Price Gouging Laws Triggered by States of Emergency Pose Risks for National and Local RetailersApril 14, 2020 – Alerts
Prices ordinarily fluctuate on the basis of supply and demand. But during a governmentally declared state of emergency, so-called “price gouging” laws can take effect, imposing controls on price increases for a variety of items and carrying the threat of serious fines for violations.
As a result of the COVID-19 pandemic, the demand for certain products is spiking and supplies are depleted in some areas. Market forces would usually result in rising prices for in-demand items. But companies must be cautious at this time because many decisions to raise prices could later be deemed an illegal gouging of vulnerable consumers.
Compliance is complicated, particularly for sellers that utilize the Amazon platform and market products nationally, because more than half of U.S. states have price gouging laws, and they vary significantly – not only as to what items are covered, but how the key terms are defined.
A coordinated response is needed because an investigation by one state can trigger inquiries by other states.
To date, at least 33 state attorneys general have initiated investigations into allegations of price gouging arising out of the coronavirus crisis.
The U.S. Department of Justice has also formed a COVID-19 Hoarding and Price Gouging Task Force that has seized critical medical supplies and distributed them where needed, and paying the owners the "pre-COVID-19 fair market value" of the products.
Price Gouging Laws
Price gouging laws make it unlawful to sell certain merchandise and services at an excessive price during a declared emergency. Many governors have declared emergencies in their state due to COVID-19.
As a result, the sale of some merchandise, including surgical masks, hand sanitizers, disinfectant sprays and wipes, certain foods and bottled water, are being monitored by the various state Attorney General offices for evidence of illegal price hikes.
The definition of “price gouging” varies significantly from state to state. Some states use specific formulas to determine whether a company has unfairly increased prices, while others use a combination of subjective factors, without setting any exact price value.
New Jersey – the state price gouging law precludes sellers from charging prices that are more than 10 percent higher than the price at which the good or service was sold or offered for sale by the seller in the usual course of business prior to a declared state of emergency.
Florida – price gouging is defined as a “gross disparity.”
Pennsylvania – the law defines price gouging as a price increase of 20 percent or more than the average price during the seven days immediately prior to the emergency.
California – the statute defines price gouging as an increase of more than 10 percent of the seller’s price immediately prior to the emergency.
New York – the law defines price gouging as an “unconscionably excessive price,” and courts are left to determine whether the business’s price was unconscionably extreme and exercised an unfair advantage or unconscionable means.
Some states take mitigating circumstances into effect, while others do not. Some states cover a broad scope of products and services, including virtually any product or service, while others specify a few covered categories of products and services. The duration of the price gouging prohibition also varies from state to state.
Responding to Inspections and Subpoenas
Businesses that sell products in any state with a price gouging law may face a wide range of consequences, from a consumer complaint to inspections or subpoenas from the agencies charged with enforcing the law. Such businesses should consult counsel to ensure compliance and a proper response to investigators.
Fox Rothschild attorneys are experienced in advising businesses in regulatory and criminal investigations. If you have any questions about this alert or price gouging laws, please contact Marissa Koblitz Kingman at 973.548.3316 or [email protected], or Joseph A. DeMaria at 305.322.2263 or [email protected], or any member of Fox Rothschild's national White-Collar Criminal Defense & Regulatory Compliance practice group.