Price Gouging Investigations: Protect Your Company Now

Price gouging complaints and investigations are already on the rise as the COVID-19 pandemic spreads. Even companies that are not in the business of producing and selling pandemic-critical supplies like facemasks or hand sanitizer may be subject to state or federal price gouging investigation if their prices increase during the pandemic. This is true whether the increase in price is the result of rising third-party costs passed through to customers, limited or dried-up supply chains, restricted shipping routes, limited or unavailable component parts, or otherwise.

If your company’s product or service prices have increased during any of the declared state or federal emergencies resulting from COVID-19, you should strongly consider engaging outside counsel now as a preventative, or at least a preparatory, measure. An increase in profit as little as 10% could subject you to state or federal investigation. Our team has assisted clients who do not provide pandemic-critical supplies in price gouging investigations. We have navigated filing motions to quash against overreaching subpoenas and responded to proper subpoenas on their behalf. We have the experience you need to navigate these complicated and stressful waters.

Early engagement of counsel is critical because your company will need to be guided through the materials it should preserve and have ready to produce in response to an investigatory subpoena. Businesses forced to raise prices during the COVID-19 pandemic should consider suspending routine document destruction policies and extending retention with respect to certain categories of documents and records. For example, one successful defense to price gouging in many states is to show that increased pricing has not resulted in increased profit margins for your business beyond certain percentages (i.e., that the increased pricing reflects other costs incurred by the business and passed through to the customer, not an attempt to raise a profit margin). Accordingly, retaining documents evidencing revenue, costs, expenses, and profits on a month-by-month basis will be important. Companies should consider the first declaration of state or national emergency that applied to their business and, counting back from that date, preserve profit and loss statements for a minimum of three to six months prior. In addition, in order to allow time for recovery, many price gouging statutes remain in effect for an extended period after the applicable state of emergency is lifted. Price gouging investigations can occur during that time, so documents should also be maintained for at least six months after the state of emergency ends.

Likewise, companies should identify and preserve, over those same time frames, all documents backing up the costs and expenses that resulted in increased pricing. Did closed shipping routes block your company’s easiest method of delivering your product? If so, you would want to document and preserve notices, communications (including emails), and news articles about the closure of the shipping routes. Did a third-party hauler you rely on to move your goods increase their rates? In that case, you would want to preserve historic and current invoices showing the hauler’s rates, any notices received regarding rate increases, and all relevant communications. Is a component part of your company’s product no longer available from a long-standing foreign partner? If yes, preserve evidence of historic costs with that partner, along with evidence of the costs associated with obtaining the component from an alternative supplier, the efforts used to scout best available pricing, and the identity of the persons involved in the decision-making.

Even with these materials safely preserved and in hand, the determination of what and how to produce documents in response to a subpoena, and how to interface effectively with state and federal authorities, can be overwhelming and challenging. That is where we will continue to be of great service to you. We have the experience needed to guide you through any investigation, assess the validity of a subpoena and challenge it in court if appropriate, and protect your interests while cooperating with state and federal authorities to close out their investigation in a timely manner.