Locke Lord QuickStudy: Merchants Beware: Price Increases Caused by the COVID-19 Pandemic Are Now Subject to Aggressive Enforcement Under State Price-Gouging Laws
Updated on March 13, 2020, 2:00 PM CDT
UPDATE: On March 13, 2020, Governor Greg Abbott issued a proclamation certifying that COVID-19 poses an imminent threat of disaster in Texas and declaring a statewide public health disaster for all counties in the state.
Antitrust laws generally are aimed at preserving free and unfettered competition. They rest on the underlying premise that unrestrained competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality, and the greatest material progress.1 Under this fundamental economic theory, prices for goods and services should be determined by normal supply and demand factors in the relevant market.
An exception to this general principle can occur when natural disasters and other crises strike – whether they be hurricanes, uncontrollable wild fires, widespread flooding, or pandemics. In these situations, basic necessities such as drinking water, food, gasoline, and medical supplies may become scarce at the same time the demand for these products is surging. This temporary imbalance in economic bargaining power can lead to “price-gouging,” which refers to the practice of raising prices to exorbitant or unconscionable levels on goods and services that are in high demand and limited quantity during natural disasters or other emergencies.
While price-gouging generally is outside the scope of federal antitrust laws, more than half the states prohibit price-gouging during a time of crisis under their unfair or deceptive trade practices statutes. Most of these laws provide for civil penalties, as enforced by the state attorney general, while some states also enforce criminal penalties for price-gouging violations.2
Product Shortages and Price Increases Caused by COVID-19
As the infection rates for the novel Coronavirus disease (COVID-19) continue to grow around the world,3 so too does the possibility of shortages for a wide variety of medical and consumer products, including personal protective equipment, respirators, hand sanitizer, and even toilet paper.4 These shortages can be caused by supply chain disruptions and an increase in demand, which raises the concern that some merchants will engage in price-gouging.
Examples of price-gouging caused by COVID-19 already have occurred on Amazon and eBay. According to price tracker Keepa.com, Purell hand sanitizing wipes sold on Amazon.com jumped in price from $11.88 in January 2020 to $199.99 on March 4, while prices for Germ-X foaming hand sanitizer surged from $10.00 in mid-January to $49.95 on February 28. On eBay, a 6-ounce container of Purell’s hand sanitizer had jumped in price to $55.00 on March 5, 2020, which equates to $9.17 per ounce. Amazon officials have said they are monitoring listings for price-gouging and are blocking or removing those they suspect of it. eBay also announced that it was banning listings for hand sanitizers, masks, and disinfecting wipes, and that it will “quickly remove” listings other than books that mention coronavirus or COVID-19.6
Texas Governor and Attorney General Warn Companies Against Price-Gouging in Connection with COVID-19
On March 6, 2020, Texas Governor Greg Abbott and Attorney General Ken Paxton issued a Joint Statement regarding recent reports of price-gouging for medical supplies in Texas. As part of Texas’ efforts to combat the potential threat of COVID-19, the Texas officials issued a warning to businesses attempting to exploit the threat for monetary gain: “Price-gouging is un-Texan and will not be tolerated in our state. . . . We will work to combat any attempt to exploit public health and safety for monetary gain.” To assist the Office of the Texas Attorney General (OTAG) in identifying cases of price-gouging, the Joint Statement asks Texans to file consumer complaints if they suspect a business is price-gouging in connection with the outbreak of COVID-19.
Liability for Price-Gouging During a State of Disaster
The Joint Statement serves as an important warning for merchants, as it emphasizes the Governor’s authority under § 418.014 of the Texas Government Code to “declare a state of disaster if the governor finds a disaster has occurred or that the occurrence or threat of disaster is imminent.” On March 13, 2020, Governor Abbott used this authority to declare a state of disaster for all counties in Texas. This declaration of “disaster” is important because it triggers potential liability for price-gouging under the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA). Under the statute, “false, misleading, or deceptive acts or practices” subject to action under the DTPA include “taking advantage of a disaster declared by the governor . . . or by the president of the United States by:
(A) selling or leasing fuel, food, medicine, lodging, building materials, construction tools, or another necessity at an exorbitant or excessive price; or
(B) demanding an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine, lodging, building materials, construction tools, or another necessity.”7
Now that a state of disaster has been declared by the Governor, the OTAG has broad powers under the DTPA to prosecute these types of price-gouging and may pursue civil penalties of up to $10,000 per violation, plus an additional penalty of $250,000 if the act or practice was calculated to deprive money or property from an elderly victim.8 The Governor’s announcement of the disaster included a specific reference to the OTAG’s power to pursue acts of price-gouging that occur during this disaster period.9
Merchants also should not assume that they are safe from liability for price-gouging just because they raised prices before the state of disaster was declared. Under § 17.4625 of the DTPA, the “designated disaster period” for liability can actually encompass the period beginning on the “date the disaster occurs,” which unlike many natural disasters, is not clear for the outbreak of COVID-19.
Historical Example of Price-Gouging in Texas
The power to prosecute cases under the DTPA during a state of disaster was used most recently by the OTAG in connection with the disaster declaration for Hurricane Harvey. As of May 2019, the OTAG had finalized 61 Hurricane Harvey-related price-gouging settlements (totaling $307,801) with gas stations across Texas.10 These included agreed final judgments and permanent injunctions against two gas stations for selling fuel at exorbitant or excessive prices.11 Both gas stations agreed to pay $17,500 in civil restitution to refund Texans who were charged up to $9.99 per gallon of gasoline.
Price-Gouging Statutes in Other States
In addition to Texas, numerous other states have statutes intended to protect consumers from price-gouging during disaster periods. While there are some consistent elements to these price-gouging statutes, they do vary across the states. In Arkansas and California, for example, the violation is determined in part on whether the person increased its price more than 10% from the price charged before the disaster declaration.12 Pricing decisions by merchants therefore require a state-by-state analysis to determine if they violate a price-gouging statute.
In at least three states – California, New York, and Washington – the state attorneys general have issued recent warnings similar to the one issued in Texas. Businesses should assume that other states are likely to follow.
Visit our COVID-19 Resource Center often for up-to-date information to help you stay informed of the legal issues related to COVID-19.
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1 Northern Pacific Railway v. U.S., 356 U.S. 1, 4 (1958).
2 See Price Gouging Laws by State, FindLaw, found here.
3 On March 11, 2020, the World Health Organization declared the current outbreak of COVID-19 a “pandemic,” which was last used in 2009 when the WHO gave the designation to a new strain of H1N1 influenza.
4 As the virus has spread into the U.S., the outbreak has caused disruptions in supply and shortages of medical products. In response, the Food and Drug Administration is closely monitoring the U.S. market supply for human drugs and medical supplies.
5 https://www.vox.com/recode/2020/3/5/21164622/coronavirus-amazon-hand-sanitizer-price-gouging
6 https://community.ebay.com/t5/Announcements/UPDATE-Important-information-about-listings-associated-with/ba-p/30734312
7 Tex. Bus. & Com. Code § 17.46(b)(27).
8 Id. § 17.47(c).
9 https://gov.texas.gov/news/post/governor-abbott-holds-press-conference-on-coronavirus-declares-state-of-disaster-for-all-texas-counties
10 https://www.texasattorneygeneral.gov/news/releases/ag-paxton-6-gas-stations-agree-refund-customers-hurricane-harvey-price-gouging
11 State of Texas v. Encinal Fuel, LLC d/b/a Encinal Fuel Stop, No.17-09-00133-CVL, Agreed Final Judgment and Permanent Injunction, State of Texas v. Lafayette C-Store, LLC d/b/a Tejano Mart 505, No. 2017CVH002608D1, Amended Agreed Final Judgment and Permanent Injunction,
12 Ark. Code § 4-88-303; Cal. Penal Code § 396.
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