On September 23, 2020, the New York Supreme Court dismissed Attorney General Letitia James’ lawsuit against Quality King Distributors alleging that the wholesaler unlawfully increased the price of its Lysol products. In a decision no longer than a page, Judge Eileen A. Rakower found that Quality King’s prices were neither “unconscionable or overall extreme.”
Six months into the states of emergency triggered by the COVID-19 pandemic, there is a sizeable amount of data on how prices have actually moved, potentially leading to more private actions as plaintiffs now have the opportunity to review prices retroactively and establish claims based on hard data.
Price gouging laws have become more relevant than ever, but a historical review reveals that price gouging laws may be a historically recent, and misguided development. It was not until 1979 that New York State enacted the nation’s first law explicitly targeted at price gouging.
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.
Since the ongoing states of emergency were put in place in response to a health crisis, pricing in the pharmaceutical industry is under more of a microscope than usual. While the immediate focus may be on products that are used to diagnose, treat, or prevent COVID-19, price gouging laws cover a wide variety of pharmaceutical products covering the full range of conditions. Given the current and proposed regulations that may impact pricing, companies should remain mindful of their price gouging compliance policies when considering pricing movements during the states of emergency.
Price gouging enforcement is at an all-time high, but many ambiguities about the application of these state laws remain. Among the many questions left unanswered: what does a statute mean when it says “trade area” or “market area”? Many laws refer to the price at which the same or similar good or service is available in the “trade area” or “market area,” but do not provide a definition. Does it mean goods or services sold within a city or county? Or the entire state? What about sellers who offer goods or services in an area that borders another state, especially one without a price gouging law? With no direction provided, antitrust law principles may provide some guidance.
Much of the discussion to date regarding price gouging laws has rightly focused on the two core elements of a price gouging lawsuit: what constitutes a violation and what are the defenses? And while these defenses are valid, most would prefer to never have to spend the time and expense getting a case dismissed in the first place – raising the question of whether a declaratory judgment may be the right solution.