After a more than seven-year battle involving three federal courts, skincare and wellness company Neora and its founder Jeff Olson won a complete victory following a Dallas federal court trial over the way it sells its products.

Industry and legal commentators have labeled the decision a victory of “David and Goliath proportions,” concluding that “the importance of the decision for the direct selling industry cannot be overstated.” 

In a 56-page decision issued 11 months after the trial, Judge Barbara Lynn denied the relief requested by the Federal Trade Commission on all five of its claims: that Neora was 1) operating an illegal pyramid scheme, 2) making false earning claims, 3) making false or unsubstantiated claims of efficacy, 4) misrepresenting the effectiveness of the supplement it was selling and 5) furnishing its brand partners with the means and instrumentalities to mislead others.

This is the first time that a direct selling company has defeated the FTC on these claims in a court trial. It is also the first significant victory of its kind since Amway’s 1979 administrative law defeat of the FTC.

The win is important not only for Neora and Olson, but also for the direct selling industry, which consists of more than 1,000 companies in the U.S.  

Had the FTC been successful in pursuing its new and vague “overemphasis on recruiting” test, the Direct Selling Association said in its amicus brief, it would have had “a profound impact on the state of the law and negatively impact[ed] operations of a sizeable portion of the United States economy.”

Despite the FTC having put Neora and Olson through more than three years of investigation and four years of litigation, Judge Lynn could not have been clearer in her rejection of all of the FTC’s claims, finding that the FTC and its expert theories consisted of “rigid theoretical assumptions” not “born out of reality,” and were “unsupported by the evidence.”

Importantly, the court rejected the FTC’s attempts to run away from the “primarily test” for a pyramid scheme; the very test which the FTC and the industry had long recognized – at least until Neora. Under that test, a pyramid scheme is identified based on the extent to which commissions are tied to recruitment unrelated to the sale of a product to an ultimate user. 

The court also rejected the assumption by the FTC and its expert that all purchases by Neora’s brand partners were “business expenses” constituting “losses.” The court summarized the weakness of that assumption with its own analogy: “We may ‘walk away poorer than we started’ after a trip to the grocery store, but because we obtained valuable goods or services in return for our money, that exchange is not characterized as a loss.”

The FTC’s remaining claims fared no better. The court rejected the FTC’s product claims as being based on “no evidence” and said there was “legitimate and substantial consumer demand for Neora’s products … with no incentives tethered to the Compensation Plan.” 

In rejecting the FTC’s income claims, the court noted the confusion which the FTC has created with regard to its ever-changing opinion of what constitutes an improper income claim, noting that “Defendants aspire to abide by the law regarding permissible income claims, and in the absence of clear guidelines on what the law is, have revisited and revised their practices over time.” The court then took the time to write a lengthy summary praising Neora’s “rigorous” and “robust” compliance program.  

Lastly, the court rejected the FTC’s agency claim as being “insufficient,” rejected its claim against Olson as being based upon “no evidence,” and harshly dismissed the FTC’s means & instrumentalities arguments, finding that, “on the contrary, the record reflects a concerted and consistent effort for Defendants to inform and train [brand partners] with the tools and knowledge to sell Neora products without making misleading income or product statements, and to find and correct missteps as they happened.”