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.

---

^{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.‎