With the federal government’s increasing focus on enforcing price gouging compliance, attention has turned to the Defense Production Act (the “DPA”). Passed in 1950 in response to the Korean War, the DPA is modelled on the War Powers Acts of 1941 and 1942 and gives the President, among other things, sweeping power to control the domestic economy during times of crisis. Despite these origins, the DPA is routinely invoked in a variety of circumstances, including in response to natural disasters like Hurricane Katrina and now COVID-19 (the DPA as later amended in 1988 is also the basis for the president’s authority to block certain foreign investment into the U.S. on national security grounds through the Committee of Foreign Investment in the U.S. – or CFIUS).

Beyond CFIUS, much of the federal government’s recent work under the DPA has focused on combating the COVID-19 pandemic through market intervention and pricing controls. For example, President Trump has used the DPA to order several companies to produce ventilators and PPE for the federal government, and the CARES Act authorizes the Department of Defense to spend nearly $1 billion pursuant to the DPA to help fight COVID-19 and stabilize impacted economies. Along with these powers to control production and spending, however, the DPA also penalizes hoarding or price gouging of any materials deemed scarce. On March 25, 2020 the Secretary of Health and Human Services announced 15 categories of goods covered by the Act.

The DPA provides in part: “to prevent hoarding, no person shall accumulate (1) in excess of the reasonable demands of business, personal, or home consumption, or (2) for the purpose of resale at prices in excess of prevailing market prices.” 50 U.S.C. § 4512. While such prohibitions may ring similar to state price gouging laws, there are several noteworthy distinctions.

First, the DPA specifically prohibits “accumulation” as a triggering condition for price gouging liability, while states price gouging statutes simply focus on the price charged. Accumulation is not defined in the Act, highlighting perhaps the key challenge in DPA compliance: many of the DPA’s key terms are undefined, and there exists almost no case law applying this part of the statute.

Along with “accumulation,” it is unclear what “the reasonable demands of business … consumption” are, particularly given that many of the products identified by HHS and covered by the DPA have seen extreme price and supply fluctuations over the past few months. How exactly is one to calculate “reasonable demands” for products whose relevance has exploded, but whose use may quickly recede again in the near future (for example, news of a COVID-19 vaccine would seriously affect the value of various COVID-related goods and services)?

Moreover, precisely what constitutes price gouging under the Act is not clear. While most state statutes provide specific benchmarks like “unconscionable” or 10% above normal market prices, the DPA simply bans “prices in excess of prevailing market prices.” Arguably, the statute would not ban any price increases above prevailing market prices, but there is little guidance on what would be too much. Other ambiguous language such as prevailing market price leads to further uncertainty. Is the market price defined as the price at the beginning of the pandemic? If so, what then was the start of the pandemic? While the DPA does not provide these answers, recent enforcement by the Department of Justice may provide some insights.

Until courts have dealt more with the price gouging provisions of the DPA and defined some of the key terms, state law may provide the closest analogue to shed light on unanswered DPA questions. While “excess” may not be defined, existing state laws provide for price increases between 10% and 30%, and this range provides a reasonable starting point for any pricing decisions. Accordingly, best practices for DPA compliance, much like compliance with state price gouging prohibitions more generally, include determining whether your goods or services are covered, making sure to track and document pricing and cost information as well reasons for any price movements, and making efforts to ensure that prices do not exceed any conservative benchmarks.

 

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Visit Proskauer on Price Gouging for antitrust insights on Covid-19.

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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

When competition or antitrust questions arise, John Ingrassia is sought out for his knowledge, reputation and credentials.

John is a recognized authority on Hart-Scott-Rodino antitrust merger review, and for more than 20 years has counselled businesses facing the most challenging antitrust issues and…

When competition or antitrust questions arise, John Ingrassia is sought out for his knowledge, reputation and credentials.

John is a recognized authority on Hart-Scott-Rodino antitrust merger review, and for more than 20 years 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 or joint ventures.

John is a senior counsel at the Firm, advising on the full range of antitrust matters in diverse industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services and health care, among others.  His practice focuses on the analysis and resolution of antitrust issues related to mergers, acquisitions, and joint ventures, and the analysis and assessment of pre-merger notification requirements. John has extensive experience with the legal, practical, and technical requirements of merger clearance and is regularly invited to participate in Federal Trade Commission and bar association meetings regarding Hart-Scott-Rodino practice issues.

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.

Photo of Nathaniel Miller Nathaniel Miller

Nat Miller is an associate in the Litigation Department.

Nat earned a J.D. degree from NYU School of Law, where he was a Managing Editor of the Journal of Law & Business, and a B.A. from Harvard University. While at NYU Law, he…

Nat Miller is an associate in the Litigation Department.

Nat earned a J.D. degree from NYU School of Law, where he was a Managing Editor of the Journal of Law & Business, and a B.A. from Harvard University. While at NYU Law, he worked as a research assistant for Professor Arthur R. Miller on his treatise, Federal Practice and Procedure. After law school, Nat served as a law clerk to the Honorable Claria Horn Boom of the Eastern and Western Districts of Kentucky.

Photo of Nicollette R. Moser Nicollette R. Moser

Nicollette Moser is an associate in the Litigation Department and a member of the Antitrust Group and the Price Gouging team.

Nicollette represents clients on matters related to mergers and acquisitions, allegations related to unlawful conspiracy and anticompetitive agreements, price fixing claims and…

Nicollette Moser is an associate in the Litigation Department and a member of the Antitrust Group and the Price Gouging team.

Nicollette represents clients on matters related to mergers and acquisitions, allegations related to unlawful conspiracy and anticompetitive agreements, price fixing claims and price gouging class actions. She also counsels clients on state Attorneys General and Department of Justice investigations regarding price gouging allegations.

Nicollette is a regular contributor to Proskauer’s commercial litigation blog, Minding Your Business.

Nicollette earned her J.D. from Georgetown University Law Center, where she was as an editor of the Georgetown Journal of Law & Public Policy. While at Georgetown, she served as an intern to the Hon. Craig Iscoe of the Superior Court of the District of Columbia. In addition, Nicollette was a law clerk with the House Judiciary Committee’s Subcommittee on Regulatory Reform, Commercial and Antitrust Law.

Photo of Jennifer Tarr Jennifer Tarr

Jennifer E. Tarr is a senior associate in the Litigation Department, and a member of Proskauer’s Sports Law and Antitrust Groups. She regularly litigates on behalf of sports leagues and counsels clients active in the sports industry on a variety of matters, including…

Jennifer E. Tarr is a senior associate in the Litigation Department, and a member of Proskauer’s Sports Law and Antitrust Groups. She regularly litigates on behalf of sports leagues and counsels clients active in the sports industry on a variety of matters, including issues pertaining to antitrust, team relocation, league governance, contract disputes, sponsorship and fan-league relationships.

In addition to sports antitrust work, Jennifer also has experience counseling and defending clients on issues related to mergers and acquisitions, claims related to unlawful conspiracy and anticompetitive agreements, monopolization claims, and price fixing claims. Jennifer is also a member of the firm’s price gouging team.

In 2019, she was a panelist on the Environmental Law Institute’s Managing Private Sector Environmental Initiatives panel, where she spoke about the Antitrust Implications of Corporate Environmental Collaborations.

Jennifer maintains an active pro bono practice and is a member of the Firm’s Pro Bono Committee. She received Proskauer’s Golden Gavel Award for excellence in pro bono work in 2018 and 2019.

Prior to joining Proskauer, Jennifer clerked for the Honorable Lorna G. Schofield on the United States District Court for the Southern District of New York. She also was a Staff Attorney at the Environmental Law & Policy Center, where she represented clients as lead counsel in litigation before multiple federal district and appellate courts and in federal mediation.

While in law school, Jennifer was a member of the Harvard Legal Aid Bureau, one of three honors societies at the law school and the nation’s oldest student-run legal services center. In that capacity, she argued and won a case of first impression before the Massachusetts Supreme Judicial Court. She also argued over 20 motions in state trial court and successfully represented clients in federal mediation and before federal administrative tribunals.