COVID-19: States and Price-Gouging Enforcement

On March 11, the World Health Organization declared the spread of the novel coronavirus that causes COVID-19 a “pandemic.” Businesses around the globe and in all sectors have felt the impact of the virus at various levels in their operations. This massive global disruption has caused fluctuations in both supply and consumer behavior, leading to product shortages and wide pricing variances. In these times of relative scarcity any business that sells consumer products, whether a retailer, distributor or manufacturer, should be aware that drastic price increases to consumer or medical products not only can have dramatic public relations consequences, but also can implicate state laws governing price-gouging.

Price-gouging generally refers to charging higher prices in times of crisis, including natural disasters and disease outbreaks, than would be charged absent those circumstances. Laws governing price-gouging generally apply to necessities, which can include food, housing, fuel and medicine among other products. In the United States, there is no federal statute governing price-gouging, but 34 states and the District of Columbia have statutes specifically prohibiting this practice.

Major online retailers have already taken action to avoid allegations of price-gouging. In addition to removing at least 530,000 products, Amazon is working with state attorneys general to target individuals who post necessities at inflated prices. Amazon and eBay have stopped listings for hand sanitizer and face masks, in part because of rampant price-gouging for those products. In addition to those two retailers, Walmart and Etsy have also developed algorithms to identify overpriced or misleading product listings from third-party sellers. These actions show that states are strongly enforcing price-gouging statutes, and that retailers, and other businesses, stand to face both regulatory and public relations backlash for failing to act.

Specific state laws generally stem from a declared state of emergency and provide some guidance about what goods are covered and how the normal price of goods is calculated. No two states have the same law, inevitably creating significant variation between states, both in the statutory language and in possible penalties. The following statutes provide an example of how some prominent states handle price-gouging laws:

• In California, selling essential items (including food, fuel, household supplies, etc.) after a declared state of emergency for more than 10 percent over the cost of these items immediately preceding the declaration is punishable both with criminal penalties as a misdemeanor, carrying sentences of up to 1 year in jail and/or a $10,000 fine, and with civil penalties of up to $2,500 per violation, plus injunctive relief and restitution to consumers.
• In Florida, selling commodities, household essentials, rentals, fuel and other similar items after a declared state of emergency at “unconscionable” prices (“grossly exceeding” average prices in the 30-day period preceding the emergency) is a second-degree misdemeanor, punishable by a fine of up to $1,000 and/or up to 60 days in jail for the first offense. Further, violating entities can face $25,000 fines for multiple violations within a 24-hour period.
• In New York, selling “goods and services vital and necessary for the health, safety and welfare of consumers” at an “unconscionably excessive price” (as determined by the court) during a declared state of emergency can subject retailers to $25,000 in civil penalties per violation and restitution to consumers.
• In Texas, “selling or leasing fuel, food, medicine, or another necessity at an exorbitant or excessive price” can subject violators to civil penalties of up to $20,000 per violation (up to $250,000 if the victim was over 65 years old) and injunctive relief.
• In Virginia, during a time of disaster, selling, leasing or licensing “any necessary goods and services at an unconscionable price” is punishable by a civil penalty of up to $2,500 per violation (up to $5,000 if in violation of an injunction).
• In addition to civil and criminal penalties in many states, consumers have a private right of action in both Oregon and Vermont.

As shown by the above statutes, sellers need to be aware that goods are covered by a price-gouging statute, the prices charged for those goods and the penalties for violations. In addition to rapidly escalating “per violation” civil penalties, sellers could face jail time for failing to follow these statutes in some jurisdictions. Due to the catastrophic and very public nature of this pandemic, it can be expected that state attorneys general (and plaintiffs’ lawyers in Vermont and Oregon) will be aggressive in enforcing price-gouging statutes in the near future.

In responding to these challenges, businesses should also be mindful of antitrust concerns. Be careful communicating pricing information with competitors, even in an attempt to satisfy state price-gouging statutes. Such communications could violate Section 1 of the Sherman Act, exposing businesses to both civil and criminal liability. The Department of Justice has recently indicated an intention to use its enforcement powers to take action against those who take “advantage of emergency response efforts, healthcare providers, or the American people during this crucial time.” This indicates that antitrust violations related to the ongoing health crisis will be a point of emphasis for the Department of Justice, and businesses that provide materials related to the health crisis should be especially mindful of these concerns.