State price gouging laws do not typically address product improvements or reformulations. Still, businesses should consider price gouging restrictions when releasing “new and improved” products, as the same pricing considerations that may apply to new products may also apply to improved, updated or reformulated products.

A company that is developing or considering releasing a reformulation of its current product may have previously evaluated whether the product is subject to state price gouging laws. Where the previous version of the product was covered, any reformulation is likely covered as well.

Given the additional costs that may accompany a reformulation, there may be additional justifications for price increases when releasing a new version of a product. In California, for example, a company can increase the price for its reformulated product to factor in the costs for, among other things, sourcing new or more expensive ingredients. As long as the total price does not exceed fifty percent greater than the total costs of producing and selling the product, it should not run afoul of that state’s law. A business that resells that reformulated product arguably may then price it at up to, but no more than, fifty percent greater than the amount it paid for the product to the extent it is treated as essentially a new product

In other states, a company considering reformulation may want to reference the price of similar goods as a baseline, while also gauging what the state statute considers to be legal justifications for setting prices that exceed the price of similar goods. Under Pennsylvania law, the state typically presumes prices are unconscionably excessive if they are 20% or more above “the average price at which the same or similar consumer goods or services were obtainable in the affected area during the last seven days immediately prior to the declared state of emergency.” But those provisions do not apply where a higher price is “substantially attributable to additional costs that arose within the chain of distribution in connection.”

In Florida, the price gouging statute suggests there would be a comparison of the amount charged for the reformulated product to “the average price at which the same or similar commodity was readily obtainable in the trade area during the 30 days immediately prior to [the] declaration of a state of emergency,” which, for purposes of the current COVD-19 emergency, was March 9, 2020 in Florida. If the reformulated product is more expensive than similar products, companies can provide evidence that “the increase in the amount charged is attributable to additional costs incurred,” or due to “regional, national, or international market trends,” and thereby rebut a presumption of price gouging.

Given the lack of direct treatment of this category of products in the price gouging laws, pricing in these instances may require additional thought to ensure compliance. As a general rule, however, businesses looking to bring reformulated products to the market should be aware that price increases for reformulated products likely fall within the majority of the allowable exceptions if they reflect cost increases and maintain (or even, in some cases, increase) a measure of profit margin.

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Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

Photo of Christopher E. Ondeck Christopher E. Ondeck

Chris Ondeck is co-chair of the Firm’s nationwide Antitrust Group. He represents clients in civil and criminal antitrust litigation, defending mergers and acquisitions before the U.S. antitrust agencies, defending companies involved in government investigations, and providing antitrust counseling.

Chris has handled antitrust matters…

Chris Ondeck is co-chair of the Firm’s nationwide Antitrust Group. He represents clients in civil and criminal antitrust litigation, defending mergers and acquisitions before the U.S. antitrust agencies, defending companies involved in government investigations, and providing antitrust counseling.

Chris has handled antitrust matters for clients in a number of industries, including advertising, aerospace, alcoholic beverages, appliances, building materials, consumer products, defense, franchise, medical devices, metals, mining, natural resources, oil and gas, packaging, pharmaceuticals, software and telecommunications. He also has developed substantial experience advising clients regarding the application of the antitrust laws to the pharmaceutical industry, the agriculture industry, trade associations and the energy industry.

Photo of John R. Ingrassia John R. Ingrassia

John is a partner at the Firm, advising on the full range of foreign investment and antitrust matters across industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services consumer goods and health care. He is the first call clients make in matters relating…

John is a partner at the Firm, advising on the full range of foreign investment and antitrust matters across industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services consumer goods and health care. He is the first call clients make in matters relating to competition and antitrust, CFIUS or foreign investment issues.

For more than 25 years, John has counselled businesses facing the most challenging antitrust issues and helped them stay out of the crosshairs — whether its distribution, pricing, channel management, mergers, acquisitions, joint ventures, or price gouging compliance.

John’s practice focuses on the analysis and resolution of CFIUS and antitrust issues related to mergers, acquisitions, and joint ventures, and the analysis and assessment of pre-merger CFIUS and HSR notification requirements. He advises clients on issues related to CFIUS national security reviews, and on CFIUS submissions when non-U.S. buyers seek to acquire U.S. businesses that have national security sensitivities.  He also regularly advises clients on international antitrust issues arising in proposed acquisitions and joint ventures, including reportability under the EC Merger Regulation and numerous other foreign merger control regimes.

His knowledge, reputation and extensive experience with the legal, practical, and technical requirements of merger clearance make him a recognized authority on Hart-Scott-Rodino antitrust merger review. John is regularly invited to participate in Federal Trade Commission and bar association meetings and takes on the issues of the day.

Photo of Kelly Landers Hawthorne Kelly Landers Hawthorne

Kelly Landers Hawthorne is an associate in the Litigation Department.

While at Columbia, she served as an articles editor of the Columbia Journal of Law & the Arts and was involved with the Lawyering in the Digital Age Clinic.  She also worked as…

Kelly Landers Hawthorne is an associate in the Litigation Department.

While at Columbia, she served as an articles editor of the Columbia Journal of Law & the Arts and was involved with the Lawyering in the Digital Age Clinic.  She also worked as a judicial intern for the Honorable Sandra Townes of the United States District Court for the Eastern District of New York.

Kelly is a Teach For America alumnus and taught middle school special education and math in Washington, D.C. prior to law school.