As annual supply contracts come up for renewal, businesses may be wondering whether price increases for annual contracts are permitted under the panoply of price gouging laws currently in effect. Parties may want to negotiate contracts with “normal” price increases, operating under the assumption that, at some point during the contract year, price controls will expire. But if states of emergency remain in effect when the new contract prices become effective, parties can find themselves facing questions about how the agreement can be carried out.

When agreeing to a new contract price, companies should consider how price gouging laws may be interpreted or enforced in ways that overlap or interact with antitrust laws. There is no precedent that definitively reveals the interplay between these laws, given the unprecedented geographic and durational scope of the ongoing emergency. We do, however, strongly suspect that annual contract prices that could be investigated for either price gouging or antitrust reasons will likely be investigated for both.

In terms of antitrust, companies are generally free to set their prices as they see fit, provided, among other things, they make their pricing decisions unilaterally. Since most arrangements between suppliers and distributors benefit consumers, given the distribution and cost reducing efficiencies, annual contracts between suppliers and distributors typically do not run afoul of antitrust laws.

Under price gouging restrictions, however, enforcers will look to evidence that prices increased beyond a permissible level during a state of emergency. Price gouging laws apply broadly to annual agreements between suppliers and downstream distributors and sellers, to the price at which the supplier provides goods, or to the ultimate sale price.

A practice may be permissible under federal antitrust law and unlawful under state law, or vice versa. But, as we have previously discussed, antitrust and price gouging investigations and possible violations are not mutually exclusive. State attorneys general frequently are choosing to investigate pricing moves under both enforcement regimes simultaneously. Given the spotlight on price gouging in response to the ongoing pandemic, contract prices may be scrutinized for antitrust compliance, particularly if there is any whiff of coordinated activity in a market or industry.

Consider this possible scenario: a California-based supplier is preparing to enter into a new annual contract with its California-based distributor. Last year, the supplier agreed to sell its products to the distributor for $10/unit. This year, the presumptive ceiling for the supplier’s sale to the distributor would appear to be $11/unit based on California’s current pricing restrictions. The parties are considering a contract under which the supplier sells its product to the distributor for $13/unit.

Perhaps the higher price is justified by documented costs, and perhaps the distributor can lawfully pass those costs on as well. Assuming however, that the $13/unit price cannot be fully justified by cost increases, it may not be permitted within the price gouging exceptions. Also, should the price gouging laws be deactivated mid-contract, it may be that parties could be exposed for any sales that took place during the pendency of the states of emergency.

In light of the state and federal enforcement activity against price gouging and the considerations discussed above, companies should ensure that their contract prices are reasonable and justified. Use data to your advantage in contemplating pricing movements. Such records will be especially useful to support any increases should there be an investigation in the future.

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

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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.

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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.