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16 April 2020
In the wake of COVID-19, some sellers of essential goods and services have tried to greatly increase the cost of their products to take advantage of increased demand. However, sellers should be aware that public officials across the United States have expressed a willingness to prosecute price gougers and companies that facilitate sales of goods with inflated prices.
On 23 March 2020 President Trump signed an executive order "to prohibit the hoarding of vital medical equipment and supplies such as hand sanitizers, face masks, and personal protective equipment".(1) Under this presidential directive, the "Secretary of Health and Human Services is authorized to designate essential health and medical supplies as scarce" and "it will be a crime to stockpile these items in excessive quantities".(2) The goal of this executive order is to "prevent price gouging" and protect "critical health and medical resources… in every form".(3)
Missouri Representative Jason Smith (Republican) and New Jersey Representative Josh Gottheimer (Democrat) proposed a bill that would "prohibit companies and individuals from selling goods and services at an 'unconscionably excessive price' during national emergencies".(4) The penalties are steep: price gougers could serve up to five years in prison or incur a fine of up to $1,000.(5)
At the state level, many state attorneys general (AGs) initiated highly publicised crackdowns on price gougers. Most states have the benefit of price gouging statutes, which gives state AGs the authority to prosecute violators.(6) Many AGs in these states have issued stern warnings to potential price gougers. For instance, Texas AG Ken Paxton has stated that "[n]o one is exempt from price gouging laws in Texas" and that those who violate the Texas price gouging statute (the Deceptive Trade Practices Act) will be "met with the full force of the law".(7)
The 14 states with no specific price gouging statute(8) have taken different approaches to potential price gouging. Some states have introduced price gouging legislation,(9) while others have relied on executive orders from their governors.(10) Despite different state coping mechanisms, one thing is clear: state AGs are at the forefront of investigating and prosecuting instances of price gouging.(11)
As the COVID-19 pandemic continues to unfold in the United States, businesses will be under an increasing amount of scrutiny to avoid price gouging practices and ensure that they are not doing business with price gougers. Like COVID-19, unwanted association with price gouging can spread. State AGs have already sent letters to online marketplace operators asking them to be "more vigilant against price gouging on their platforms".(12) While public enforcers have historically had a difficult time making cases against online marketplace operators for the actions of the third parties which list on them, significant reputational risk is also likely in play for these entities.
For further information on this topic please contact Vic Domen at Norton Rose Fulbright's Washington DC office by telephone (+1 202 662 0200) or email (email@example.com). Alternatively, please contact William L Troutman at Norton Rose Fulbright's Los Angeles office by telephone (+1 213 892 9200) or email (firstname.lastname@example.org). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.
(1) Remarks by Trump, Vice President Pence and members of the Coronavirus Task Force in a press briefing at the White House (23 March 2020, 6:11pm).
(5) The proposed federal bill is also in line with Attorney General William Barr's recent statements on hoarding essential materials. According to Barr, the Department of Justice has already "initiated investigations of activities that are disrupting the supply chain and suggestive of hoarding". Id.
(7) Texas Attorney General: Retail supply chains will be held liable for price gouging, KCBD (22 March 2020, 8:33pm).
(9) For example, Maryland has recently passed price gouging legislation, New York has introduced legislation to target medical supply price gouging and Ohio's AG has indicated that it is working on introducing price gouging legislation. Id.
(10) Michigan Governor Gretchen Whitmer recently signed an executive order "targeting big markups on supplies and consumer food items through mid-April", while Arizona Governor Doug Ducey recently issued an executive order "cracking down on price gouging related to coronavirus diagnosis and treatment services". Id.
(11) There has been a significant increase in price gouging complaints. For instance, New York has "received nearly 2,000 complaints and issued hundreds of thousands of dollars in fines after finding hundreds of violations". Id.
(12) Spencer Parts, "State AGs target coronavirus price gouging", GCR (23 March 2020).
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