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Buckley Commentary & Analysis

"Price-gouging a priority as pandemic persists" by Michael N. Morrill

Buckley Commentary & Analysis

Michael N. Morrill

One of the federal government’s most immediate responses to the coronavirus crisis was a highly visible campaign against profiteering. While the absence of an overarching federal anti-price gouging statute has forced prosecutors to improvise and legislators to contemplate new laws in order to stymie this behavior, we expect the government to continue to take aggressive action against price gougers during the pandemic.

Federal prosecutions follow invocation of the Defense Production Act

On March 18, 2020, President Trump signed Executive Order 13909, invoking the powers vested in the president by the Defense Production Act of 1950. One provision of the DPA provides that in order to prevent hoarding, “no person shall accumulate (1) in excess of reasonable demands of business, personal, or home consumption, or (2) for the purpose of resale at prices in excess of prevailing market prices, materials which have been designated by the President as scarce materials or materials the supply of which would be threatened by such accumulation.” In conjunction with this provision and as part of the Executive Order, the president found that “health and medical resources needed to respond to the spread of Covid-19, including personal protective equipment and ventilators, meet the criteria specified in section 101(b) of the Act.”

On March 24, 2020, Attorney General Barr created a task force charged with addressing hoarding and price gouging and wrote in an accompanying memorandum to all U.S. Attorneys that the Department of Justice would “aggressively pursue [action against] bad actors who amass critical supplies either far beyond what they could use or for the purpose of profiteering.” In early April, he released a further statement asserting that the task force is “working tirelessly around the clock with all our law enforcement partners to ensure that bad actors cannot illicitly profit from the Covid-19 pandemic facing our nation.”

Several subsequent federal prosecutions have invoked the DPA.  On April 24, 2020, federal prosecutors in the Eastern District of New York filed a criminal complaint against a man who had ordered 1.6 tons of face masks, 2.2 tons of surgical gowns, 1.8 tons of hand sanitizer, and 253 pounds of thermometers, and then sold the products at markups ranging from 59% to 1,328%. A few days later, federal prosecutors from the same district filed another complaint against two individuals who had stockpiled millions of units of personal protective equipment and were allegedly attempting to sell them at markups of over 50%. In both cases, the DOJ emphasized the involvement of the Price Gouging Task Force in the prosecutions.

On May 21, federal prosecutors in the Southern District of New York filed a criminal complaint against a man alleging a criminal conspiracy to violate the DPA by hoarding various types of respirator masks for the purpose of price gouging. And on May 26, prosecutors in the SDNY charged a licensed pharmacist with violating the DPA after accumulating N95 masks and selling them at inflated prices.

Potential new legislation

Congress has proposed at least five different versions of a new federal anti-price gouging statute (S.’s 3574 and 3853, and H.R.’s 6264, 6450, and 6472). Although each proposed law attacks the problem in a slightly different way, the one with the most co-sponsors (28 at the time of writing is H.R. 6472, the “Covid-19 Price Gouging Prevention Act.” The bill’s key provisions include:

  • Limiting protections to the “duration of the public health emergency” related to Covid-19
  • Prohibiting the sale of any goods at a price that is both “unconscionably excessive” and “indicates the seller is using the cir­cum­stan­ces related to such public health emergency to increase prices unreasonably”
  • Detailing factors for prosecution, including whether the price “grossly exceeds” either the price that the individual had been selling the good prior to January 31, 2020, or the price that other similarly situated sellers had been selling the good in the same time period (with a caveat for “additional costs, not within the control” of the seller)
  • Placing enforcement of the bill under the Federal Trade Commission’s authority, while also allowing state attorneys general to bring actions in federal court.

If enacted, H.R. 6472 (or any legislation similar to H.R. 6472) would significantly expand the potential for prosecution beyond the range of those items that have been designated as scarce materials by the president, as is the case for prosecutions under the DPA. Instead, excessive pricing of any goods or services could be illegal under the proposed statute. However, the proposed bill has not been scheduled for committee consideration yet.

More prosecutions ahead

For at least the duration of the coronavirus pandemic, it appears that the federal government will continue to be aggressive in combatting price gouging. Further enforcement actions should be expected in the coming months, especially as market disruptions continue not just in the personal protective equipment space, but also in consumer products such as toilet paper and disinfectant, and now various parts of the food supply. Federal prosecutors are not waiting for new authority from Congress, but certainly would use any tools added to their arsenal.

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