Sellers Beware: DOJ Antitrust Division Announces Enforcement Initiative to Prevent Exploitation of Supply Chain Disruptions

With inflation on the rise and COVID restrictions receding but not yet gone, manufacturers and retailers alike should take care not to get caught in a regulatory squeeze with respect to the prices at which they sell goods to customers. The US Department of Justice (DOJ) Antitrust Division has announced a new enforcement initiative to find and stop price fixing agreements hiding behind supply chain disruptions, and some states continue to operate under emergency health orders that could trigger “price gouging” laws and regulations.

Heightened DOJ Antitrust Enforcement

On Thursday, February 17, 2022, the DOJ Antitrust Division announced that it is “prioritizing any existing investigations where competitors may be exploiting supply chain disruptions for illicit profit and is undertaking measures to proactively investigate collusion in industries particularly affected by supply disruptions.” In other words, the DOJ will be looking at significant price increases for goods to determine whether the sudden rise in price is attributable to legitimate economic forces, or whether inflation is being used as a cover for a horizontal price fixing scheme among competitors. Assistant Attorney General Jonathan Kanter, head of the DOJ Antitrust Division, said in a press release that “The Antitrust Division will not allow companies to collude in order to overcharge consumers under the guise of supply chain disruptions.”

Generally speaking, price increases in the face of constrained supply are an efficient way to allocate scarce resources, and the antitrust laws are not intended to stop suppliers from responding unilaterally to market forces. But the extraordinary market forces at play as the economy emerges from a global health emergency do not justify competitors at any level of distribution—wholesale or retail—from entering into agreements concerning the prices at which they will sell goods. In an enforcement environment where government officials may be searching for scapegoats to blame for the recent inflationary spiral, companies should ensure that they have a solid antitrust compliance program in place and that decisions about the prices they charge are made unilaterally. Even without an actual enforcement action, complying with a federal antitrust investigation can be a very intrusive and expensive proposition.

State “Price Gouging” Actions

At the state level, there are about 40 states with laws that prohibit price gouging; these state laws and/or regulations typically declare that it is illegal to sell essential commodities at “unconscionable” prices during a declared state of emergency. The state laws vary, but generally speaking, a price is “unconscionable” if there is a “gross disparity” between the price before the state of emergency and the price during the state of emergency, and that price increase is not attributable to actual increases in costs incurred by the supplier. Some state laws specify the percentage increase in price during an emergency that is unconscionable; Alabama law, for example, defines a 25% increase over the average price of certain commodities prior to an emergency to be unconscionable. Other states, like Massachusetts, leave the term “gross disparity” undefined. Some states, like California, also limit their price gouging statutes to retail prices to consumers, while other state laws are silent as to the scope of their reach. About half the states still have declared states of emergency related to COVID—see this link for a tracker. These declared states of emergency vary and may not meet the statutory definitions to trigger price gouging laws, but at every level of distribution, sellers would do well to consider the regulatory environment prior to implementing significant increases in wholesale and/or retail prices.