Price gouging of goods in short supply as the result of the COVID-19 crisis continues to be the subject of legal, political and media attention. Local, state and federal enforcement agencies have solicited and received thousands of complaints related to price gouging for the sale of scarce goods ranging from N95 masks to toilet paper. In a market-driven economy, price normally is relied upon to allocate resources efficiently, and supply and demand dictate price. However, during a catastrophe such as the COVID-19 pandemic, large price increases for vital goods that result in windfall profits are the subject of social condemnation and prosecution. What constitutes an acceptable price for a scarce product as opposed to unacceptable profiteering often seems to come down to a sense of “I know it when I see it.” Unfortunately, many distributors and retailers seeking to comply with different jurisdictions’ laws on price gouging find that those laws often are not much clearer.
There is no federal law that broadly prohibits price gouging. Section 5 of the Federal Trade Commission Act (FTCA) prohibits “unfair methods of competition” and “unfair or deceptive acts or practices,” but the FTCA has never been applied to price gouging. Section 102 of the Defense Production Act (DPA), 50 U.S.C. § 4512, however, authorizes the president to order that “designated” materials that are necessary to promote the national defense cannot be accumulated beyond reasonable business or personal needs. Under the DPA, it is a crime for a person to accumulate a designated item in excess of his or her reasonable needs or for the purpose of selling the item in excess of prevailing market prices. A willful violation of this statute is punishable by a fine up to $10,000 and/or imprisonment for up to a year. 50 U.S.C. § 4513.
The principal anti-price-gouging initiative at the federal level has been based upon President Trump’s Executive Order 13910, issued on March 23, 2020, which delegated the president’s authority to designate particular items as protected under the DPA to the Secretary of Health and Human Services (HHS). On March 25, 2020, HHS Secretary Azar designated numerous items under the DPA, including respirator masks, respirators, ventilators, certain types of sanitizing devices and products and personal protective equipment (gowns, masks, gloves, etc.). Attorney General Barr has formed a task force headed by the U.S. Attorney in New Jersey to lead the Department of Justice (DOJ) in investigating and prosecuting COVID-19 related hoarding and price gouging.
There have been very few reports of enforcement actions by the federal task force. On April 2, the DOJ and FTC announced that the FBI had seized more than half a million N95 respirator masks, medical gloves, surgical masks and other items from an unidentified company that was offering them for sale at highly inflated prices. The materials were redistributed to medical facilities in New York and New Jersey, and the owner of the hoarded equipment was reimbursed the “pre-COVID-19 fair market value” for the supplies, according to the DOJ press release. In addition, U.S. District Attorneys throughout the country have publicized their interest in receiving complaints about price gouging from the public. Sellers of any goods designated under the DPA should be cautious in establishing prices.
State officials have always been more involved in policing price gouging, particularly in states such as Florida and California that experience natural disasters more frequently. Approximately 35 states have some manner of anti-price-gouging statutes. Governors in other states have issued emergency executive orders that prohibit price gouging for COVID-related commodities. These laws and orders vary widely. Some states’ laws only apply to narrow categories of goods, such as petroleum products, while some laws only apply to retailers. A few states’ price gouging laws specify that a determined percentage increase over pre-emergency prices is evidence of price gouging (for example, 10% in New Jersey and California, and 20% in Pennsylvania), while other state statutes simply prohibit “gross disparities” between pre-emergency and current prices. Some states interpret their deceptive sales practices acts to cover price gouging, and those statutes do not contain any standards that define price gouging. Some price gouging statues expressly exempt any price increase that is attributable to additional costs incurred in connection with the sale of the commodity or is consistent with regional, material or international market trends. Most price gouging statutes do not expressly contain such an exception, but states that have addressed the issue have recognized that increased costs are a legitimate defense to a charge of price gouging. Accordingly, sellers should maintain records that reflect increases in the costs of purchasing or producing vital goods for sales in states that prohibit price gouging in the sale of those goods.
Most state statutes that expressly apply to price gouging are only enforceable by the state and provide for fines, restitution and, in some instances, criminal enforcement. During the COVID crisis, states have been very active in policing price gouging. Nearly all states have established a system to report suspected hoarding or price gouging. In late March, a group of 33 state attorneys general jointly urged online retailers Amazon, eBay, Walmart and Craigslist to closely monitor listings by third-party sellers to prevent price fixing. These and other online vendors have adopted different policies and practices to combat price gouging. Facebook and eBay prohibit listings for face masks, hand sanitizer, COVID-19 test kits and other goods, and Amazon has closely monitored and reported alleged price gouging. The online retailers have continued to cooperate with state attorneys general by identifying many instances of alleged price gouging.
The four states where Taft’s principal offices are located reflect the broad variety of anti-price gouging laws. Ohio does not have a statute that specifically applies to price gouging, but does have a “mini-FTC act” that protects consumers from unfair and deceptive business practices. The Ohio Attorney General had initially indicated that Ohio’s Consumer Sales Practices Act does not apply to price gouging. Nevertheless, on April 14, the Ohio Attorney General filed a complaint under the Ohio Consumer Sales Practices Act and antitrust act, alleging that an individual and unidentified co-conspirators had agreed to acquire N95 masks and sell them at grossly inflated prices. The complaint seeks a civil penalty of $25,000 for each sale and a forfeiture of $500 per day for each day that the conspiracy was in effect, as well as forfeiture of the masks.
Illinois and Indiana each have a price-gouging statute, but those statutes only apply to unconscionable pricing for fuel. IN St 4-6-9.1-2; Ill. Stat Ch. 815, § 505/2. On April 1, 2020, Illinois Governor Pritzker signed a proclamation that, among other things, prohibits price increases for the sale of goods or services, including “medical supplies, protective equipment, medications and other commodities” intended to prevent or treat COVID-19.
Minnesota also does not have a price-gouging statute, but Governor Walz’s Executive Order 20-10 issued on March 20, 2020, prohibits a person from selling or offering to sell “any essential consumer goods or services for an amount that represents an unconscionably excessive price.” The order defines “unconscionably excessive” as an amount (i) that represents a gross disparity from the price of the same good or service sold during the 30 days proceeding the order, (ii) that is more than 20% greater than the price of the good or service sold during the 30 days prior to the order, or (iii) that grossly exceeds the price at which the goods or service is readily available. The order also excludes price increases “substantially attributable to significant additional costs outside the control of the person.”
Most states’ price-gouging statutes do not expressly authorize private enforcement. Not surprisingly, a number of class actions based upon alleged price gouging have been filed, including against food delivery apps Grub Hub, Door Dash, Postmates and Uber Eats, and against Amazon for the sale of personal hygiene products.
The 3M Company has also used private actions to discourage price gouging of its own products in New York, California, Texas, Florida and New Jersey against companies that allegedly have engaged in price gouging of 3M N95 respirator masks. While it is not clear that a manufacturer may sue a seller for price gouging, 3M’s aggressive “naming and shaming” lawsuits probably serve the purpose of distinguishing 3M from the alleged deceptive or predatory practices of the seller-defendants.
Please visit our COVID-19 Toolkit for all of Taft’s updates on the coronavirus.