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April 4, 2020

Price Gauging Rules During an Emergency

The President has issued an executive order pursuant to the Defense Production Act which prohibits hoarding and price gouging.  Manufacturers and distributors of PPE (personal protective equipment) want to know exactly what they are prohibited from doing. 

Consider a PPE distributor who before the Coronavirus emergency purchased PPE overseas, imported the equipment into the United States, and sold said equipment to doctors and hospitals for a profit.  That same equipment now may cost the PPE distributor multiple times what it used to cost to acquire the equipment.  If the distributor acquires more PPE at that higher price and imports it into the United States, can he pass on those additional costs to the ultimate purchaser without fear of violating price gouging laws?  After all, the price of PPE may go up but the distributor's profit margin's may stay the same.

For more guidance we go to the statutes.  On a federal level this issue is governed by 50 U.S.C. 4512 which provides: "no person shall accumulate (1) in excess of the 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 . . . ."

The biggest question the statute leaves unanswered is, what are "prices in excess of prevailing market prices?"  What is the prevailing market price in a time like this?  Unfortunately, there is no clear answer to this question on a federal level.  I've searched all over for guidance on the issue and have found none.

Florida has its own price gouging statute which luckily is a little more specific.  Section 501.160 of the Florida Statutes provides that it is unlawful during a state of emergency for  a person to sell at an "unconscionable price"  essential commodities.

So, what does "unconscionable price" mean?  The statute provides that there's prima facie evidence that a price is unconscionable if  "the amount charged represents a gross disparity between the price of the commodity . . . and the average price at which the commodity [was sold] in the usual course of business during the 30 days immediately prior to a declaration of a state of emergency, unless the increase in the amount charged is attributable to additional costs incurred in connection with the . . . sale of the commodity . . . ."

So, Florida looks at the price of the commodity during the 30 days immediately prior to the emergency.  But importantly, it also takes into consideration increases in additional costs in connection with the sale of the commodity.

At this time, the United States is in desperate need of PPE.  You don't want people hoarding or price gouging with respect to PPE but you also don't want to scare off well intentioned distributors of PPE

Its unfortunate there isn't more federal guidance on this issue.