The COVID-19 pandemic has caused massive disruptions in the production and distribution of goods across the globe, leading to shortages, peaks in demand and price volatility across a large number of products in many industry sectors.
Governments across the globe are actively monitoring market developments and increasingly investigating businesses for exploiting customers by charging excessive or unfair prices, on the basis of antitrust, consumer protection and ‘price gouging’ prohibitions. Some governments also have introduced, or warned businesses that they might introduce, product-specific price regulation.
Companies must continue to remain diligent when adapting their pricing strategy in the current regulatory environment, particularly given the risk of a second wave of the COVID-19 pandemic.
This alert outlines the global enforcement trends in relation to excessive pricing and price gouging, explains the relevant key rules and provides practical guidance to businesses on how to avoid potential enforcement risks and the basic steps in response to sudden and significant price increases by a supplier.
Our forthcoming Global Antitrust and Competition Guide provides more detailed guidance on the relevant price gouging regulations for key jurisdictions (EU, France, Germany, the UK, US and China). For queries or further information, please contact any of the authors to this alert or anyone from the Reed Smith Antitrust and Competition Team.
Practical implications for businesses
- Businesses with market power in the EU and other jurisdictions that prohibit excessive prices under antitrust rules and all businesses (irrespective of market power) in jurisdictions with specific price gouging laws, like the United States and China, must carefully assess any significant increases to their pre-crisis pricing. This applies, in particular, to businesses active in sensitive sectors, such as health care products, medical equipment and food.
- There may be valid, objective, and lawful reasons to increase prices even in times of COVID-19 (unless products are subject to regulated price caps). This can be as a result of increases in input costs (due to supply chain disruptions) and/or production costs (due to sudden expansion of production/capacity).
- To mitigate risk, companies should use objective criteria for pricing their products (in particular, products that are considered scarce in the current COVID-19 crisis), document the legitimate business reasons for the price increases, and explain the objective need for price increases in external customer communications. In case of doubt, they should consult their legal counsel in the first instance.
- Where businesses are exposed to sudden price increases (and commercial negotiations are no longer feasible), recourse may be sought before antitrust or other competent authorities and/or courts for injunctive relief and/or damages.
Important reminder: Any agreement with competitors to fix prices (or pricing components), allocate customers, and/or the exchange of related information is strictly prohibited and tends to result in heavy fines. In some jurisdictions, such as the EU, stricter antitrust rules apply that prohibit suppliers from fixing their distributors’ resale prices or setting minimum resale prices. These rules generally apply regardless of the level of the price or the parties’ market position. Violations of antitrust rules are also likely to trigger private damages claims, which can include treble damages, attorneys’ fees and no right to contribution in certain jurisdictions, such as the United States.
Significant enforcement across the globe
Since the outbreak of COVID-19, governments across the globe have been actively monitoring the market and investigating businesses for charging excessive or unfair prices, based on antitrust, consumer protection and price gouging prohibitions.
In Europe, the European Commission (EC) and the member states’ national competition authorities have highlighted excessive pricing as a major area of concern in the context of COVID-19: “It is of utmost importance to ensure that products considered essential to protect the health of consumers in the current situation (e.g. face masks and sanitizing gel) remain available at competitive prices.”1 EU Commissioner Vestager further emphasised that “a crisis is not a shield against competition law enforcement” and that the EC “will stay even more vigilant than in normal times if there is a risk of virus-profiteering”. This sentiment has been echoed by many national competition authorities.
On 18 June 2020, the UK Competition and Markets Authority (CMA) launched investigations against four pharmacies and convenience stores for alleged excessive pricing of hand sanitiser products.2 There have also been a number of antitrust investigations across the EU, including in Greece,3 Italy,4 Portugal5 and Spain.6 Antitrust regulators in Europe have increasingly pursued excessive pricing cases in recent years, and the COVID-19 crisis has again shown that authorities remain vigilant. This trend is likely to continue post-COVID-19. In addition, certain competition authorities in Europe (e.g., in the UK, Italy and Poland) also have powers to investigate violations of consumer protection laws and are making use of them in the COVID-19 crisis.
In the United States, price gouging laws are predominantly enforced at state level on the basis of specific price-gouging or more general consumer protection statutes. Many US state attorneys general issued warnings against price gouging and are more active than ever in monitoring prices and enforcing price gouging laws, including in New Jersey,7 New York8 and Michigan,9 and lawsuits are pending before U.S. courts. At the federal level, President Trump signed an executive order10 in March 2020 aimed at preventing price gouging and the hoarding of crucial medical supplies needed to fight COVID-19. The Department of Justice (DOJ) is also prioritising fraudulent activity and price gouging involving vital supplies needed to fight COVID-19.11 Similar enforcement trends can be observed across the Americas, including in Canada12 and Brazil.13
Excessive pricing and price gouging have also been subject to scrutiny by regulators across Asia. In the People’s Republic of China (PRC), the government has issued various notices and regulations on price gouging in response to the COVID-19 outbreak and launched a number of investigations into price gouging behaviour. In the peak period between February and March 2020 alone, about 14,000 cases of illegal price hikes of coronavirus-related materials were filed for investigation, among which more than 7,900 cases were verified and relevant business operators punished. Authorities in the wider region, including in Taiwan14 and Indonesia,15 have also taken action against price gouging and excessive pricing.