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Price Gouging: What Businesses Need to Know

The COVID-19 pandemic has led to widespread reports of price gouging on hand sanitizer, protective masks, gloves, and other essential supplies.

Such excessive or unconscionable price increases are illegal under state price gouging laws, which generally take effect upon the declaration of an emergency by federal, state, and/or local officials. With emergency declarations proliferating across the country and dozens of price gouging laws now in effect, businesses should re-familiarize themselves with price gouging laws and pay close attention to their own pricing practices, as well as those of their suppliers, distributors, and retailers. 

Overview of State Laws

Thirty-four states plus the District of Columbia have enacted laws prohibiting price gouging. While the laws differ, they generally take effect during a declared state of emergency and prohibit charging excessive or unconscionable prices for specified categories of goods and services during the declared emergency and sometimes for a period of time thereafter. Price gouging is generally classified as a violation of state unfair or deceptive trade practices laws, resulting in civil penalties, however, some states also impose criminal penalties.

Importantly, some price gouging laws apply to more than just the retail seller so all parties within the chain of distribution of consumer goods and services should be familiar with the laws. The laws in New York and Massachusetts, for example, expressly apply to all parties in the chain of manufacture or distribution.

Below is a summary of key considerations for select state laws:

California

  • Covered Goods and Services. Any consumer food items or goods, goods or services used for emergency cleanup, emergency supplies, medical supplies, home heating oil, building materials, housing, transportation, freight, and storage services, or gasoline or other motor fuels; repair or reconstruction services or any services used in emergency cleanup; hotel rates; rental prices for housing. 
  • Price Restrictions. Covered goods and services may not be sold for more than 10 percent greater than the price charged immediately prior to the emergency.
  • Exceptions. If the seller can prove that the price increase is directly attributable to additional costs during the emergency, and the price increase is not excessive compared to added costs, or in the case of hotel room rates, if the increase is based on regularly-scheduled seasonal adjustments. 

District of Columbia

  • Covered Goods and Services. Any merchandise or service.
  • Price Restrictions. In the case of merchandise, items may not be sold above a price equal to the wholesale cost plus a retail mark-up that is the same percentage over wholesale cost as the retail mark-up for similar merchandise sold in the Washington Metropolitan Area during the 90-day period that immediately preceded an emergency. In the case of services, prices may not be more than 10 percent more than the price at which similar services were sold or offered in the Washington Metropolitan Area during the 90-day period that preceded an emergency.
  • Exceptions. None specified. 

Massachusetts

  • Covered Goods and Services. Previously applied only to petroleum products, but the Massachusetts Attorney General issued an emergency regulation on March 20, 2020, expanding coverage to any goods or services necessary for the health, safety or welfare of the public. 
  • Price Restrictions. No business at any point in the chain of distribution or manufacture may charge a price that reflects a “gross disparity” between the price charged or offered during the emergency and either the price charged for the same good or service immediately prior to the emergency, or the price at which the same or similar product is readily obtainable from other businesses. 
  • Exceptions. A gross disparity does not exist if the disparity is substantially attributable to increased prices charged by the business’s suppliers or increased costs due to an abnormal market disruption.

New York

  • Covered Goods and Services. Consumer goods and services vital and necessary for the health, safety, and welfare of consumers. 
  • Price Restrictions. No party within the chain of distribution of consumer goods or services or both shall sell or offer to sell any covered goods or services for an amount which represents an “unconscionably excessive price,” taking into account factors such as the price at which the goods or services were sold immediately prior ot the emergency, the price at which the same or similar goods or services are readily obtainable at other sources in the trade area, the size of the price increase, and the exercise of unfair leverage. 
  • Exceptions. A defendant may rebut a prima facie finding of price gouging with evidence that additional costs not within the control of the defendant were imposed on the defendant for the goods or services.

Recent Enforcement Action

On March 25, 2020, thirty-three state attorneys general sent letters to top retail and tech companies urging them to do more to crack down on price gouging. Specifically, the letters ask retailers to adopt the following recommendations:

  • Set policies and enforce restrictions on price gouging during emergencies, including by tracking prices historically set by sellers for the same or similar products and preventing spikes in prices that may indicate price gouging; 
  • Trigger price gouging protections independent of or prior to an emergency declaration; and
  • Create and maintain a “Fair Pricing” page/portal where consumers can report price gouging incidents.

As the letters note, these companies have generally already taken action to prevent price gouging and implement fair pricing policies. Amazon, for example, has removed over half a million offers from its stores due to coronavirus-based price gouging and has suspended more than 3,900 selling accounts in its US store alone for violating fair pricing policies.

Takeaway  

With federal, state, and/or local disaster and emergency declarations in effect in all 50 states and the District of Columbia, all businesses that manufacture, distribute, or sell consumer goods,  other essential emergency supplies, or critical services should familiarize themselves with state price gouging laws. As long as the declarations are in force any price increases, particularly those of 10 percent or more, and including (in some states) rates for hotel rooms, could draw regulatory scrutiny and trigger price gouging laws.

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