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Law360 (April 23, 2020, 10:56 PM EDT) -- COVID-19 has hurled price-gouging regulations into the federal domain, colliding with state laws and creating what a former top antitrust enforcer with the U.S. Department of Justice calls a "tricky" situation for attorneys and companies alike.
Speaking Thursday on video at a conference hosted by the Ethics & Compliance Initiative, Ann O'Brien, who joined BakerHostetler as a partner in February after 20 years at the DOJ, said she's experienced a huge uptick in calls from clients grappling with the federal and state laws.
"I've spent a shocking amount of time answering questions on price gouging since the COVID crisis began, [as] it's not really a clear area," O'Brien said. "This is going to be a continuing issue through this crisis and for quite a long time."
O'Brien noted that price gouging rarely came up during her DOJ tenure because the regulations typically fall under state purview. That changed when on March 23 President Donald Trump made the government order inciting the Defense Production Act.
While intended to prevent egregious abuses, O'Brien said the rules are difficult to navigate in part because they're at odds with typical antitrust regulations that give merchants broad freedoms over the prices they charge.
"They really are different from the traditional goals of antitrust laws," O'Brien said. "They aren't promoting competition and free-market principles. They are putting caps on prices, which is not typical. But that's the world we're in now."
Disaster emergencies have triggered price-gouging regulations in 38 states, while the DFA and a subsequent order from U.S. Attorney General William Barr made it a potential misdemeanor to sell certain "essential" products above market prices. The essentials, as described by the U.S. Department of Health and Human Services, include everything from disinfectants and personal protective gear to ventilators.
Plenty of gray areas between the federal and state rules can create confusion, O'Brien said. The U.S. government has defined price gouging as setting prices above "prevailing market prices." Some states say it's an increase of 10% above norms while others define it simply as an "excessive" or "unreasonable" hike.
Federal penalties include up to one year in prison and a fine of up to $10,000. State penalties entail the same for jail time but a fine of only up to $1,000, O'Brien explained.
She acknowledged that public concern about price gouging is understandable — noting that "no one wants to pay exorbitant prices" — and cited various jarring abuses. For example, New York Attorney General Letitia James sent cease-and-desist letters to a Manhattan hardware store charging $79.99 for hand sanitizer and Queens grocer selling disinfectant spray for $14.99.
California Attorney General Xavier Becerra fielded complaints of retailers selling two 1-liter containers of hand sanitizer for $140 and eight half-gallons of bleach for $100. Maine investigators looked into a convenience store selling $10 toilet paper rolls, and Tennessee officials even tracked down a store selling $1 squirts of hand sanitizer.
But in the normal course of business, O'Brien noted that the laws may raise broader concerns for legitimate companies with the artificial pricing caps, backfiring by dissuading legitimate businesses from making and selling badly needed supplies.
"There's an additional concern here that these types of price caps may disincentivize bringing more essential products to the markets where they're vitally needed — those [companies] who might get into an industry otherwise," she added.
To avoid inadvertently getting caught in the net of regulations, O'Brien advised that companies avoid tying prices to market factors and instead follow their historical pricing norms. Companies should document reasons for price increases, she said, adding that most states have exceptions when the hikes are tied to increases in input costs. She also urged companies to keep a close eye on their distributors' pricing to make sure they are behaving fairly.
--Editing by Breda Lund.
For a reprint of this article, please contact reprints@law360.com.
