Law Articles
2021-04-21
MLM
Is it okay to promote genetic testing services through direct sales?
【Zhong Yin Law Firm, Partner Charlotte Wu / Attorney Ming-Yu Yang】
charlotte.wu@zhongyinlawyer.com.tw
charlotte.wu@zhongyinlawyer.com.tw
[Hypothetical Case]
Happy Life Company is a multi-level marketing (MLM) business that sells health supplements. Given the increasingly fierce competition in the health supplement market, and in order to expand its business, the company plans to introduce "Direct-to-Consumer (DTC) Genetic Testing Services." Distributors and members simply need to order and pay online, and the company will mail a sampling tube to the member's home. The member then provides a saliva sample and mails it back to the company for genetic testing. Several months later, the genetic testing report can be obtained. The test result report comprises two main parts: personal health status and ancestry. There are several analysis items, among which health status can be further divided into disease risks, allergic reactions, genetic disease genes, and general characteristics, such as: basal metabolic rate affecting obesity predisposition, muscle explosive power, vision, antioxidant capacity, and the risk of developing genetic diseases.
To help distributors and members better understand the service content of "DTC genetic testing," the company plans to publish in the business handbook the following content: "II. Multi-level Marketing and Genetic Testing...: 1. Genetic Testing: Prevention is Better than Cure: Why undergo genetic testing? ... 'Genetic testing' is like scientific fortune-telling; by analyzing your susceptibility genes, it helps you learn your risk of developing diseases, so you can choose personalized healthcare methods to achieve effective health management. 2. How to access the company's genetic testing service items? 3. Comparison between the company's genetic testing services and those of other genetic testing institutions. 4. Health Care—Health Care Food Series..." etc., supplemented by images and photos to introduce the specimen collection devices and instructions for use provided for their genetic testing.
Just as the marketing team of Happy Life Company enthusiastically proposed the plan to senior management, the executive responsible for approval asked whether the proposal submitted by the marketing department might involve restrictions under relevant laws and regulations in Taiwan? The marketing team began to ponder: does combining genetic testing with the direct selling industry really violate the law?
I. Legal Issues that the Direct Selling Company in the Illustrative Case May Encounter
(I) What is the nature of the genetic testing service or product? Is it necessary to obtain prior approval from other competent authorities, such as the Food and Drug Administration of the Ministry of Health and Welfare, in accordance with the regulations of the Multi-level Marketing Management Act?
(II) Does recruiting for genetic testing services through multi-level marketing violate the Medical Act?
II. Analysis and Discussion
(I) Preliminary Exploration of the Nature of Genetic Testing Products and Services
Since every individual's DNA genes are unique personal information, resulting in differences in each person's congenital constitution, health status, and characteristics, genetic testing (Genetic Test) of chromosome structure, DNA sequences, DNA variant sites, or gene expression levels enables us to understand and evaluate the basis for certain genetically related diseases, constitutions, or personal traits [1].
Generally speaking, genetic testing utilizes gene sequencing technology to decode the genetic information carried by an individual's genes. The sequenced and decoded genetic data is analyzed using bioinformatics methods and compared with international public databases to determine whether the individual's genes have undergone variations or mutations. This provides physicians or genetic counselors with the information needed to assess the relationship and risks between genes and diseases. Currently, it is widely applied in disease diagnosis, treatment, and prevention.
Notably, news reports have highlighted how Hollywood actress Angelina Jolie, upon learning through BRCA genetic testing that she belonged to a high-risk group for breast cancer, chose to undergo a preventive mastectomy to reduce her future risk of developing cancer. To a certain extent, the "Jolie Effect" demonstrates that genetic testing services are rapidly moving from laboratories into clinical medicine and even commercialization, influencing the general public's awareness and acceptance of genetic testing [2].
The service models for genetic testing are primarily B2B, serving clients such as hospitals, academic institutions, and research organizations, with demand mostly stemming from research purposes [3]. There are also B2B2C models providing genetic testing services, where individuals undergo genetic testing at non-medical facilities. These services are mostly provided directly to general consumers by operators through e-commerce systems such as the internet and email, or via other channels; hence, they are referred to as "Direct-to-consumer genetic testing" (abbreviated as "DTC genetic testing") [4].
Generally, DTC genetic testing services proceed in the following manner: consumers purchase genetic testing products from providers via the internet or other channels. The product packaging contains tools for collecting the consumer's sample and an instruction manual. Consumers follow the instructions in the manual to collect a sample using the tools, for example, by swabbing for oral cavity cells. After properly preserving the collected sample, it is mailed to the provider for testing. Following the test, the results are interpreted by professionals employed by the provider and delivered to the consumer. Based on these interpreted results, consumers can learn about their predisposition to certain diseases, thereby adjusting their lifestyles, or even seeking assistance from medical institutions accordingly [5].
The content of this service can even be combined with multi-level marketing, for example, by marketing genetic testing services through multi-level marketing, or providing consumers with genetic testing on a paid or even free basis, and further providing consumers with personalized products or service types based on the test results, thus creating an alternative business opportunity.
(II) Should DTC genetic testing services or products obtain prior permission from other competent authorities?
1. Legal effect of "permission from other competent authorities" as stipulated in the Multi-level Marketing Management Act
Pursuant to Article 5, Item 5 of the Multi-level Marketing Management Act, which expressly provides: "Before commencing multi-level marketing activities, a multi-level marketing enterprise shall submit documents and data specifying the following matters to the competent authority for filing: 5. Where other laws and regulations provide for the marketing method of goods or services, or stipulate that promotion or sales may only be conducted upon obtaining permission from the competent authority in charge of the specific business undertaking, proof that the marketing method complies with such laws and regulations or that permission from the competent authority in charge of the specific business undertaking has been obtained."
Therefore, when selling this type of product or service, multi-level marketing enterprises must still pay attention to the legal regulations that such products should comply with. If prior approval from other competent authorities is not obtained, in minor cases, the Fair Trade Commission may, in accordance with Paragraph 2, Article 6 or Paragraph 2, Article 7 of the same law, reject or order the enterprise to make corrections on the grounds of "incomplete filing documents"; in serious cases, if the enterprise implements the activity without filing or making corrections, the Fair Trade Commission may, in accordance with Article 32 or Article 34 of the same law, impose a fine of at least NT$50,000 and up to NT$5 million on the violating enterprise [6].
Based on the aforementioned introduction, typical DTC genetic testing services include the "product" provided to consumers in the pre-collection phase, which consists of specimen collection tools and related instructions, as well as the "service" subsequently provided by the enterprise to consumers regarding the interpretation of the specimen. Therefore, if enterprises and direct sellers sell or promote through multi-level marketing, it is necessary to explore the potential views of competent authorities and relevant legal regulations based on the substantive content of the DTC genetic testing products and services, respectively, before discussing whether the provisions of Subparagraph 5, Article 6 of the "Multi-level Marketing Supervision Act" apply. So far, enterprises providing more general types of genetic testing do not seem to require special licenses or permits under the current relevant regulations of the Ministry of Health and Welfare; however, this cannot be generalized, and it is necessary to discuss whether other applicable franchise laws and regulations exist based on the actual circumstances of individual cases.
2. Are DTC genetic testing "specimen collection tools" medical devices? What are the regulations for sales personnel and advertising?
According to the "Points for Inspection and Registration of In Vitro Diagnostic Medical Devices" promulgated by the Ministry of Health and Welfare, the inspection and registration of in vitro diagnostic medical devices shall be handled in accordance with the "Review Criteria for Inspection and Registration of Medical Devices" and relevant regulations. The term "in vitro diagnostic medical devices" referred to in these Points refers to "medical devices such as diagnostic reagents, instruments, or systems that are used to collect, prepare, and examine specimens taken from the human body for the diagnosis of diseases or other conditions (including the determination of health status). In vitro diagnostic reagents refer to any of the aforementioned reagents, calibrators, or control materials [7]." Article 8 thereof, "Additional Requirements for Nucleic Acid Amplification Techniques," explicitly stipulates the relevant rules for genotyping testing.
Therefore, there is room for application regarding the aforementioned consumer genetic testing. Since genetic testing instruments collect specimens taken from the human body to determine the physical condition of the subject, under current laws and regulations, businesses may be considered as needing to conduct inspection and registration procedures for such testing equipment in accordance with the Pharmaceutical Affairs Act and relevant laws and legislative orders regarding medical devices.
If the tools provided to consumers for specimen collection are determined by the competent authority to be medical devices [8], both direct selling enterprises and direct sellers should pay attention to the relevant regulations regarding medical devices in the Pharmaceutical Affairs Act. For example, Article 69 of the Pharmaceutical Affairs Act stipulates that substances which are not drugs (including pharmaceuticals and medical devices) as defined in the Pharmaceutical Affairs Act shall not be labeled or advertised for medical efficacy. The dissemination of medical device advertisements, according to Articles 65 to 68 of the same Act, must be approved by the drug manufacturer from the central or municipal health competent authority, and the advertisement content and the publications in which they appear must comply with relevant regulations and restrictions. Furthermore, when businesses promote their products, if the content implies or alludes to medical efficacy, it may also be regarded as drug advertisement management [9].
Continuing from the above, if the specimen collection tools provided to consumers by the direct selling enterprise are determined by the competent authority to be medical devices, then according to legal provisions, the relevant direct selling enterprises and direct sellers may be required to possess the qualifications of drug manufacturers and salespersons, and there may be restrictions on distribution channels, among others. It is worth noting that if businesses wish to sell medical devices online, they should pay attention to the "Medical Devices That May Be Sold by Drug Manufacturers (Bureaus) Through Communication Transaction Channels and Matters to Be Registered" promulgated by the Ministry of Health and Welfare. They must register with the municipal or county competent authority and must disclose information such as the medical device license number, product name, drug manufacturer name, and manufacturer name in a conspicuous location on the transaction channel [10].
3. Is DTC genetic testing a medical practice? What other relevant laws and regulations might it involve?
(1) Conducting genetic testing on specimens and explaining the results of genetic testing may involve medical practices.
The Ministry of Health and Welfare once replied to an industry inquiry on July 8, 2015, regarding whether genetic testing services constitute medical services; an excerpt follows [11]:
II. The act of "medical services" refers to the entirety or part of acts such as examination, diagnosis, and treatment performed with the direct purpose of treating, correcting, or preventing human diseases, injuries, deformities, or for health care, or acts such as prescribing, medication, surgery, or procedures performed for treatment purposes based on the results of examination and diagnosis. This is stated for clarification.
III. Genetic testing that predicts diseases based on disease risk values constitutes an act of auxiliary diagnosis and should be performed by medical personnel. Furthermore, explaining to the test subject the genetic test results and diagnoses regarding potential diseases already involves professional medical judgment and should be performed by a physician.
IV. Furthermore, upon investigation, medical laboratory testing is a medical act that utilizes instruments to detect various biochemical, serological, immunological, hematological, and other parameters for disease screening; since medical laboratory instruments display analysis reports, they also involve information processing.
V. The description in this case regarding the separation of DNA from oral mucosa samples, the use of gene sequencing to locate specific sequences, and the calculation of disease risk levels falls within the scope of medical practice and may not be performed by non-medical institutions or medical laboratory institutions.
(2) Others – Requirements for Genetic Testing Institutions and Personnel
Regarding institutional establishment, to ensure consumers receive reliable and accurate test results, the Ministry of Health and Welfare promulgated the "Guidelines for Testing and Services of Precision Medicine Molecular Testing Laboratories" in November 2018. These guidelines provide the industry with a reference for quality management workflows; in nature, they are administrative guidance documents [12] and do not contain relevant mandatory regulations or penalties. However, it should be noted that given the current regulations remain unclear, the competent authority may still require the applicant to provide quality or safety assessment data beyond the guidelines, depending on the technical characteristics and the potential risks involved in the detection targets.
Regarding private sector operators that provide direct-to-consumer genetic testing services, our country currently lacks specific and clear regulations on the qualifications of personnel performing the tests. However, regarding the qualifications of testing personnel in the private sector, the Taiwan Society of Human Genetics and Biomarkers has established the "Key Points for the Certification of Genetic Testing Technologists." Those who have obtained the qualification of Medical Technologist through the national examination may further obtain the society's qualification as a Genetic Testing Technologist through this certification.
(3) Recruiting for genetic testing services through multi-level marketing may violate the Medical Act if it involves medical practices
If the genetic testing services provided by direct selling companies involve medical practices as described in the aforementioned response from the competent authority (for example, using the results of genetic testing reports to explain the genetic test results to the examinee and providing diagnosis or treatment suggestions regarding potential diseases, etc.), the direct selling company may be determined by the competent authority to have violated Article 86, Paragraph 7, Subparagraph 7 of the Medical Act regarding "publicizing through other improper means" and may be penalized [13]. Since multi-level marketing is essentially a marketing method, if multi-level marketing enterprises combine with medical institutions, they are mostly positioned in the role of marketing, that is, advertising. Advertising has a certain influence on the public, so the law inherently imposes certain restrictions on advertising. Moreover, medical practices affect the physical integrity and health of the people. If anyone were allowed to publish medical advertisements, or if medical institutions were allowed to publish medical advertisements at will, in addition to causing unnecessary medical practices due to commercial operations and thereby damaging the public's health rights and interests, the advertisement content may also be incorrect or exaggerated, deliberately downplaying the negative effects of medical practices. This would cause the public to make incorrect judgments or develop incorrect understandings, producing a negative impact on the maintenance of national health [14].
IV. Conclusion and Suggestions
In summary, if multi-level marketing businesses wish to sell or promote consumer genetic testing products and services through multi-level marketing, they must examine the actual content of each case and make judgments based on the facts of different cases. Specifically, they may need to consider challenges arising from relevant laws and regulations such as the Multi-level Marketing Supervision Act, the Pharmaceutical Affairs Act, and even the Medical Act. Furthermore, given that the positioning and regulation of such DTC consumer genetic testing businesses under Taiwan's legal system remain unclear in many respects, whether the multi-level marketing industry can ride this wave of "scientific fortune-telling" without worry is a topic worthy of long-term attention and discussion.
The author believes that technological developments such as biotechnology and healthcare big data are a wave not to be underestimated in the future. Taiwan should allow room for the legal operation of commercial genetic testing. Under the premise of protecting consumers' rights to information and health, space for development should be provided. By promoting development through diverse marketing channels, such as multi-level marketing, we can create more possibilities for Taiwan in biotechnology services and economic and commercial development, while also allowing the products and services of multi-level marketing businesses the space to keep pace with the times.
If you have any opinions on the above content or are interested in learning more, please feel free to contact us.
Charlotte J.H. Wu, Partner
charlotte.wu@zhongyinlawyer.com.tw
TEL +886 2 2377 1858 EXT 8888
[1] Wikipedia, Genetic Testing, Source: 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://www.twcsi.org.tw/topic_detail.php?Iid=1729 (Last accessed: 06/05/2019)
[3] Ibid.
[4] Lin, Pei-Tzu, 2011, On Legal Controversies and Proper Regulations of Consumer Genetic Testing, Master's Thesis, Graduate Program of Technology Law, College of Management, National Chiao Tung University.
[5] Ibid.
[6] Article 32, Paragraph 1 of the Multi-level Marketing Management Act: "Where a competent authority finds any person violating Paragraph 1 of Article 6, Paragraph 2 of Article 20, Paragraph 2 of Article 21, Article 22, or Article 23, it may order such person to cease or correct the act within a specified time limit or take necessary corrective measures, and may impose an administrative fine of not less than NT$100,000 but not more than NT$5,000,000; where the person fails to cease or correct the act or take necessary corrective measures by the specified deadline, the competent authority may continue to order such person to cease or correct the act or take necessary corrective measures within a specified time limit, and impose an administrative fine of not less than NT$200,000 but not more than NT$10,000,000 each time until the act is ceased or corrected or necessary corrective measures are taken; where the circumstances are serious, the competent authority may further order dissolution, suspension of business, or cessation of business for not more than six months." Article 34, Paragraph 1: "Where a competent authority finds any person violating Paragraph 1 of Article 7, Articles 9 to 12, Paragraph 1 of Article 13, Article 14, Article 15, Article 17, Article 19, Paragraph 1 of Article 25, or Article 26, it may order such person to cease or correct the act within a specified time limit or take necessary corrective measures, and may impose an administrative fine of not less than NT$50,000 but not more than NT$1,000,000; where the person fails to cease or correct the act or take necessary corrective measures by the specified deadline, the competent authority may continue to order such person to cease or correct the act or take necessary corrective measures within a specified time limit, and impose an administrative fine of not less than NT$100,000 but not more than NT$2,000,000 each time until the act is ceased or corrected or necessary corrective measures are taken."
[7] Ministry of Health and Welfare, 2013, Guidelines for Registration and Inspection of In Vitro Diagnostic Medical Devices.
[8] Article 13 of the Pharmaceutical Affairs Act: "For the purposes of this Act, 'medical devices' refer to instruments, apparatus, appliances, materials, software, in vitro reagents, and related articles used for diagnosing, treating, alleviating, or directly preventing human diseases, regulating conception, or affecting the structure or function of the human body, and which do not achieve their primary intended action in or on the human body by pharmacological, immunological, or metabolic means."
[9] Article 70 of the Pharmaceutical Affairs Act: "Interviews, reports, or publicity, the content of which implies or alludes to medical efficacy, shall be deemed drug advertisements."
[10] Article 5 of the Medical Devices and Matters to be Registered for Sale by Drug Enterprises (Bureaus) via Telecommunication Transaction Channels: "Drug enterprises (bureaus) selling medical devices via telecommunication transaction channels shall disclose the following matters in a manner that is clearly recognizable to consumers at a conspicuous location on the telecommunication transaction channel: (1) The approval number, product name, name of the drug enterprise, name of the manufacturer, and address of the manufacturer as stated in the medical device license. (2) The name, address, and license number of the drug enterprise (bureau) as stated in the drug enterprise (bureau) license. (3) Date of manufacture and expiration date or shelf life. (4) Drug enterprise (bureau) consultation hotline. (5) The statement 'Consumers should read the product instructions carefully before use' shall be added. (6) For products with measurement functions, information on the provision of periodic calibration services and service locations must be stated."
[11] Ministry of Health and Welfare Letter No. Wei-Bu-Yi-Zi No. 1041664899 dated July 8, 2015.
[12] Ministry of Health and Welfare, 2018, Guidelines for Testing and Services of Precision Medicine Molecular Testing Laboratories.
[13] Letter No. 0940203047 dated March 17, 2005, from the Department of Health, Executive Yuan.
[14] Wu Xiao-han, Direct Selling 3.0, pp. 47-48, June 2017.