As annual supply contracts come up for renewal, businesses may be wondering whether price increases for annual contracts are permitted under the panoply of price gouging laws currently in effect. Parties may want to negotiate contracts with “normal” price increases, operating under the assumption that, at some point during the contract year, price controls will expire. But if states of emergencies remain in effect when the new contract prices become effective, parties could find themselves in a bind.

When agreeing to a new contract price, companies should consider how price gouging laws may be interpreted or enforced in ways that overlap or interact with antitrust laws. There is no precedent that definitively reveals the interplay between these legal theories, given the unprecedented geographic and durational scope of the ongoing emergency. We do, however,strongly suspect that annual contract prices that could be investigated for either price gouging or antitrust reasons will likely be investigated for both.

In terms of antitrust, companies are generally free to set their prices as they see fit, provided, among other things, they make their pricing decisions unilaterally. Since most arrangements between suppliers and distributors benefit consumers, given the distribution and cost reducing efficiencies, annual contracts between suppliers and distributors typically do not run afoul of antitrust laws.

Under price gouging restrictions, however, enforcers will look to evidence that prices increased beyond a permissible level during a state of emergency. Price gouging laws apply broadly to annual agreements between suppliers and downstream distributors and sellers, to the price at which the supplier provides goods, or to the ultimate sale price.

A practice may be permissible under federal antitrust law and unlawful under state law, or vice versa. But, as we have previously discussed, antitrust and price gouging investigations and possible violations are not mutually exclusive. State attorneys general frequently are choosing to investigate pricing moves under both enforcement regimes simultaneously. Given the spotlight on price gouging in response to the ongoing pandemic, contract prices may be scrutinized for antitrust compliance, particularly if there is any whiff of coordinated activity in a market or industry.

One possible scenario: a California-based supplier is preparing to enter into a new annual contract with its California-based distributor. Last year, the supplier agreed to sell its products to the distributor for $10/unit. This year, the presumptive ceiling for the supplier’s sale to the distributor would appear to be $11/unit based on California’s presently in place pricing restrictions. The parties are considering a contract under which the supplier sells its product to the distributor for $13/unit.

Perhaps the higher price is justified by documented costs, and perhaps the distributor can lawfully pass those costs on as well. Assuming however, that the $13/unit price cannot be fully justified by cost increases, it may not be permitted within the price gouging exceptions. Also, should the price gouging laws be de-activated mid-contract, it may be that parties could be exposed for any sales that took place during the pendency of the states of emergency.

In light of the state and federal enforcement activity against price gouging, and the considerations discussed above, companies should ensure that their contract prices are reasonable and justified. Use data to your advantage in contemplating pricing movements. Such records will be especially useful to support any increases should there be an investigation in the future.

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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.

Photo of Jennifer Tarr Jennifer Tarr

Jennifer E. Tarr is an associate in the Litigation Department.