Law Articles
2021-04-21
MLM
Is it feasible to promote genetic testing services through direct selling?
[Partner Attorneys Charlotte Wu / Ming-Yu Yang, Zhong Yin Law Firm]
charlotte.wu@zhongyinlawyer.com.tw
charlotte.wu@zhongyinlawyer.com.tw
[Hypothetical Case]
Happy Life Company is a multi-level marketing business that sells health supplements. In view of the increasingly fierce competition in the health supplement market and to expand its business, it plans to introduce "direct-to-consumer (DTC) genetic testing services." As long as distributors and members order and pay online, the company will send sampling kits to the members' homes; members then provide saliva samples and mail them back to the company for genetic testing. A few months later they receive a genetic test report. The test report includes two main parts: personal health status and ancestry. The analysis covers several items; the health section can be divided into disease risk, allergic reactions, genes for hereditary diseases, and general traits, such as basal metabolic rate affecting propensity for obesity, muscle explosiveness, vision, antioxidant capacity, risk of hereditary diseases, etc.
To help distributors and members better understand the "DTC genetic testing" service, the company intends to publish in its business manual: "2. Multi-level Marketing and Genetic Testing...: 1. Genetic testing for prevention is better than treatment: Why get genetic testing?... 'Genetic testing' is like scientific fortune-telling; by analyzing your susceptibility genes, it helps you learn your risk of disease so you can choose personalized medical and health care methods to achieve effective health management. 2. How to receive our company's genetic testing services? 3. Comparison of our company's genetic testing services with other genetic testing institutions. 4. Health—health product series..." and so on, supplemented with illustrations and photos explaining the sample collection devices used in the genetic testing they provide and instructions for use.
Just as Happy Life Company's marketing team enthusiastically pitched the proposal to senior management, the approving supervisor asked whether the marketing department's plan might involve any restrictions under Taiwan's relevant laws and regulations. The marketing team began to wonder: does combining genetic testing with the MLM industry really break the law?
1. Legal issues the direct-selling company in the case may encounter
(1) What is the nature of the genetic testing service or product? Should prior approval be obtained from other competent authorities, such as the Taiwan Food and Drug Administration of the Ministry of Health and Welfare, in accordance with the Multi-Level Marketing Management Act?
(2) Does recruiting customers for genetic testing services through multi-level marketing methods violate the Medical Care Act?
2. Analysis and discussion
(1) Preliminary Exploration of the Nature of Genetic Testing Products and Services
Because each person's DNA is unique personalized information, causing each individual's innate constitution, health status, and traits to differ, genetic testing (Genetic Test) of chromosome structure, DNA sequence, DNA variant sites, or gene expression levels can help us understand and assess some diseases, constitutions, or personal traits related to genetic inheritance［1］.
Generally speaking, genetic testing uses gene sequencing technology to decode the genetic information carried by the examinee's genes. The sequenced and decoded genetic data are analyzed with bioinformatics methods and compared against international public databases to determine whether the examinee's genes have variations or mutations, providing physicians or genetic counselors with information to assess relationships and risks between genes and disease. It is currently widely used in disease diagnosis, treatment, and prevention.
There have been news reports that Hollywood actress Angelina Jolie learned through BRCA gene testing that she was at high risk for breast cancer and, to reduce future cancer risk, chose to undergo preventive mastectomy. The "Jolie effect" to some extent highlights how genetic testing services are rapidly moving from laboratories into clinical medicine and even commercialization, influencing the public's awareness of and acceptance toward genetic testing (genetic testing)［2］.
The business model for genetic testing services is mainly B2B, with clients primarily hospitals, academic units, and research institutions, and demand largely coming from research purposes［3］. There is also a B2C model offering genetic testing services, where members of the public undergo genetic testing outside of medical institutions. The services are mostly provided directly to general consumers by companies via the internet, e‑mail, and other e‑commerce systems or distribution channels, and are therefore called "consumer genetic testing［4］" (Direct-to-consumer genetic testing, abbreviated "DTC genetic testing").
Generally speaking, DTC genetic testing services proceed as follows: consumers purchase a testing product from a genetic testing provider via the internet or other channels; the product packaging contains tools and instructions for obtaining the consumer's specimen, etc. Consumers follow the instructions to collect the specimen using the provided tools—for example, using a swab to scrape buccal cells—then properly preserve the collected specimen and mail it to the provider for testing. After testing, the provider’s employed professionals interpret the results and deliver the interpretation to the consumer. Based on that interpretation, consumers can learn about their predisposition to diseases, adjust their lifestyles accordingly, and even seek assistance from medical institutions［5］.
This service can even be combined with multi-level marketing, for example marketing genetic testing services through multi-level marketing, or offering genetic testing to consumers for a fee or for free and then, based on the test results, providing consumers with personalized products or services, creating an alternative business opportunity.
(2) Should DTC genetic testing services or products obtain prior approval from other competent authorities?
1. Legal effect of "approval from other competent authorities" under the Multi-Level Marketing Control Act
According to Article 6, Item 5 of the Multi-Level Marketing Control Act, "Before implementing multi-level marketing activities, multi-level marketing enterprises shall prepare documents and materials specifying the following items and report them to the competent authority: (5) Where other laws and regulations provide that a marketing method for goods or services or the promotion or sale thereof must be approved by the competent authority of the target industry, the marketing method shall comply with such laws and regulations or obtain proof of approval from the competent authority of the target industry."
Therefore, when multi-level marketing operators sell such products or services, they must pay attention to the legal regulations applicable to these products. If they fail to obtain prior approval from other competent authorities, at the lesser end the Fair Trade Commission may return the submission or order the operator to make corrections on the grounds of "incomplete filing documents" pursuant to Article 6(2) or Article 7(2) of the same Act; at the more serious end, if an operator implements activities without filing or without making required corrections, the Fair Trade Commission may, pursuant to Article 32 or Article 34 of the same Act, impose fines of at least NT$50,000 and up toNT$5,000,000 on the violating operator. [6]
As described above, a typical DTC genetic testing service includes the "product" provided to consumers in the initial stage—namely the specimen collection kit and related instructions—and the subsequent "service" provided by the company to consumers for interpreting that specimen. Therefore, if a company and its direct sellers promote or sell through a multi-level marketing structure, one must separately examine the substantive nature of the DTC genetic testing product and service to determine whether they may involve the views of competent authorities and relevant legal regulations before assessing the applicability of Article 6, Item 5 of the Multi-Level Marketing Control Act. So far, providers offering more general types of genetic testing do not appear to require special licenses or permits under the current Ministry of Health and Welfare regulations; however, this cannot be generalized and must be assessed based on the actual circumstances of each case to discuss whether other specific laws and regulations should apply.
2. Are DTC genetic testing "specimen collection kits" medical devices? What regulations apply to sales personnel and advertising?
According to the Ministry of Health and Welfare's "Guidelines for Inspection and Registration of In Vitro Diagnostic Medical Devices," inspection and registration of in vitro medical devices should be handled in accordance with the Medical Device Inspection and Registration Review Criteria and related provisions. The "in vitro diagnostic medical devices" referred to in those guidelines mean "diagnostic reagents, instruments, or systems and other medical devices used to collect, prepare, and examine specimens taken from the human body for diagnosing diseases or other conditions (including determining health status). In vitro diagnostic reagents refer to any of the foregoing reagents, calibrators, or control materials [7]." Article 8, "Additional Requirements for Nucleic Acid Amplification Techniques, "explicitly regulates rules related to genotype testing.
Therefore, regarding the aforementioned consumer genetic testing, there may be applicable scope. Because genetic testing instruments collect specimens taken from the human body to assess the subject’s physiological condition, under current regulations operators could be deemed to need to have such testing equipment inspected and registered in accordance with the laws and regulatory orders concerning medical devices under the Pharmaceutical Affairs Act.
If the tools provided to consumers for specimen collection are determined by the competent authority to be medical devices [8], then both the direct selling company and the direct sellers should pay attention to the medical device–related provisions in the Pharmaceutical Affairs Act. For example, Article 69 of the Pharmaceutical Affairs Act provides that if something is not a drug as defined by the Act (including pharmaceuticals and medical devices), it may not be labeled or promoted as having medical efficacy. Publication and broadcasting of medical device advertisements must be approved by the central or municipal health authority through the pharmaceutical vendor according to Articles 65 to 68of the same Act, and the advertising content and the publications in which they appear must comply with relevant rules and restrictions. In addition, if an operator’s promotional materials imply or allude to medical efficacy, they may also be regarded as drug advertising management [9].
Continuing from the above, if the specimen collection tools provided by a multilevel marketing business to consumers are determined by the competent authority to be medical devices, then under the law the relevant direct selling companies and direct sellers may need qualifications as pharmaceutical vendors and salespersons, and there may be restrictions on channels through which they may sell. It is worth noting that if operators wish to sell medical devices via the Internet, they should pay attention to the “Medical Devices That Pharmaceutical Vendors May Sell via Distance Transactions and Required Registration Items” issued by the Ministry of Health and Welfare: they should register with the municipal or county/city competent authority and must conspicuously disclose on the transaction channel the medical device permit number, product name, pharmaceutical vendor name, manufacturer name, and other information [10].
3. Is DTC genetic testing a medical practice? What related laws and regulations might it involve?
(1) Conducting genetic testing on specimens and explaining the results of genetic tests may involve medical practice
The Ministry of Health and Welfare replied by letter on July 8, 2015 to an inquiry from an operator about whether genetic testing services constitute medical services; an excerpt is as follows [11]:
A. “Medical services” refer to acts that are directly intended to treat, correct, or prevent human disease, injury, disability, or to maintain health, and include in whole or in part the acts of examination, diagnosis, and treatment, or acts based on examination and diagnosis for the purpose of treatment, such as prescribing, medication, procedures, or other interventions. This is stated first for clarification.
B. Genetic testing that predicts disease by estimating disease risk values is an adjunctive diagnostic act and should be performed by medical personnel. In addition, explaining genetic test results to the examinee and diagnosing possible diseases already involves medical professional judgment and should be performed by a physician.
C. In addition, upon investigation, medical laboratory testing involves using instruments to detect various biochemical, serological, immunological, hematological, etc. parameters for disease screening, and because medical laboratory instruments produce analytical reports, they also encompass information processing.
D. The description in this case of isolating DNA from an oral mucosal sample and, by locating gene sequences, calculating the degree of disease risk, already falls within the scope of medical services and may not be performed by non-medical institutions or non-medical laboratory institutions.
(2) Other requirements for genetic testing institutions and personnel
Regarding institutional setup, to ensure consumers receive reliable and accurate test results, the Ministry of Health and Welfare issued the "Guidelines for Molecular Testing Laboratories for Precision Medicine: Testing and Services" in November 2018. These guidelines are provided as a reference for industry quality management procedures and are administrative guidance documents in nature [12], without binding regulations or penalties. However, it should be noted that because current regulations remain unclear, the competent authority may still, depending on the specific technical characteristics and the potential risks associated with the detection targets, require applicants to provide quality or safety assessment data beyond what the guidelines specify.
For private companies that provide direct-to-consumer genetic testing services, our country currently does not have specific, clear regulations regarding the qualifications of testing personnel. However, regarding the qualifications of testing personnel in the private sector, the Taiwan Society of Genetic Medicine and Biomarkers has established the "Genetic Testing Technician Certification Guidelines," and passing the national examination. Those who hold the medical laboratory technologist qualification may, through this certification, obtain the society's genetic testing laboratory technologist qualification.
(3) Recruiting for genetic testing services through multi-level marketing; if it involves medical practice, it may violate the Medical Care Act
If a direct-selling company offers genetic testing services that meet the criteria described in the aforementioned regulatory replies, and the services involve medical acts (for example, explaining the genetic test results to the examinee and providing diagnostic or treatment recommendations based on those results and potential disease risks), the direct-selling company may be found by the competent authority to have violated Article 86, Paragraph 7 of the Medical Care Act for "promoting by other improper means" and be subject to penalties[13]. Because multi-level marketing is essentially a form of marketing, when a multi-level marketing business partners with a medical institution it is usually positioned in a marketing or advertising role, and advertising has a certain influence on the public; therefore the law imposes specific restrictions on advertising. Moreover, medical practices affect individuals’ bodily integrity and health. If anyone were permitted to publish medical advertisements, or if medical institutions were allowed to publish medical advertisements at will, not only could commercial operations lead to unnecessary medical acts that harm the public’s health rights, but advertisements might also contain inaccurate or exaggerated content that deliberately downplays the negative effects of medical procedures, causing the public to make incorrect judgments or form misunderstandings, which would negatively affect public health protection[14].
4. Conclusion and Recommendations
In summary, if a direct-selling enterprise intends to sell or promote consumer genetic testing products and services through multi-level marketing, it must examine the specific facts of each case and judge accordingly. Concretely, it may need to consider challenges arising from the Multi-Level Marketing Management Act, the Pharmaceutical Affairs Act, and even the Medical Act, among other relevant laws. Given that the legal status and regulation of this type of DTC consumer genetic testing business in our legal system still contain many uncertainties, whether the multi-level marketing industry can ride this wave of "scientific fortune-telling" without worry is also a matter worthy of long-term attention and discussion.
The author believes that developments in biotechnology, health and medical big data, and similar technologies will bean unstoppable wave in the future. Taiwan should provide regulatory space for the commercialization of genetic testing—granting room for development while safeguarding consumers’ informational and health rights—so that promotion through diverse marketing channels, such as multi-level marketing, can foster growth. This would create more possibilities for Taiwan in biotechnology services and economic commercial development, and allow multi-level marketing enterprises’ products and services to keep pace with the times.
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[1] Wikipedia, Genetic testing, Source :https：https://zh.wikipedia.org/wiki/%E5%9F%BA%E5%9B%A0%E6%AA%A2%E6%B8%AC（last accessed:06／05／2019）
[2] Cheng Pei‑Chi, Overview of the Commercial Development of Genetic Testing Services, source: https：https://www.twcsi.org.tw/topic_detail.php?Iid=1729（last accessed: 06／05／2019）
[3] Ibid.
[4]Lin Pei‑Tzu, 2011, Legal Disputes and Necessary Regulations Regarding Consumer Genetic Testing, Master’s thesis, Program of Science, Technology and Law, College of Management, National Chiao Tung University.
[5] Same as the preceding note.
[6] Article 32, Paragraph 1 of the Multi-Level Marketing Management Act: "The competent authority may order, within a specified period, the cessation or correction of conduct or the adoption of necessary remedial measures for violations of Article 6 Paragraph 1, Article 20 Paragraph 2, Article 21 Paragraph 2, Article 22, or Article 23, and may impose a fine of not less than NT$100,000 and not more than NT$5,000,000. If, upon expiration of the period, the conduct has not ceased or been corrected or the necessary remedial measures have not been taken, the authority may continue to order cessation or correction or the adoption of necessary remedial measures within a specified period and, for each instance, impose a fine of not less than NT$200,000 and not more than NT$10,000,000, until the conduct ceases or is corrected or the necessary remedial measures are taken; if the circumstances are serious, the authority may also order dissolution, compulsory closure, or suspension of operations for up to six months." Article 34, Paragraph 1: "The competent authority may order, within a specified period, the cessation or correction of conduct or the adoption of necessary remedial measures for violations of Article 7 Paragraph 1, Articles 9 to 12, Article 13 Paragraph 1, Articles 14,15, 17, 19, Article 25 Paragraph 1, or Article 26, and may impose a fine of not less than NT$50,000 and not more thanNT$1,000,000. If, upon expiration of the period, the conduct has not ceased or been corrected or the necessaryre medial measures have not been taken, the authority may continue to order cessation or correction or the adoption of necessary remedial measures within a specified period and, for each instance, impose a fine of not less thanNT$100,000 and not more than NT$2,000,000, until the conduct ceases or is corrected or the necessary remedial measures are taken."
[7] Ministry of Health and Welfare, 2013, Guidelines for Inspection and Registration of In Vitro Diagnostic Medical Devices.
[8] Article 13 of the Pharmaceutical Affairs Act: "The medical devices referred to in this Act are instruments, apparatus, implements, materials, software, in vitro reagents and related articles that are used for the diagnosis, treatment, mitigation, direct prevention of human diseases, regulation of fertility, or are capable of affecting the structure and functions of the human body, and whose primary function is not achieved by pharmacological, immunological, or metabolic means on the human body."
[9] Pharmaceutical Affairs Act Article 70: "Interviews, reports, or promotions whose content implies or alludes to medical efficacy shall be regarded as drug advertisements."
[10] Regulations for Medical Devices That May Be Sold Through Communications Transaction Channels and Required Registration Items Article 5: "Pharmacies (bureaus) selling medical devices through communications transaction channels shall prominently disclose the following items in a manner that is easily identifiable to consumers on the communications transaction channel: (1) The approval number, product name, drug merchant name, manufacturer name, and manufacturer address as listed on the medical device license. (2) The pharmacy (bureau) name, address, and license number as listed on the pharmacy (bureau) license. (3) Manufacturing date and effective period or shelf life. (4) Pharmacy (bureau) consultation hotline. (5) A note stating 'Consumers should read the product manual carefully before use.' (6) For products with measurement functions, a statement indicating the availability of regular calibration services and the locations where such services are provided."
[11] Ministry of Health and Welfare letter No. 1041664899 dated July 8, 2015.
[12] Ministry of Health and Welfare, 2018, Guidelines for Molecular Testing and Services in Precision Medicine Laboratories.
[13] Letter No. 0940203047, Department of Health, Executive Yuan, dated March 17, 2005.
[14] Wu Fuhan, Direct Selling 3.0, Zhen 47–48, June 2017.