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Law in direct selling: pyramid schemes, claims and genetic tests

Reviewed by Dr. Daniel Wallerstorfer, molecular biologist and founder of Novogenia · Updated: 13 October 2026 · Reading time: 12 min

Follow the money: the question that decides your network’s fate

The EU keeps a blacklist. It sits in Annex I of the Unfair Commercial Practices Directive 2005/29/EC and names practices that are considered unfair toward consumers in all circumstances. Point 14 reads: “Establishing, operating or promoting a pyramid promotional scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products.”

The German word for it says it all: Schneeballsystem, a snowball system. A snowball only grows as long as it keeps rolling. A pyramid scheme needs a constant stream of new participants – when they stop coming, it melts. A sustainable network, by contrast, lives on products that people buy, use and reorder. So the test question is always: where does the money come from?

In this guide, direct selling means selling through independent distributors, network marketing included. Below are three legal building blocks – compensation, claims and genetic analyses – plus the question of who is liable when a distributor gets it wrong. This is orientation, not legal advice for your specific case.

Where the EU draws the line

In 2014, the Court of Justice of the European Union clarified point 14: a pyramid promotional scheme is unfair in all circumstances only where it requires the consumer to give financial consideration, regardless of its amount, for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products (Case C-515/12).

So two features count: a contribution the participant pays, and compensation that comes mainly from recruiting. If one is missing, the blacklist does not apply automatically. But that does not let a model off the hook: unfair commercial practices are prohibited in general (Art. 5(1) of the directive), and Art. 6 covers misleading actions. A plan that lures recruits with inflated expectations can cause trouble even without an entry fee.

Germany, Austria, Switzerland: three routes to the same goal

Germany and Austria have written point 14 into their unfair competition acts and also have their own bans. Switzerland is not bound by the EU directive and has its own rule.

What is different in Switzerland: The Swiss provision does not name a financial contribution by the participant as a condition, and it refers to anyone (“jemandem”) rather than to consumers. The EU court’s clarification does not apply there. So plan your compensation model for Switzerland separately and have it reviewed there.

How to recognize a sustainable compensation model

Only a case-by-case review can settle whether your plan stays within the law. These questions show early which way it leans:

• Commissions come from products that end customers buy and use – not from starter packs or fees paid by new distributors.
• Nobody has to pay money or buy products just to be allowed to earn.
• Nobody has to buy stock. With personalized products, direct shipping to end customers is practically a must anyway: each box is produced for one specific person.
• Customers reorder because they use the product – for example in the 90-day rhythm of a subscription (more in Recurring revenue through subscriptions).
• Whoever promotes the business opportunity promises no income (more in Launch: pilot and scaling).

Advertising claims: food supplements work from a positive list

For food supplements, only what has been expressly authorized is allowed. A health claim is any claim that states, suggests or implies that a relationship exists between a food or one of its constituents and health (Art. 2(2)(5) of Regulation (EC) No 1924/2006). Such claims are prohibited unless they are authorized and included in the list of authorized claims (Art. 10(1)). This applies to labeling, presentation and advertising (Art. 1(2)) – and so to a distributor’s post as well.

The list is set out in Regulation (EU) No 432/2012. Two examples in the official wording: “Magnesium contributes to a reduction of tiredness and fatigue” and “Vitamin D contributes to the maintenance of normal bones.” Both may only be used for food that is at least a source of the nutrient as defined in Regulation (EC) No 1924/2006. Disease claims, on the other hand, are off-limits: food information shall not attribute to any food the property of preventing, treating or curing a human disease – expressly including advertising (Art. 7(3) and (4) of Regulation (EU) No 1169/2011).

BeautyMe cosmetics follow a different logic: advertising must not imply that a product has characteristics or functions it does not have (Art. 20(1) of Regulation (EC) No 1223/2009). Switzerland has its own list for food: health claims are only allowed if they are provided for in Annex 14 of the Ordinance on Food Information (LIV); others need authorization from the Federal Food Safety and Veterinary Office (BLV) (Art. 31(2) and (3) LIV). Details: Health claims: what you may advertise and Advertising cosmetics; for distributors’ posts, see Social media: what distributors may say.

Genetic analyses: distributors offer lifestyle analyses only

With genetic analyses, the purpose decides. That is why Novogenia draws a clear line: distributors offer non-medical analyses only – on lifestyle, nutrition, beauty and sport. Medical genetic analyses are available only through physicians (lab and partner rules). That matters, because Germany and Austria reserve medical analyses for physicians:

• Germany: A diagnostic genetic examination may only be performed by physicians, a predictive one only by specialists in human genetics or appropriately qualified physicians (Section 7(1) GenDG, Genetic Diagnostics Act). Watch the gray zone: clarifying whether genetic traits exist that, together with external factors, can trigger a disease or health disorder, or that can influence the effect of a medicine, also counts as diagnostic (Section 3 No. 7(b) and (c) GenDG).
• Austria: Analyses of a predisposition to a disease (types 3 and 4 under Section 65 GTG, Gene Technology Act) may only be carried out in approved facilities and only when ordered by a medical specialist (Section 68(1) GTG). Pharmacogenetics is a special case: in Austria, it is the only medical test the law expressly allows without a physician (more in the pharmacogenetics guide).

Switzerland goes further, because it regulates lifestyle analyses too. Genetic tests of physiological traits whose knowledge can influence a person’s lifestyle – such as eating habits, physical activity or general well-being – may only be ordered by health professionals who work in that field (Art. 31(1) and Art. 34 of the Federal Act on Human Genetic Testing (GUMG), Art. 37(1) of the ordinance (GUMV)). Art. 40 GUMV lists these professions, for example physicians, pharmacists or nutritionists with a university of applied sciences degree. The sample must be taken in the presence of the person who orders the test (Art. 34(3) GUMG), and self-tests are not allowed for these analyses (Art. 13 GUMG). Analyses providing information on food intolerances, metabolic disorders or an increased risk of sports injuries, for instance, count as medical in Switzerland (Art. 37(2) GUMV).

For a network, this means: in Switzerland, a distributor outside these professions cannot order a genetic analysis or hand out a saliva kit for home use. What works is the route via an authorized health professional who is present when the sample is taken. Advertising for such analyses also needs mandatory information (Art. 14(3) GUMG). More in Who may offer genetic tests? and Growing internationally: languages and markets.

You are liable too: what your distributors say

In a network, many voices speak for one brand. Legally, the brand does not get to stand on the sidelines. The EU directive already counts as a “trader” anyone acting in the name of or on behalf of a trader (Art. 2(b) of Directive 2005/29/EC). The three countries expressly regulate the company’s liability:

• Germany: If violations are committed within a business by an employee or agent, claims for injunction and removal also lie against the owner of the business (Section 8(2) UWG).
• Austria: The owner of a business can be sued for an injunction if an unlawful act was committed in the operation of the business by another person; they are liable for damages if they knew or should have known of the act (Section 18 UWG).
• Switzerland: If employees or other auxiliary persons compete unfairly in the course of their official or business activities, an action may also be brought against their employer (Art. 11 UWG).

For food supplements, food law adds a layer: the operator responsible for the food information is the one under whose name or business name the food is marketed (Art. 8(1) of Regulation (EU) No 1169/2011). So the best protection is clarity up front rather than checks after the fact: pre-approved wording, training and clear rules in the partner contract. How to train your team is covered in Training your distributors.

Checklist: your legal foundation

• Compensation comes primarily from products that end customers buy and use – not from recruiting new distributors.
• The compensation plan has been reviewed for every country you sell in – Switzerland separately.
• Only non-medical genetic analyses are sold through distributors; medical analyses are available only through physicians.
• In Switzerland, authorized health professionals order the analysis, the sample is taken in their presence, and self-tests are ruled out.
• For food supplements, there is a list of authorized health claims in the official wording, with the conditions of use met.
• No statement attributes to a product the property of preventing, treating or curing a disease.
• The partner contract covers permitted statements, training and consequences of violations.
• A qualified expert has reviewed the compensation plan and the advertising copy.

Frequently asked questions

Related: Social media: what distributors may say · Who may offer genetic tests? · Health claims: what you may advertise

Note: This guide is general information for businesses and professionals and does not replace medical or legal advice. The genetic traits determined in a genetic analysis are well documented (each gene included is backed by at least three independent studies); recommendations derived from them are logical conclusions, not scientifically proven. Regulations can change; errors and changes excepted.