antitrust Class Action

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Understanding and Reacting to New and Increased Risks

Businesses are facing new and increased risks as they work to continue operations and meet changing demand. The unprecedented duration and nationwide scope of the emergency has created additional complexities for companies that operate on a nationwide basis. They often must comply with price gouging laws in many more states and over a substantially longer period of time than has ever occurred in any prior emergency in which price gouging laws were activated.

During the pandemic, businesses are asking about their potential price gouging liability in states that they do not sell into directly but where their products might end up. At least one federal circuit court addressed this question in examining a Maryland price gouging law that covered pharmaceuticals (outside the emergency context), ultimately striking down the law as a violation of the dormant Commerce Clause in a split decision.

As businesses figure out how to be creative and continue to operate during the pandemic, some have turned to “Covid surcharges” to account for new or increased costs. “Surcharges” may seem more benign than direct price increases. Still, they need to be considered with an eye towards compliance with local price gouging laws.

Despite the continued implementation of state price gouging laws, many companies have been able to legally raise their prices by relying on exceptions related to cost increases. Many have asked whether the exception nevertheless presents risk to the extent it is used as a basis to maintain current margin levels. While this is not a settled question, there are good arguments that cost increase exceptions would typically permit a company to maintain its current margin levels.

As new restrictions addressing the economic impacts of COVID-19 continue to be proposed, some are targeting price increases for services. Businesses may want to re-familiarize themselves with the “services” covered by existing price gouging laws and pay close attention to developments, as they may cover unexpected areas.

In response to the current pandemic, antitrust enforcers at the Department of Justice have been issuing business review letters at record pace. One of these business review letters addressed an inquiry from the pork industry about reducing supply based on the COVID pandemic disruption. This raises the question as to whether the DOJ letter about antitrust has any application to increases in price and price gouging statutes.