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Price Gouging – A Symptom of COVID-19? Price Gouging – A Symptom of COVID-19?

Price Gouging – A Symptom of COVID-19?

As COVID-19 continues to spread globally and, so too the public’s uncertainty and fear surrounding the virus, demand for certain products has significantly increased (particularly those products related to health and personal hygiene), leading to a rapid shortage of inventory and supply chain concerns. Products such as latex gloves, toilet paper and hand sanitizer disappear from store shelves as soon as they are restocked. Such shortages, as well as any resultant price changes, frequently lead to concerns that retailers are intentionally inflating the price of these products in an effort to earn a greater profit, a practice often referred to as “price gouging.”  Covid-19 price gouging concerns have already spurred litigation. To date, class actions accusing retailers of charging excessive prices for basic goods such as toilet paper and hand sanitizer have already been filed, and more are anticipated. Here is what you should know.

Price gouging refers to the practice of unfairly increasing the price of products that are in high demand during times of a crisis or natural disaster. There are no federal statutes prohibiting price gouging. However, many states have anti-price-gouging laws, the scope of which varies widely. Most state anti-price-gouging laws require an official state of emergency declaration. Some states target certain products (such as gasoline or prescription drugs). Others have specific statutes prohibiting price gouging in all forms. For example, Virginia’s Post-Disaster Anti-Price Gouging Act prohibits the sale of any goods at an unconscionable price during a declared state of emergency. That law requires courts to consider in part whether the price during the state of emergency grossly exceeds the price in the 10 days leading up to the state of emergency.

States without specific anti-price-gouging laws will still look to intervene in order to protect consumers from paying inflated prices during the current COVID-19 emergency. As COVID-19 has been proclaimed a national emergency (and most states have announced their own declarations), businesses need to be cognizant in making business decisions in order to avoid potential claims.    

State attorneys general are already actively monitoring the COVID-19 situation for price gouging. For instance, on March 16, 2020, Indiana Governor Eric Holcomb signed an executive order in which he advised any Hoosier who thinks that he or she has been subjected to excessive pricing for consumer goods to contact the Office of the Indiana Attorney General, Consumer Protection Division. Two days later, Indiana Attorney General Curtis Hill stated that his office would pursue any price-gouging complaints under Indiana’s Deceptive Consumer Sales Act. Other state attorneys general (including those from California, Washington, Alabama and New York) have issued similar statements.

In the absence of specific anti-price-gouging laws, state attorneys general will look to consumer protection statutes. For example in 2014, then Ohio Attorney General Mike DeWine issued guidance that, although the state does not have a specific price-gouging statute, it does have laws against unconscionable and deceptive practices. According to that guidance:

“A practice could be considered unconscionable if the supplier knew at the time of the transaction that the price was substantially higher than the price at which similar goods or services could be readily obtained. It is also an unfair and deceptive practice to dramatically increase the price of in-stock products based solely in response to current events.”

Similarly, as stated above, Indiana Attorney General Curtis Hill has stated that his office will pursue any price-gouging complaints under Indiana’s Deceptive Consumer Sales Act. The Act prohibits unfair, abusive or deceptive conduct in consumer transactions (which include a sale of personal property, real property, a service or an intangible) and has been applied to protect business entities, including corporations, from unfair, abusive or deceptive conduct in consumer transactions. In fact, as recently as February 2020, an Indiana federal court found that a corporation that used a good for its own personal use could bring a claim under the Act against another business entity that allegedly practiced a price gouging scheme. IUE-CWA Local 901 v. Spark Energy, LLC, 2020 WL 820879 (N.D. Ind. Feb. 18, 2020). 

In addition to consumer protection statutes, various criminal laws, the Federal False Claims Act, equal protection principles, contractual fair trade provisions, fraud principles, Federal RICO laws and antitrust laws might also be at play.

To be clear, price increases during the COVID-19 outbreak are not prohibited, but they will be subject to more scrutiny. Businesses that are considering raising prices during the COVID-19 outbreak should be mindful of price-gouging concerns and of their business justifications for price increase. For example, increases may be justified under certain state laws if a seller can prove that the increased price is directly related to an increase in the cost of labor or materials needed to provide the good or service. Further, some states allow suppliers to seek advance approval from the state for a price increase.

As the pandemic continues, Ice Miller attorneys stand ready to assist you and your business with questions regarding price gouging and other consumer sale issues, including how to navigate potential price increases due to potential disruptions in supply chains. Contact Christina Fugate, Drew Miroff or Audrey Howard for more information.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances. 
 
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