In response to COVID-19, collaboration and cooperation among competitors in various forms may be beneficial to society. While businesses must remember that antitrust and competition laws continue to apply and take care to mitigate risk, antitrust laws should not prevent such meaningful cooperation. Nevertheless, companies should take steps now to mitigate any antitrust risks associated with their actions as enforcers will be particularly vigilant during this time and after the crisis has subsided in order to protect consumers.
Similarly, normal supply and demand forces typically dictate pricing, but significant price increases in response to temporary, crisis-driven demand spikes will generally be viewed skeptically by enforcers. In the United States, state attorneys general (AGs) have been vocal that they will not tolerate price gouging in connection with the response to COVID‑19. Moreover, the Department of Justice (DOJ) warned that it will hold accountable anyone who takes advantage of “emergency response efforts, healthcare providers, or the American people” by violating the antitrust laws. Outside of the United States, Asian and European governments are also taking aggressive action against price gouging, including imposing price controls.
We discuss below some of the more common antitrust risks in this context. It is critical that businesses continue to comply with the antitrust laws throughout the response to this public health crisis as violations carry civil and, in some cases, criminal penalties.
Businesses and industry associations may wish to collaborate on an industry-wide response to this health crisis. Coordinated efforts and responses can be procompetitive and offer significant benefits to society. In the wake of several past disasters and emergencies, organizations and coalitions have provided critical resources to help the affected communities withstand the crisis and recover after the immediate threat had passed. Such responses included ensuring access to medical resources and developing a plan for rebuilding damaged buildings and homes.
In the context of the current health crisis, companies could work together to exchange best practices regarding human resources and work policies designed to slow the spread of the virus or caution the public on detrimental practices, such as hoarding. Another potential avenue for cooperation is lobbying the government to facilitate the government’s response to the pandemic.
While the procompetitive rationale for this cooperation is clear, working in concert with competitors continues to raise antitrust risks. Businesses should keep these risks in mind if they choose to work as a part of a collective and take the necessary steps to mitigate risk. For example, it is important that businesses only enter into collaborations, and related arrangements, with competitors that are reasonably necessary to achieve the desired, procompetitive purpose. Businesses should consider whether there are alternative means to the proposed collaboration or whether the benefits could be achieved through action by the business on its own.
Businesses should also avoid exchanging competitively sensitive information, including in the context of standard setting or benchmarking activities, related to pricing, margins, or other sensitive business data.
In addition, businesses should avoid entering into agreements on price, allocation of territories or customers, or on how to respond to bids. For example, as prices go down for some products that are in lower demand during a crisis, joining with other suppliers to stop the fall in prices, or to “stop the bleeding,” by imposing a minimum price should be absolutely avoided. Agreements with competitors to hold a minimum price is just as much a violation of the antitrust laws as is an agreement to raise prices.
DOJ will no doubt be on the lookout for this type of potential conduct during, and in the wake of, the pandemic crisis. In fact, DOJ recently announced that it would hold accountable companies and individuals that violate the antitrust laws as the country weathers the COVID-19 pandemic. Specifically, DOJ noted that the entire supply chain – from manufacturing to sale – of public health items like face masks, respirators, and diagnostics are in its focus. DOJ, including the Antitrust Division, is committed to preventing and deterring violations of law, including the criminal antitrust laws, in the wake of disasters and emergencies. For example, the DOJ secured the criminal convictions of two individuals who engaged in a conspiracy and bribery scheme following Hurricane Katrina.
Seeking quick antitrust counsel now on these issues could be critical in achieving significant benefits to society and avoiding questions from antitrust enforcers in the future.
Companies are generally free to set prices for their goods and services, so long as they act independently. However, during emergencies and disasters, many state consumer protection laws curtail this freedom to prohibit price gouging. Price gouging is the practice of raising prices on certain types of products to an unfair level, particularly during an emergency.
While many states have laws on the books prohibiting price gouging, they are only in effect when a state of emergency is declared. Such laws have been triggered in recent days and weeks as more states and the federal government respond to the spreading Coronavirus pandemic. Moreover, in response to certain resellers and wholesalers sharply increasing prices for health and sanitation products in this developing crisis, state attorneys general have become active in this area, issuing warnings against price gouging and unfair trade practices, vowing to take action against violators, and alerting the public to resources designed to identify potential price gougers.
The precision of state laws prohibiting price gouging vary widely by state. States like Arkansas, California, and New Jersey have laws prohibiting companies from charging prices more than 10 percent higher than the price of an item before the state, or locality, declared an emergency. Other states use definitions that are more subjective. For example, Michigan’s law proscribes pricing “grossly in excess” of the price of similar property or services. North Carolina prohibits setting prices that are “unreasonably excessive under the circumstances.”
Regardless of the language of the statute, state attorneys general have been increasingly devoting resources to this area. The New York AG ordered two New York City merchants to cease and desist charging excessive prices for hand sanitizers and disinfectants. New York AG Letitia James warned sellers looking to “prey on others’ anxiety and line their own pockets” that her office would prosecute unlawful price gouging. The New Jersey AG announced that the New Jersey Division of Consumer Affairs is redirecting its resources and dedicating approximately 55 investigators to inspecting retail locations in response to a surge in price gouging complaints from consumers. Businesses should anticipate that state attorneys general will continue to be active in this area and take enforcement actions regardless of the jurisdiction and ensure its pricing is in compliance with the laws.
Federal antitrust laws do not address the practice of price gouging, but could apply – e.g., if a group of retailers together conspired to set prices. Some actions aimed at curbing price gouging could actually create antitrust risk for manufacturers and online platforms. For example, setting maximum resale prices could give rise to a Sherman Act Section 1 claim at the federal level or potentially violate state antitrust laws. Manufacturers or platforms acting together to crack down on price gouging by resellers, even if acting with benevolent intentions, could be exposing themselves to antitrust risk. Businesses considering these, or similar, types of efforts would be wise to seek counsel now to avoid later questions.
Price gouging is not just a focus of the United States during this health crisis – countries all over the world have taken measures to curb the practice. Chinese officials have prosecuted more than 200 cases of price gouging in connection with the COVID-19 crisis. Italian authorities have initiated an investigation into the drastic price hikes for face masks and sanitizing products. Some countries are going even further. France plans to implement price controls on hand sanitizer in response to reports of price gouging. Japan banned price gouging on the resale of face masks; violators are subject to criminal and civil penalties.
Individuals and businesses should take note of these recent announcements from law enforcement and ensure that their business practices comply with state and federal laws. In addition to staying current on the latest COVID-19 guidance from government agencies like the Centers for Disease Control and Prevention, businesses should remain informed of the latest thinking on how COVID-19 could affect their business and legal obligations.
* Morrison & Foerster associate Eric Olson assisted in the preparation of this client alert.
 There are many more examples of activity at the state level, including: