Government Focus and Enforcement of Price Gouging Prohibitions Related to COVID-19 Pandemic

The COVID-19 pandemic has led to increased scrutiny of price gouging activity by both federal and state enforcers.  The Department of Justice (DOJ), the Department of Health and Human Services (HHS), and many states have been examining price gouging activity carefully with companies and individuals possibly exposed to both criminal and civil sanctions. On March 23, 2020, the President issued an Executive Order directed to the Department of Health and Human Services and the DOJ to focus on these activities in the context of hoarding and price gouging certain needed emergency medical supplies.  The Federal Trade Commission also continues to examine price gouging issues.

Businesses should be concerned about determining what constitutes price gouging, partly because the states vary on the standard. There are three general standards that states follow for price gouging. First, some states, such as California and New Jersey, define price gouging as a specific percentage increase in the price of goods or services. In both of those states, price gouging is defined as an increase in the price of goods that is at least 10% higher than what was charged immediately before an emergency declaration.  Second, many other states tie the standard for price gouging to the price prior to any emergency declaration, but do not provide a specific percentage increase that is problematic. Instead, they focus on whether there was a price increase after an emergency declaration.  For example, in Georgia, the statute states that one may not sell certain items at a price higher than the price they were sold immediately prior to the declaration.  The Louisiana statute prohibits prices that exceed the price range that was ordinarily charged in the same market area immediately before the emergency. Third, many states have an “unconscionable” or “excessive” price standard. For example, New York prohibits “unconscionably excessive” prices, Florida prohibits “unconscionable” prices defined as prices that “grossly exceed” the pre-disaster price, and Texas prohibits selling at an “exorbitant” or “excessive” price.

The President’s recent Executive Order prohibits hoarding and price gouging of certain supplies designated as “scarce materials” by HHS pursuant to §4512 of the Defense Production Act (DPA). The Order defines hoarding and price gouging as “persons accumulating the material in either excess of reasonable demands of business, personal, or home consumption, or for the purpose of resale at prices in excess of prevailing market prices,” consistent with the DPA.  The designated “scarce materials” include N-95 face masks, ventilators, and personal protective equipment.  Additionally, while there is not currently a federal price gouging statute, the DPA, which the President invoked last week, allows the President to designate that certain materials or products be prohibited from dramatic price increases.

The U.S. Attorney General has also announced the creation of a COVID-19 Hoarding and Price Gouging Task Force to investigate and prosecute violations of the anti-hoarding and anti-price gouging provisions of the DPA. Willful violations of the DPA are subject to a maximum $10,000 fine and/or up to one year imprisonment.  Furthermore, implementing regulations of the DPA also prohibit a person from delivering any item specified if that person knows or should have known that the item will be held in violation of the DPA upon delivery.

Many states are already taking steps to enforce their price gouging laws amidst the pandemic. Thirty-four state attorneys general signed on to letters to major online retailers such as Amazon urging them to crack down on price gouging on their sites. The Texas Attorney General has already filed a lawsuit against one auction company that was selling protective masks and cleaning supplies. States like Montana and Washington that don’t have specific price gouging statutes have announced initial price gouging inquiries. Further, many attorneys general stated that they have already received hundreds and in some cases, thousands, of complaints about price gouging related to COVID-19 supplies and are investigating these complaints. Some states, such as New York, have issued cease and desist letters to businesses allegedly engaged in price gouging and the City of New York has issued fines.

Apart from government enforcement activities, companies also have to be concerned with antitrust ramifications and private class action suits.  Many state price gouging statutes grant private causes of action to purchasers harmed by price gouging behavior. AGG currently represents a client involved in an antitrust class action case where price gouging unrelated to the COVID-19 pandemic, in part, formed the basis of antitrust monopolization claims.

If your company has any questions regarding how to comply with the price gouging statutes, or if a company or individual is being prosecuted or sued under these statutes, please reach out to Jeffrey S. Jacobovitz at 202-677-4056.

Jeffrey is Chair of Arnall Golden Gregory’s Antitrust Group and a former Federal Trade Commission attorney.  His practice focuses on complex business litigation and white collar criminal defense. Lindsey is an associate attorney with AGG.