In response to the national coronavirus health crisis, federal and state Attorneys General have elevated the investigation and prosecution of COVID-19-related crime, including price gouging, to the forefront of their enforcement priorities. Attorney General William Barr created a national COVID-19 task force staffed with attorneys from all 94 United States Attorney’s Office to coordinate expedited federal enforcement actions for price gouging. Multiple state Attorneys General have created similar task forces, established federal-state partnerships, or publicly pronounced that they will zealously pursue prosecution of companies that engage in price gouging. The Federal Trade Commission also has authority to regulate price gouging. Simple complaint forms are linked to the home pages of many of these organizations, and industry-wide investigations into the sales of certain goods have already begun in some jurisdictions.
Given the breadth of products and services covered by price gouging laws, and the potentially tight pricing tolerances of the caps under some laws, companies and industries that think they are immune from scrutiny should think again.
To date, several federal and state price gouging cases have been filed and thousands of complaints are being investigated. As states re-open and grand juries reconvene, federal and state law enforcement can be expected to actively pursue investigations and prosecutions against companies engaged in the manufacture, distribution or sale of a wide variety of consumer and healthcare goods and services that experienced price spikes following federal or state emergency declarations. The industries and the specific goods and services that will be targeted for investigation will vary by jurisdiction. The federal and state statutes and orders lack uniformity regarding the items covered, the extent of price increase prohibited and the time parameters covered. As a result, price increases on a particular good or service that may be legal in one jurisdiction may be deemed criminal price gouging elsewhere.
Federal Price Gouging Enforcement (Healthcare and PPE Focused)
Under federal law, the current anti-gouging order took effect on March 23, 2020, when President Donald Trump issued Executive Order 13910 invoking the Defense Production Act to designate select health and medical resources, as identified by the Secretary of Health and Human Services, as protected items. Tailored to address the current health crisis, these items include various types of personal protective equipment, medical equipment, and sterilization materials. Until such time as the Secretary of Health and Human services terminates this designation, it is a Class A misdemeanor punishable by up to one year imprisonment to sell any designated item at prices in excess of the prevailing market rates.
State Price Gouging Enforcement (Consumer Goods and Services Focused)
State price gouging laws and orders are far more varied. Some states have issued anti-gouging orders accompanying COVID-19 emergency declarations that are largely consistent with federal law. Many other states rely on price gouging statutes triggered by declarations of emergency that incorporate within their scope a wide array of goods and services, including fuel, pharmaceuticals, food and water, clothing, cleaning and hygiene materials, building supplies, and shipping and other transportation services. A small number of states do not have statutes proscribing price gouging, although many of them have indicated intention to pursue price gouging via unfair and deceptive trade practices or other consumer protection laws.
Importantly, state laws vary significantly in how price gouging is defined. In many states, there is a statutorily-set price cap that compares prices charged during the period when the emergency is in effect with prices charged for the same good or service during a defined time period prior to the emergency declaration (e.g., 10% above the price charged for that good or service on a particular day or over a number of days prior to when the emergency was declared). The tolerance cut-off and the comparative timeframe differ from state to state. Other states eschew price caps and rely on more amorphous terms such as “unconscionable” or “excessive” price increases. States with defined caps do tend to allow for larger price increases if they are tied to higher costs, but still tend to apply a cap (e.g., 10% over cost plus standard markup).
Compliance Challenges and Strategies
The patchwork of federal and state statutes and orders can make it difficult for companies operating regionally, nationally or internationally to remain in full compliance with price gouging laws during the COVID-19 crisis—particularly as many may not be aware that they are currently, and for some weeks have been, subject to pricing caps in states into which they sell goods or services. Adding to this difficulty is the fact that the current patchwork will unravel in a non-uniform way, with standards, timing and enforcement vigor that will vary by jurisdiction. Companies that find themselves out of compliance with these laws could be exposed to significant legal and reputational risks, as branding a corporation as a profiteer that cold-heartedly placed financial gain over national security and citizen health during a global pandemic will be a politically tempting headline to grab.
However, there are ways to manage these risks. Companies that manufacture, distribute, or sell goods or services that fall within the scope of the anti-gouging statutes or orders should examine both their prices and their pricing mechanisms to confirm compliance. In the event that the price for a designated good or service increased from March 2020 to the current date, companies should assess the following:
- Is the price increase the direct result of increased costs on the supply side, including, labor, materials and supplier price increases?
- Was the good or service sold at a price beyond the prevailing market rate within a community or across the industry (and if so is there a justification)?
- Did the price increase exceed a state-defined tolerance level, the most common of which is 10% above pre-crisis pricing (or 10% above cost plus standard markup)?
- Can you document how and why prices increased, and is that information being preserved?
- If prices are out of tolerance in certain markets, are you able to bring them into alignment with applicable caps?
Price Gouging Laws Guide
McGuireWoods has implemented a price gouging team ready to respond to your inquiries regarding the application of federal and state price gouging mandates. For an overview of the Price Gouging Laws for each state and jurisdiction, click here.
McGuireWoods’ Government Investigations & White Collar Litigation Department is a nationally recognized team of nearly 60 attorneys representing Fortune 100 and other companies and individuals in the full range of civil and criminal investigations and enforcement matters. Our team is comprised of a deep bench of former senior U.S. officials, including a former Deputy Attorney General of the United States, former U.S. Attorneys, more than a dozen federal prosecutors, and an Associate Counsel to the President of the United States. Strategically centered in Washington, D.C., our Government Investigations & White Collar Litigation Department has been honored as a Law360 Practice Group of the Year and earned the trust of international companies and individuals through our representation in some of the most notable enforcement matters over the past decade.
McGuireWoods has published additional thought leadership analyzing how companies across industries can address crucial business and legal issues related to COVID-19.