Price Gouging and Deceptive Advertising Practices Amidst COVID-19 Pandemic
The Federal Trade Commission, the Food and Drug Administration and state Attorneys General have bumped the protection of consumers in the midst of the COVID-19 crisis to the top of their respective lists, including, but not limited to, price gouging and unsubstantiated product efficacy claims. The U.S. Department of Justice has also issued a broad mandate regarding criminal enforcement of deceptive, fraudulent and predatory practices.
State Attorneys General
State Attorney General have actively been policing the advertising of claims related to products that purport to cure, treat or prevent COVID-19. This includes both express and implied claims (e.g., immunity-based claims).
Currently are no vaccines, pills, potions, lotions, lozenges or other prescription or over-the-counter products to treat or cure.
By way of example, a group of thirty-two state attorneys general recently sent letters to executives at prominent online retailers, urging them to help police price gouging. Additionally, the New York Attorney General has asked GoDaddy and other online registrars to halt and de-list domain names used for Coronavirus-related scams and fake remedies designed to unlawfully and fraudulently profit off consumers’ fears around the coronavirus disease.
The NY AG has also recently contacted Craigslist.com, calling on the company to immediately remove posts that attempt to price gouge users, or otherwise purport to sell items that provide “immunity” to the coronavirus or allow individuals to test for the disease. For example, the AG’s letter referred to posts that promoted an “immunity pack,” a fake coronavirus testing kit, and face masks that are not even proven to provide coronavirus-related protection. The AG also asked Craigslist to remove an advertisement for a bottle of Purell that was priced at over $200.
Price gouging on disinfectant products is also a priority.
State AGs and other federal agencies are actively investigating potential price gouging violations, filing enforcement lawsuits, issuing civil investigative demands (CIDs), and serving cease-and-desist warnings. The NYC Department of Consumer and Worker Protection (DCWP) - formerly the New York City Department of Consumer Affairs (DCA) – has also been policing local business that it believes are selling necessary products (e.g., cleaning products, diagnostic products and services, disinfectants [wipes, liquids, sprays], face masks, gloves, hand sanitizers, medicines, paper towels, rubbing alcohol, soap, tissues and basic food supplies).
The State of New York’s price gouging statute prohibits the sale of goods and services necessary for the health, safety and welfare of consumers at unconscionably excessive prices during any abnormal disruption of the market. During any abnormal disruption of the market for consumer goods and services vital and necessary for the health, safety and welfare of consumers, no party within the chain of distribution of such consumer goods or services or both shall sell or offer to sell any such goods or services or both for an amount which represents an unconscionably excessive price.
In the State of New York, whether a price is unconscionably excessive is a question of law for the court. The court's determination that a violation has occurred shall be based on any of the following factors: (i) that the amount of the excess in price is unconscionably extreme; or (ii) that there was an exercise of unfair leverage or unconscionable means; or (iii) a combination of both factors in subparagraphs (i) and (ii).
Proof that a violation of has occurred can include, for example, evidence that: (i) the amount charged represents a gross disparity between the price of the goods or services which were the subject of the transaction and their value measured by the price at which such consumer goods or services were sold or offered for sale by the defendant in the usual course of business immediately prior to the onset of the abnormal disruption of the market; or (ii) the amount charged grossly exceeded the price at which the same or similar goods or services were readily obtainable by other consumers in the trade area. A defendant may be able to rebut such evidence by establishing that additional costs not within its control were imposed on the defendant for the goods or services.
Where a violation is alleged to have occurred, the AG may seek an injunctions, civil penalties and restitution.
Under the Rules of the City of New York, stores are prohibited from selling items that have been declared in short supply at excessively increased prices. NYC has recently issued an emergency rule prohibiting price increases above 10% on various products necessary to combat the coronavirus. New York State has now proposed legislation concerning medical supplies that includes a presumption that a price exceeding 10% of its price immediately prior to a public health emergency is to be considered unconscionably excessive.
Other states also utilize percentage-drive formulas when assessing excessive or unconscionable price increases, such as, without limitation, Arkansas, Florida, Michigan, Missouri, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, West Virginia, and Wisconsin. Some states impose liability upon manufacturers and distributors. Some states also impose civil fines and penalties for violations, in addition to potential criminal liability.
Any entity charged with price gouging during a public health emergency would be entitled to rebut an alleged violation of this new law with evidence that the additional costs not within the control of the defendant were imposed on the defendant for the consumer medical supplies.
FTC and FDA
The Federal Trade Commission and the Food and Drug Administration recently announced that it has issued joint warning letters to companies that allegedly had been disseminating unsubstantiated product advertising claims related to the coronavirus. The letters cite efficacy claims that are not supported by competent and reliable scientific evidence, as well as issues relating to unapproved and misbranded drugs.
On March 26, 2020, FTC lawyer and Chairman Joe Simons issued a statement setting forth the agency’s enforcement efforts to protect consumers from unfair and deceptive commercial practices and to educate the public. The FTC “will not tolerate businesses seeking to take advantage of consumers’ concerns and fears regarding coronavirus disease, exigent circumstances, or financial distress,” FTC lawyer Simons stated.
The FTC has also issued a press release calling attention to business-to-business scams that seek to exploit companies’ concerns about COVID-19, and sent letters to VoIP service providers and other companies warning them that “assisting and facilitating” illegal telemarketing or robocalls related to the coronavirus or COVID-19 pandemic is against the law.
“It’s never good business for VoIP providers and others to help telemarketers make illegal robocalls that scam people,” said FTC attorney Andrew Smith, Bureau of Consumer Protection Director. “But it’s especially bad when your company is helping telemarketers exploiting fears about the coronavirus to spread disinformation and perpetrate scams,” Smith stated.
Department of Justice
The U.S. DoJ has issued a broad mandate with respect coronavirus-related fraud, price gouging and product hoarding. In fact, it recently filed a number of federal criminal actions to combat fraud and other offenses related to the coronavirus pandemic.
Two of the actions were filed in California. One involving allegations that an individual solicited investments in a company he claimed would be used to market pills that would prevent coronavirus infections, as well as market an injectable cure for those who had already contracted the virus. The other, involving allegations that an individual mislabeled drugs that were purported to be a miracle cure for COVID-19.
Another two actions were filed in New Jersey. One involving charges of violating the federal Anti-Kickback Statute and conspiracy to commit health care fraud. The other, involving allegations of assault resulting from an individual who represented to have tested positive for COVID-19 that coughed on FBI agents, lied to them about his accumulation and sale of surgical masks, medical gowns and other medical supplies, and selling supplies to doctors and nurses at inflated prices. .
The DoJ also recently filed a civil wire fraud lawsuit in a Texas federal district court against a website (coronavirusmedicalkit.com) that was purportedly offering access to bogus World Health Organization vaccines.
Digital marketers, consumer-facing businesses and others in the supply chain should consider consulting with experienced FTC defense counsel to avoid unsupported efficacy claims and inadvertently charging unlawful prices for goods and services necessary for the health, safety and welfare of consumers.