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    March 18, 2021 Articles

    Lessons from COVID-Era Litigation at the Intersection of Price Gouging and Unfair Competition Relating to Medical Supplies

    An overview of the law governing price gouging claims from a broad multi-jurisdictional perspective and lessons learned from the string of novel price gouging litigation in the medical context.

    By Christopher W. Tackett

    The global coronavirus pandemic has been a source of many challenges and many lessons for the legal profession. The virus has presented novel situations that have stretched and tested our legal frameworks around the country to deal with unprecedented situations. One traditionally rare claim area that has seen an explosion of litigation activity is the area of alleged price gouging. During the pandemic, there has been a rush of price gouging claims involving medical supplies and COVID-related personal protective equipment (PPE) in high demand. There have also been a lot of questions about whether manufacturers or retailers can raise prices of certain products to account for soaring demand. To address these topical issues, this article provides an overview of the law governing price gouging claims from a broad multi-jurisdictional perspective and discusses lessons learned from the string of novel price gouging litigation in the medical context.

    Price gouging statutes vary greatly across the United States, yet there are common themes throughout most of the statutes. This article does not attempt a 50-state survey; instead, it intends to give a general overview of the statutes governing price gouging litigation and how medical supply price gouging litigation has broadened the scope of the types of claims we may see in the future.

    Price gouging claims typically arise from claims that consumers are being taken advantage of with unconscionably excessive prices, an issue that is reviewed under a nebulous, subjective standard in many states. During the pandemic, however, there have also been unique price gouging claims raised by manufacturers to address unfair competition and protect the precious reputation of their brand. Specifically, as discussed below, manufacturers have asserted that unauthorized vendors have counterfeited their products, or sold their trademarked products without authority, to capture unmet demand, while also engaging in price gouging.

    Legal Framework of Price-Gouging Litigation

    Generally, state statutes prohibiting price gouging and general consumer protection laws are the vehicles through which price gouging litigation arises. Many states’ specific price gouging statutes do not provide a private right of action for price gouging. Instead, prosecutorial rights are often vested in the attorney general’s office. See, e.g., Ala. Code § 8-31-6 (disallowing private right of action); D.C. Code § 28-4103 (same). But state attorneys general are not the only ones who may enforce price gouging laws through civil litigation. Many states also provide a private right of action for victims of price gouging. Depending on the state, private litigants may seek injunctions, civil penalties, or even damages under state price gouging statutes and consumer protection laws. See, e.g., N.J. Stat. Ann. § 56:8-19; N.C. Gen. Stat. § 75-16 (providing for a private right of action under North Carolina’s consumer protection law, which allows victims to recover treble damages, as well as attorney fees, if a court finds that a defendant willfully engaged in price gouging).

    Most state price gouging statutes go into effect automatically upon declaration of an emergency and apply to all good and services. States generally define price gouging as either “unconscionable” or “excessive” increases in the price of consumer goods, or by specifying a percentage increase in price that is unlawful. See, e.g., N.Y. Gen. Bus. Law § 396-r (defining price gouging as an “unconscionably excessive price”); 73 Pa. Stat. § 232.4(b) (defining price gouging as a “price increase of twenty percent or more than the average price during the last seven days immediately prior to an emergency”). Some states, however, restrict price gouging claims to apply only to certain types of products or solely to an enumerated list of goods and services. See, e.g., 14 Ill. Admin. Code § 465.30 (restricting application of price gouging statute to petroleum-related businesses only); Ga. Code Ann. § 10-1-393.4 (requiring Georgia governor to identify the specific products and services that are subject to the price gouging law during a declared emergency). Remedies in price gouging litigation generally include injunctive relief, restitution, and civil penalties. But criminal charges may be pursued in a few states. N.Y. Gen. Bus. Law § 396-r; Ind. Code §§ 4-6-9.1-3, 4-6-9.1-5; Miss. Code Ann. § 75-24-25(3), (4). Because of the many differences among the various state statutes, it is critical that businesses consult with a local attorney who has experience in this area for review of their state’s particular statutes to ensure compliance or to respond to any price gouging claims that arise.

    There is currently no federal legislation directed at price gouging; however, members of the House of Representatives introduced the COVID-19 Price Gouging Prevention Act in April 2020, aimed at prohibiting price gouging and vesting enforcement authority in the Federal Trade Commission and the states’ attorneys general. H.R. 6472, 116th Cong. (2019–2020) (passed by the House on May 15, 2020). The act states that during the public health emergency, it “shall be unlawful for any person to sell or offer for sale a good or service at a price that—(1) is unconscionably excessive; and (2) indicates the seller is using the circumstances related to such public health emergency to increase prices unreasonably.” Similar to state laws, the act includes a number of factors to be considered in determining whether prices are excessive. The act has still not been voted on by the Senate and will likely not be passed because the effort has lost momentum.

    Notable Price Gouging Litigation Regarding Medical Supplies

    One of the most publicized efforts to combat medical supply price gouging involved manufacturing giant 3M’s litigation to control disbursement of its N95 masks by unauthorized retailers at significantly marked-up prices. See, e.g., 3M Co. v. Performance Supply, LLC, 458 F. Supp. 3d 181 (S.D.N.Y. May 4, 2020). In the Performance Supply case, 3M alleged that defendant Performance Supply was improperly using 3M’s trademark to sell N95 masks at increased prices to consumers, including government agencies. Id. at 184. At the outset of the pandemic, 3M confirmed publicly that it would not increase the prices of its N95 masks. Id. at 188. To further combat potential opportunistic price gouging, 3M also posted a price list for its masks and created a fraud reporting system through which consumers could report suspected instances of price gouging. Id. at 189. Attempting to pass itself off as an authorized vendor of 3M products, Performance Supply sent a formal quote offering to sell large quantities of 3M masks to a purchasing agent at New York City’s Office of Citywide Procurement, quoting a price five times that contained on 3M’s quoted price list. Id. at 190–91. The city agent contacted 3M to verify the sale and discovered Performance was not actually associated with 3M, and the city voided the transaction. Expecting repeat offenses from Performance Supply, 3M then sought injunctive relief to prevent Performance from attempting another fraudulent sale of N95 masks to other government or healthcare entities. Id. at 191. The court granted 3M’s requested injunction, finding (1) that Performance Supply’s attempted price gouging and misuse of 3M’s trademarks would result in irreparable harm to 3M and (2) that 3M was likely to succeed on its trademark and price gouging claims. Id. at 198–99.

    3M has successfully pursued other unauthorized vendors under similar circumstances, as several other vendors have attempted to unfairly compete and fraudulently reap rewards from 3M’s products and reputation, while price gouging at the same time. The 3M litigation is instructive on another avenue open to businesses to address unfair competition and fraudulent sale of their products. In other words, price gouging claims may also be a sword for businesses that manufacture products experiencing soaring demand that may well attract bad actors looking to make a quick buck.

    The Traditional Context of Price Gouging Litigation and Its Expansion During the COVID-19 Pandemic

    While businesses must absorb lessons from the 3M litigation about price gouging, manufacturers and suppliers of high-demand goods must also be mindful of statistically significant increases in pricing that occur during times of emergency, and they should consult counsel about any risk exposure. As businesses know, all sorts of factors may cause increases in production costs that necessitate a price increase but are not price gouging per se. In fact, many businesses have experienced numerous challenges during the pandemic that have increased costs or lowered profits. Nonetheless, businesses should be mindful about the potential of price gouging claims for rapid raises in pricing.

    At the outset of the pandemic, price gouging litigation activity primarily centered on medical supplies; however, further claims have broadened over the course of 2020 to include a wide range of products and business types. One example of litigation involving a ubiquitous consumer item is a lawsuit initially filed in Texas accusing egg producers of unlawfully increasing their prices during the COVID-19 pandemic, which then spurred similar litigation in other states, including California and New York. See Texas v. Cal-Maine Foods, Inc., No. 20205427 (Tex. 215th Dist. Ct. Harris Cty. Apr. 23, 2020), appeal docketed, 2020 WL 7421939 (Tex. App. 1st Dist.); Frazer v. Cal-Maine Foods, Inc., No. 3:20-CV-2733 (N.D. Cal. Apr. 20, 2020).

    Because price gouging laws will likely be considered to more broadly apply throughout most of 2021 due to the presumed extension of most states of emergency, businesses need to continue to more carefully evaluate price increases. Furthermore, it is likely that the increase in price gouging claims during the pandemic will lead the plaintiffs’ bar to ramp up claims of price gouging in coming years regarding a variety of price increase activity on consumer goods or services.

    Christopher W. Tackett is a shareholder at Roetzel & Andress, LPA, in its Columbus, Ohio, office.

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