Protection of Consumers and the Public in Response to the COVID-19 Pandemic

Federal and state authorities are working to protect consumers and the public during the current COVID-19 pandemic. The Department of Justice (DOJ) issued a cautionary press release announcing its “intention to hold accountable anyone who violates the antitrust laws of the United States in connection with the manufacturing, distribution, or sale of public health products such as face masks, respirators, and diagnostics.”[1] On March 17, the DOJ announced civil process changes including merger investigation processes, electronic filing and virtual meetings under a mass telework directive.[2]

While the federal government has no official law on the books that prohibits price gouging, in times of emergency such as these, the DOJ along with the individual states will help fill in the gaps in order to avoid untoward behavior by bad actors. Recent disaster declarations by President Donald Trump and numerous states can trigger laws related to collusive pricing practices.[3] Because states are usually the first movers when it comes to stopping price gouging during times of crisis, it is imperative to understand individual state laws related to consumer protection and price gouging.

Price gouging is clearly visible during this pandemic. Tennessee brothers Matt and Noah Colvin purchased almost 18,000 bottles of hand sanitizer with the intention of reselling them for a profit.[4] The Tennessee attorney general put a stop to their scheme.[5]

Across the country, authorities are receiving reports of outrageous prices. New York City alone has received more than 1,000 complaints, issued 550 violations and imposed $275,000 in fines for price gouging.[6] An Associated Press survey of attorneys general and consumer protection agencies nationwide found reports exceeded 5,000, with three states, including California, refusing to participate in the survey.[7]

Texas has experienced its share of natural disasters, which have triggered the same type of government response we are now seeing nationwide in response to COVID-19. It is a good case study to be familiar with for anyone who is concerned about antitrust violations as we navigate this new normal.

In Texas, if the governor declares a disaster, selling necessities at exorbitant or excessive prices following is illegal.[8] The Consumer Protection Division of the Texas Attorney General’s Office is charged with protecting consumers from false, misleading or deceptive acts or practices in the conduct of trade or commerce, such as price gouging.

As of Monday, March 16, the Texas Attorney General’s Office had received 255 consumer complaints, primarily from Houston and Dallas, regarding high-priced toilet paper, bottled water and hand sanitizer.[9] Under the Texas Deceptive Trade Practices-Consumer Protection Act, price gougers may be required to reimburse consumers and may be held liable for civil penalties of up to $10,000 per violation. An additional penalty of up to $250,000 incurs if the affected consumers are 65 years of age or older.

In 2019, the Texas Legislature produced a bipartisan response to price gouging that occurred following Hurricane Harvey – House Bill (HB) 1152. The original bill included four primary provisions: (1) incorporating a definition for disasters that include a national disaster declaration; (2) adding lodging, building materials and construction tools among the necessities subject to price protection; (3) utilizing a percentage limit (15 percent) to define price gouging; and (4) providing additional enforcement by authorizing district and county attorneys to act under the Deceptive Trade Practices-Consumer Protection Act.[10] At the time HB 1152 was introduced, 34 states had regulated price gouging and 11 of those had utilized a percentage limit to define price gouging.[11] States that use the percentage limit today permit price increases of a certain percentage of the good’s price prior to the emergency declaration. The final enrolled version of H.B. 1152 included only the first two provisions – incorporating the defined term “designated disaster period” and adding construction and lodging to the necessities list.[12]

Today, it is a civil crime under the Texas Deceptive Trade Practices-Consumer Protection Act to (1) sell or lease fuel, food, medicine, lodging, building materials, construction tools or another necessity at an exorbitant or excessive price, or (2) demand an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine, lodging, building materials, construction tools or another necessity during a declared disaster.[13]

It is important to look back at the legislation proposed in 2019 in order to see potential legislative reaction to the current pandemic. The Texas Legislature will reconvene in 2021 and proposals related to antitrust and consumer protection laws can be anticipated. Nationwide, expect legislative authorities to examine their civil and criminal prosecutorial power regarding price gouging in the midst of the considerable complaints.

BakerHostetler will continue to evaluate price gouging laws, complaints and complaint prosecutions.

[1]See Press Release, Department of Justice, No. 20-289 (March 17, 2020), (https://www.justice.gov/opa/pr/justice-department-cautions-business-community-against-violating-antitrust-laws-manufacturing).
[2]See Press Release, Department of Justice, No. 20-326 (March 9, 2020), (https://www.justice.gov/opa/pr/justice-department-announces-antitrust-civil-process-changes-pendency-covid-19-event).
[3] On March 13, Trump declared a national emergency in accordance with the Stafford Act. On March 19, Texas Gov. Greg Abbott declared the state’s first public health disaster in 119 years.
[4] Nicas, Jack, “He Has 17,700 Bottles of Hand Sanitizer and Nowhere to Sell Them,” The New York Times (March 14, 2020), (https://www.nytimes.com/2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html).
[5]Id.
[6] “$10 Toilet Paper? Coronavirus Gouging Complaints Surge in US,” The New York Times (March 19, 2020), (https://www.nytimes.com/aponline/2020/03/19/business/ap-us-virus-outbreak-profiteering.html).
[7]Id.
[8]See Tex. Bus. & Com. Code § 17.46(b)(27), § 17.4625.
[9] Dunphy, Mark, “Texas Attorney General has received 255 consumer complaints about coronavirus price gouging,” San Antonio Express News (March 17, 2020), (https://www.expressnews.com/news/local/article/Texas-AG-has-received-255-consumer-complaints-15137363.php).
[10] Tex. H.B. 1152, 86th Leg., R.S. (2019).
[11] Bill Analysis, Tex. H.B. 1152, 86th Leg., R.S. (2019).
[12]Id.
[13]See Tex. Bus. & Com. Code § 17.46(b)(27), § 17.4625.