COVID-19 has presented countless challenges since it began to spread unchecked across the United States. Among those challenges are severe shortages of cleaning, medical, and food supplies. Many of the medical supplies and personal protective equipment necessary to combat the spread of COVID-19 have become almost impossible to find. These supplies range from ventilators for critically ill patients to basic living essentials like toilet paper and disinfectant. As a result of the shortages, there have been numerous reports of “price gouging.” In response, many state and federal authorities are issuing firm warnings about the consequences of engaging in price gouging during this period. It is important to understand how this current crack-down may affect your business.

Over two-thirds of the states, including the District of Columbia have price gouging laws.^[1] Penalties may include jail time, fines, and prohibition of future sales.^[2] Price gouging is the practice of charging excessively high prices for products or services during a state of emergency or other unusual market conditions. States may vary in how they define price gouging. Some states use the term “excessive”^[3] or “unconscionable,”^[4] while other states identify a specific percent increase in price that is unlawful.^[5] Certain price gouging statutes take into consideration several mitigating factors that may have caused the price increase, including additional costs imposed by the seller’s supplier or other costs of providing the good or service during the triggering emergency, fluctuations in applicable commodity markets or market trends, and expenses and charges for associated business risks incurred in acquiring or selling the goods or services.^[6] To determine whether a merchant is engaging in price gouging, many states compare the price after the emergency declaration to the price immediately preceding the emergency declaration or the average price within a specified number of days prior to the declaration.^[7]

The federal government has historically not had its own price gouging statute.  However, as a result of the pandemic, President Trump recently issued a government order invoking the Defense Production Act. (DPA), which prohibits the hoarding and price gouging of any materials deemed “scarce” by the Department of Health and Human Services (HHS). Additionally, U.S. Attorney General Barr announced the creation of the DOJ COVID-19 Hoarding and Price Gouging Task Force. This task force will “develop effective enforcement measures, best practices, work closely with HHS as they designate particular items and equipment, and coordinate nationwide investigation and prosecution of these illicit activities.”

Companies that are contemplating raising prices on goods that are in high demand but scarce during the pandemic, should check to see whether their state has a price gouging law or whether their governor has issued an executive order banning price gouging.  When examining the state’s law or executive order on price gouging, the company should check the size and type of price increase that may constitutes price gouging.  It should understand  how the prior price of its product was determined.  Companies should keep detailed records of any increased costs that justify the price increases as well the affected products’ average price prior to the emergency. Companies should also document the reasons for the price increases.  If the sole reason for raising prices is greater demand during the pandemic, companies should consider whether the increase might be deemed price gouging. 

^[1] See Price Gouging State Statutes, NCSL (Mar. 30, 2020), https://www.ncsl.org/research/financial-services-and-commerce/price-gouging-state-statutes.aspx.

^[2] See Price Gouging Laws by State, FindLaw (Mar. 24, 2020), https://consumer.findlaw.com/consumer-transactions/price-gouging-laws-by-state.html.

^[3] N.C.G.S. § 75-38.

^[4] N.Y. Gen. Bus. Law § 396-r.

^[5] Cal. Penal Code § 396; (73 P.S. § 232.4(b)).

^[6] Id. § 75-38.

^[7] MCL 445.903(1)(z). Michigan is the only state that does not require an emergency declaration to go into place.

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