Price GougingFederal and state authorities are creatively using the Defense Production Act (“DPA”), state anti-price gouging and consumer protection statutes, and antitrust laws to go after alleged price gougers and hoarders. This article, the final in our series on anti-hoarding and price gouging enforcement efforts, takes a look at various ways businesses can avoid liability.

The Laws Are Unconstitutionally Vague

Generally, laws may be declared unconstitutionally vague for two reasons. First, because they fail to provide people of ordinary intelligence with a reasonable opportunity to understand what conduct is proscribed. Second, because they lack explicit standards, thereby inviting arbitrary or discriminatory enforcement.

Many anti-hoarding and price gouging laws contain unclear and ambiguous terms such as excessive and exorbitant. The DPA, for example, bars the resale of scarce or threatened items “in excess of prevailing market prices,” yet it provides no definitions, instruction or other guidance for determining the meaning of that phrase.

While the intentions of lawmakers may have been clear when enacting these laws, the language used to draft them is not and several federal and state anti-hoarding and price gouging laws around the county may satisfy both tests for unconstitutional vagueness.

Good Faith Price Increases Caused By Rising Costs

Several articles have been written on the on the impact of COVID-19 to supply chains in various industries. The pandemic has led to increased procurement and production costs for many companies.

Quite often, anti-price gouging laws provide safe harbor provisions for sales price spikes tied to a rise in production costs. For example, Ohio’s proposed anti-price gouging legislation, Senate Bill 301, would provide affirmative defenses for price increases “related to any reasonable but unforeseen circumstances” including, but not limited to, supply chain cost increases, government actions, or an “intentional effort” by a business to add “objective value” to its products or services.

Antitrust and Consumer Protection Laws Don’t Apply  

While some authorities have tried to use antitrust laws as enforcement mechanisms, actions brought solely under the Sherman Act and state law equivalents will fail unless the price gouging is a conspiracy amongst competitors, which is not something that is typically alleged in these types of prosecutions.

Actions brought solely under consumer protection acts would have similar problems because those statutes typically only protect consumers. For instance, the Ohio Consumer Sales Practice Act (“OCSPA”) applies only to transactions between suppliers and individuals for the purchase of personal, family, or household goods or services. As such, a company could avoid liability for price gouging by showing that the transaction at issue involved another business or non-consumer. Moreover, “good faith errors” made notwithstanding compliance with procedures adopted to adhere to the OCSPA are exempted from liability.

Federal and state authorities are under immense pressure to investigate COVID-19-related wrongdoing. Still, in seeking harsh civil and criminal penalties, these agencies should be mindful of ensnaring legitimate and lawful commercial conduct. Moreover, these agencies should not twist or manipulate otherwise inapplicable or constitutionally infirm statutes in order to pursue perceived wrongdoers.

If you or your business becomes the target of a hoarding or price gouging investigation, the lawyers of Thompson Hine LLP’s white collar criminal defense practice group can help you navigate the wide array of legal options available to avoid liability.