State price gouging laws do not typically address product improvements or reformulations. Still, businesses should consider price gouging restrictions when releasing “new and improved” products, as the same pricing considerations that may apply to new products may also apply to improved, updated or reformulated products.

A company that is developing or considering releasing a reformulation of its current product may have previously evaluated whether the product is subject to state price gouging laws. Where the previous version of the product was covered, any reformulation is likely covered as well.

Given the additional costs that may accompany a reformulation, there may be additional justifications for price increases when releasing a new version of a product. In California, for example, a company can increase the price for its reformulated product to factor in the costs for, among other things, sourcing new or more expensive ingredients. As long as the total price does not exceed 50 percent greater than the total costs of producing and selling the product, it should not run afoul of that state’s law. A business that resells that reformulated product arguably may then price it at up to, but no more than, 50 percent greater than the amount it paid for the product, to the extent it is treated as essentially a new product.

In other states, a company considering reformulation may want to reference the price of similar goods as a baseline, while also gauging what the state statute considers to be legal justifications for setting prices that exceed the price of similar goods. Under Pennsylvania law, the state typically presumes prices are unconscionably excessive if they are 20 percent or more above “the average price at which the same or similar consumer goods or services were obtainable in the affected area during the last seven days immediately prior to the declared state of emergency.” But those provisions do not apply where a higher price is “substantially attributable to additional costs that arose within the chain of distribution in connection.”

In Florida, the price gouging statute suggests there would be a comparison of the amount charged for the reformulated product to “the average price at which the same or similar commodity was readily obtainable in the trade area during the 30 days immediately prior to [the] declaration of a state of emergency,” which, for purposes of the current COVD-19 emergency, was March 9, 2020 in Florida. If the reformulated product is more expensive than similar products, companies can provide evidence that “the increase in the amount charged is attributable to additional costs incurred,” or due to “regional, national, or international market trends,” and thereby rebut a presumption of price gouging.

Given the lack of direct treatment of this category of products in the price gouging laws, pricing in these instances may require additional thought to ensure compliance. As a general rule, however, businesses looking to bring reformulated products to the market should be aware that price increases for reformulated products likely fall within the majority of the allowable exceptions if they reflect cost increases and maintain (or even, in some cases, increase) a measure of profit margin.

*      *      *

Visit Proskauer on Price Gouging for antitrust insights on Covid-19.

*      *      *

Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Kelly Landers Hawthorne Kelly Landers Hawthorne

Kelly Landers Hawthorne is an associate in the Litigation Department and a member of the Antitrust and Product Liability groups. She represents clients in litigations and due diligence across a range of industries, including consumer products, life sciences, healthcare, education, hospitality, sports and…

Kelly Landers Hawthorne is an associate in the Litigation Department and a member of the Antitrust and Product Liability groups. She represents clients in litigations and due diligence across a range of industries, including consumer products, life sciences, healthcare, education, hospitality, sports and entertainment.

Kelly also maintains a diverse pro bono practice. She received Proskauer’s Golden Gavel Award for excellence in pro bono work in 2019.

She is a frequent contributor to Proskauer’s Minding Your Business blog, where she authors articles related to price gouging issues.

Kelly is also a member of the Proskauer Women’s Alliance Steering Committee, where she serves on subcommittees focused on highlighting and providing professional development opportunities for women at the firm.

Prior to her legal career, Kelly was a Teach For America corps member and taught middle school in Washington, DC.

While at Columbia Law School, Kelly served as an articles editor of the Columbia Journal of Law & the Arts and interned for the Honorable Sandra Townes of the U.S. District Court for the Eastern District of New York.

Photo of John R. Ingrassia John R. Ingrassia

John is a partner at the Firm, advising on the full range of foreign investment and antitrust matters across industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services consumer goods and health care. He is the first call clients make in matters relating…

John is a partner at the Firm, advising on the full range of foreign investment and antitrust matters across industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services consumer goods and health care. He is the first call clients make in matters relating to competition and antitrust, CFIUS or foreign investment issues.

For more than 25 years, John has counselled businesses facing the most challenging antitrust issues and helped them stay out of the crosshairs — whether its distribution, pricing, channel management, mergers, acquisitions, joint ventures, or price gouging compliance.

John’s practice focuses on the analysis and resolution of CFIUS and antitrust issues related to mergers, acquisitions, and joint ventures, and the analysis and assessment of pre-merger CFIUS and HSR notification requirements. He advises clients on issues related to CFIUS national security reviews, and on CFIUS submissions when non-U.S. buyers seek to acquire U.S. businesses that have national security sensitivities.  He also regularly advises clients on international antitrust issues arising in proposed acquisitions and joint ventures, including reportability under the EC Merger Regulation and numerous other foreign merger control regimes.

His knowledge, reputation and extensive experience with the legal, practical, and technical requirements of merger clearance make him a recognized authority on Hart-Scott-Rodino antitrust merger review. John is regularly invited to participate in Federal Trade Commission and bar association meetings and takes on the issues of the day.

Photo of Christopher E. Ondeck Christopher E. Ondeck

Chris Ondeck is co-chair of the Firm’s Antitrust Group and co-head of the Washington DC office. He represents clients in complex antitrust and consumer protection litigation, defends mergers and acquisitions before the U.S. antitrust agencies, represents companies involved in government investigations, and counsels…

Chris Ondeck is co-chair of the Firm’s Antitrust Group and co-head of the Washington DC office. He represents clients in complex antitrust and consumer protection litigation, defends mergers and acquisitions before the U.S. antitrust agencies, represents companies involved in government investigations, and counsels on antitrust compliance. Chris is also the founder and leader of the firm’s Price Gouging Practice, and is one of the key thought leaders in this space.

Chris handles antitrust matters for clients in a number of industries, including food and agriculture, financial services, media, telecom, technology, e-commerce, consumer products, natural resources, oil and gas, chemicals, and pharmaceuticals.  He also serves as outside counsel to a large number of industry groups, including trade associations and cooperatives.

Chris has been recognized as a leading antitrust practitioner by Chambers, noting that clients describe him as “our primary thought partner – he’s very good at explaining the complex issues and making them easy to understand” and praising “his strong advocacy skills”; by The National Law Review as a “Go To Thought Leader 2020”; by Acritas as a “Star” in multiple years; by Benchmark Litigation as a National Litigation Star 2021; and by The Legal 500 United States for Antitrust: Civil Litigation/Class Actions.