The contours of price gouging enforcement continue to evolve rapidly within the rip current of the coronavirus pandemic. As we previously reported, the Department of Justice and state Attorneys General have spearheaded price gouging investigations, and private litigants have turned to the courts with price gouging-related class action lawsuits. Yet one potential authority remains on the sidelines, at least for now: the FTC. Although it has been active in protecting consumers from other COVID-19-related activity, the FTC has refrained from addressing price gouging during the current public health emergency. This may soon change.
In late March, Democratic members of both houses of Congress wrote letters to the FTC encouraging it to exercise its broad enforcement powers under Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices, to shut down COVID-19 price gouging. In addition, a proposed federal law currently percolating through Congress would clarify the FTC’s enforcement power over price gouging during this pandemic. On May 15, the House passed the Health and Economic Recovery Omnibus Emergency Solution (HEROES) Act. Title I of Division M—known as the COVID-19 Price Gouging Prevention Act—would prohibit the “unconscionably excessive” sale of goods or services by sellers who use the public health emergency to unreasonably increase prices for the duration of the public health emergency. This measure would reach goods and services across a broad array of industries, including providers of food and beverages, personal hygiene products, cleaning supplies, medical equipment and supplies, personal protective equipment (PPE), certain drugs, as well as healthcare, cleaning, and delivery services. This legislation further authorizes the FTC to enforce price gouging violations and to assist state Attorneys General in their anti-gouging enforcement actions.
The COVID-19 Price Gouging Prevention Act sets forth the following factors for determining whether price gouging has occurred:
- Whether the price grossly exceeds the average price at which the seller sold the same or a similar good or service in one of two prescribed time periods before the emergency;
- Whether the price grossly exceeds the average price at which other sellers sold the same or a similar good or service before January 31, 2020; and
- Whether the price reasonably reflects the additional costs incurred, the profitability of lost sales, or the additional risks taken by the seller under the circumstances.
The HEROES Act also would create an additional layer of price gouging oversight in the healthcare industry. Under the proposed law, the White House would appoint a Medical Supplies Response Coordinator responsible for monitoring the price of critical medical supplies and equipment needed to combat COVID-19 at every stage—from detection and diagnosis to prevention and treatment—and reporting any suspected price gouging to the FTC.
Although the HEROES Act is not expected to pass the Senate for reasons unrelated to its price gouging provision, companies should watch for this proposed clarification of the FTC’s authority to reappear in subsequent legislation. In April, two bills similar to the COVID-19 Price Gouging Prevention Act (H.R. 6450 and 6472) were introduced in the House and referred to the Committee on Energy and Commerce. Notably, the plain language of H.R. 6450 did not limit its reach to COVID-19 and would have established a federal price gouging law for future national and public health emergencies as well. The private sector also has sought increased FTC involvement, with a leading online retailer recently voicing support for federal price gouging legislation that would place the FTC at the helm of enforcement. In advance of such legislation, companies should continue to assess and mitigate pricing-related risks to avoid future enforcement actions under current laws at either the federal or state level. As noted in our previous posts, proactive steps should be taken to document pricing decisions during this pandemic. Our Quick Reference Guide to Price Gouging Law can help them understand the current legal landscape.
