Price Gouging Audit

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With the federal government’s increasing focus on enforcing price gouging compliance, attention has turned to the Defense Production Act (the “DPA”). Passed in 1950 in response to the Korean War, the DPA is modelled on the War Powers Acts of 1941 and 1942 and gives the President, among other things, sweeping power to control the domestic economy during times of crisis. Despite these origins, the DPA is routinely invoked in a variety of circumstances, including in response to natural disasters like Hurricane Katrina and now COVID-19 (the DPA as later amended in 1988 is also the basis for the president’s authority to block certain foreign investment into the U.S. on national security grounds through the Committee of Foreign Investment in the U.S. – or CFIUS).

The pandemic has demonstrated that price gouging laws are not only written in an ambiguous manner, but are ambiguous as to whether they are in effect or not. A recurring problem faced by businesses is that some states are not widely circulating information about whether their price gouging laws are still active, when they expire, or whether they’ve already expired. As a result, law abiding businesses may find it difficult to find accurate, publicly available information about price gouging law end dates.

While the majority of price gouging enforcement has occurred at the state level (see Proskauer on Price Gouging — A Coast-to-Coast Reference Guide), the federal government has also been active, and several federal price gouging bills have been introduced, though none have been signed into law. See, e.g., S. 3574 (empowers the FTC and Attorney General to enforce civil and criminal penalties for price gouging); H.R. 6472 (prohibits “unconscionably excessive” pricing “indicating the seller is using the circumstances related to” the emergency to increase prices); H.R. 6264 (creates a new criminal offense for price gouging during a state of emergency); H.R. 6450 (based on California law, limits raising price of consumer goods to no more than 10% after an emergency declaration).

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.