs to cooperate with the investigation, and the frozen funds reached hundreds of millions of yuan. On August 12, 2019, the People's Court of Shanting District, Zaozhuang City, Shandong City, sentenced 11 people including Magic International and Jiang, Wan, Fang and Huang, who were suspected of being involved in the pyramid scheme of "Best Friend Mall" to a suspended sentence of one year and six months to three years, seized 267 million yuan of funds involved, and Jiang and others returned 63.29 million yuan of illegal gains.

Rebates and commercial bribes

Commercial bribery refers to the behavior of business operators to buy customers' employees or agents and staff of relevant government departments through improper means in order to gain trading opportunities, especially to gain competitive advantages over competitors, in commodity trading (including services) activities, including commercial bribery, commercial bribery and introduction of commercial bribery. From the characteristics of commercial bribery, commercial bribery is the intentional and voluntary behavior of the operator. Commercial bribery is carried out in a secret way, paying money or providing preferential treatment to the relevant personnel of the opposite side of the transaction, without reporting to the employer or other personnel of the relevant personnel, but also by forging financial accounting books and other forms to cover up, with great concealment. The object of commercial bribery is the personnel of the opposite side of the transaction that has a decisive impact on the transaction, usually the manager, procurement personnel, agents or other employees of the opposite side of the transaction, and also includes the third party units or individuals (such as schools, hospitals, government officials, etc.) that have a direct impact on the transaction activities. Commercial bribery is a negative product of the development of commodity economy. Regulating commercial bribery is not only an inevitable requirement to improve the socialist market economic system and maintain the operation order of the market economy, but also an important content to prevent and punish corruption. According to China's criminal Law, any employee of a company, enterprise or any other unit who, by taking advantage of his position, exacts money or property from another person or illegally accepts money or property from another person to seek benefits for another person, if the amount involved is relatively large, shall be sentenced to fixed-term imprisonment of not more than five years or criminal detention; If the amount is huge, he shall be sentenced to fixed-term imprisonment of not less than five years and may also be sentenced to confiscation of property. In judicial practice, the larger standard is RMB 5,000. Cosmetics sales, agent sales rebates are widely used in marketing and pricing strategies. In selling or purchasing commodities, a business operator may give the other party discount, commission to the intermediary or decal reward to the agent's employees in an express way, but the discount, commission to the intermediary or decal reward to the agent's employees must be truthfully recorded in the account. The above is a legitimate commercial concession, not commercial bribery. There are two characteristics of legitimate commercial alienation: openness, most of which are clearly written on the contract and awarded to the opposite party or related personnel; Enter the account, truthfully enter the brand enterprise financial accounts. In the field of cosmetics sales in line with these two, is the normal commercial yield behavior, in line with the principle of honesty and credit, does not belong to commercial bribery. On the contrary, if the corresponding rebates are secretly given to the employees of the other side of the transaction by the enterprise in order to obtain trading opportunities, it is suspected of constituting commercial bribery. Cosmetics operators should standardize their own sales incentive system design, rebates should be paid to agents in the form of express account.

Price control and monopoly agreement

In market economic activities, competition is one of the most basic operating mechanisms. Monopolistic behavior is actually an anti-competitive behavior, whose purpose is to expand its economic scale or form a favorable economic position for itself. According to China's Anti-monopoly Law, economic monopoly behavior generally refers to: (1) monopoly agreement; (2) Abuse of dominant market position; (3) Concentration of business operators that has or may have the effect of excluding or restricting competition. In addition to economic monopoly, China's Anti-monopoly Law also has provisions on administrative monopoly. It is easy for cosmetics companies to trigger monopoly agreements in daily sales. Monopoly agreement, also known as cartel, refers to the agreement or other cooperative behavior reached or taken between operators to exclude or restrict competition, which is also divided into horizontal monopoly agreement and vertical monopoly agreement. Horizontal monopoly agreement refers to the monopoly agreement formed between operators with a competitive relationship, such as the price control agreement signed between competing products. The vertical monopoly agreement refers to the monopoly agreement reached between the operator and the downstream counterpart, such as the price control agreement signed by the brand side and the agent. As far as vertical monopoly agreements are concerned, China's Anti-monopoly Law prohibits operators from entering into the following monopoly agreements with their trading counterparts: (1) fixing the price of reselling commodities to a third party; (2) setting a minimum price for the resale of goods to third parties; (3) Other monopoly agreements identified by the anti-monopoly law enforcement agency of The State Council. According to the Anti-Monopoly Law, where a business operator, in violation of the provisions of this Law, reaches and implements a monopoly agreement, the anti-monopoly law enforcement agency shall order him to stop the illegal act, confiscate the illegal income, and impose a fine of not less than 1 percent but not more than 10 percent of the previous year's sales; If the monopoly agreement reached has not been implemented, a fine of not more than 500,000 yuan may be imposed. In the process of cosmetics sales, in order to maintain a relatively stable price system, some cosmetics companies will agree with agents on product resale prices or minimum sales prices under the distribution model, which is suspected to constitute a monopoly agreement and has huge legal risks. In the sales process, cosmetics enterprises can use channels to exclusively supply products, sales guide prices and other ways to control the stability of the product price system, but may not directly agree with agents with mandatory product resale prices or minimum sales prices.

Ford Motor is a well-known automobile brand. Since 2013, Changan Ford Automobile Co., LTD. (hereinafter referred to as Changan Ford) has set the minimum resale price of a vehicle for downstream dealers in Chongqing by formulating the Price List, signing the Price Self-discipline Agreement, and limiting the lowest price and the lowest online quotation for downstream dealers during the auto show. Changan Ford Company violated the provisions of the Anti-Monopoly Law prohibiting operators from entering into monopoly agreements with trading counterparts that set a minimum price for reselling commodities to third parties. In the course of the investigation, Changan Ford did not provide evidence to prove that the relevant conduct met the exemption circumstances provided by the Anti-monopoly Law. The above behavior of Changan Ford deprived downstream dealers of pricing autonomy, excluded and limited competition within the brand, and actually weakened the competition between brands, and damaged the fair competition in the relevant market and the legitimate interests of consumers. On June 5, 2019, the General Administration of Market Supervision made a penalty decision on the implementation of the vertical monopoly agreement of Changan Ford in accordance with the law, and imposed a fine of 162.8 million yuan on Changan Ford.

Jiao Hanwei

Chief partner and lawyer of Shanghai Guohillhouse Law Firm

Have more than 10 years of legal service experience and more than 5 years of operating experience in the cosmetics industry, familiar with law and business, He is good at providing enterprises with cosmetics business legal services, legal counsel, equity structure, equity incentive, equity financing, equity acquisition, brand management, brand rights protection, brand acquisition, business negotiation, litigation and arbitration and other solutions for the whole stage of enterprise development from the perspective of law and operation. He has led many corporate equity restructuring, equity incentive, equity financing, factory acquisition, brand acquisition and other cases, and has rich experience in practical operation.