Businesses are beginning to pursue meaningful avenues of collaboration to ensure industry-wide response to the COVID-19 pandemic and to provide critical resources to affected communities. Morrison & Foerster attorneys discuss how to avoid violating antitrust laws.
Collaboration and cooperation among businesses – even competitors – in various forms may be necessary and beneficial for the greater good in responding to the COVID-19 pandemic. While businesses must remember that antitrust and competition laws continue to apply, antitrust laws should not prevent meaningful cooperation aimed at treating and addressing this crisis.
Recognizing that these are extraordinary times, the U.S. federal government has taken steps in recent days to facilitate coordination in distribution and to increase supply of essential goods and services. The Federal Trade Commission (FTC) and Department of Justice (DOJ) announced steps to expedite their review of such collaborations and issued guidance to facilitate cooperative responses from private industry. While the President encourages American manufacturers to increase the production of medical supplies, he invoked the Defense Production Act (DPA), giving the Department of Health and Human Services (HHS) the authority to allocate critical resources.
While enforcers have, on the one hand, eased restrictions on companies to facilitate quick and creative responses to the crisis, at the same time, they have made clear that there is no blanket waiver of compliance with antitrust laws. To the contrary, the DOJ recently warned that it will hold accountable anyone who takes advantage of “emergency response efforts, health care providers or the American people” by violating the antitrust laws.
In response to reports of spiking prices on consumer health and cleaning products, states have been vocal, stating that they will not tolerate price gouging in connection with the response to COVID‑19, while the President announced that people and companies that hoard or price gouge medical resources could face prosecution by the DOJ.
While moving forward within the safe harbors provided by the antitrust agencies, companies and their counsel need to be especially vigilant, lest well-intended actions lead competitors to cross the line into serious antitrust risks. We discuss below some of the more common antitrust risks in this context.
Coordinated efforts among businesses and industry associations to respond to the COVID-19 pandemic could be procompetitive and offer significant societal benefits. In the wake of past disasters and emergencies, organizations and coalitions have provided critical resources to help affected communities. Such responses included ensuring access to medical resources and developing a plan for rebuilding damaged buildings and homes.
In the context of the current health crisis, companies could work together, for example, to exchange best practices regarding human resources and work policies designed to slow the spread of the virus or caution the public on detrimental practices, such as hoarding. Another potential avenue for cooperation is lobbying the government to facilitate its response to the pandemic. One such proposal is that the DOJ work with federal, state and industry partners to combat price gouging on products critical to fighting COVID-19.
Federal Antitrust Agencies Encourage Collaborations
The FTC and DOJ recently acknowledged that significant benefits could be achieved from cooperative efforts and committed to taking certain steps to encourage such collaboration. On March 24, the agencies released a statement outlining expedited procedures that they would implement and provided guidance on how companies could collaborate on responses to the COVID-19 pandemic. The agencies will expedite formal requests, via the Antitrust Division’s business review process and the FTC’s advisory opinion process, from companies seeking guidance on collaborations responding to the COVID-19 crisis. To that end, the agencies will respond within seven calendar days of receipt of the request. The agencies will also promptly process filings under the National Cooperative Research and Production Act, which provides flexibility under the antitrust laws for standard development organizations and joint ventures.
Finally, the antitrust agencies will account for exigent circumstances when evaluating the efforts of market participants aimed at addressing “the spread of COVID-19 and its aftermath” where the conduct is “limited in duration and necessary to assist patients, consumers and communities affected by COVID-19.” These efforts could unfold in a number of ways, such as medical facilities working together to provide resources to communities in need or businesses combining supply chains to ensure that COVID-related supplies reach their destinations.
Executive Branch Creates Limited Antitrust Defense under the DPA
The DPA, which gives the President broad powers to influence private industry in the interest of national defense, also creates a limited antitrust defense for companies entering into cooperative agreements. Under the DPA, the President can take actions such as requiring businesses to prioritize government contracts and incentivizing production of critical goods and materials. President Trump invoked the DPA in a recent executive order, though he has not yet utilized the full scope of its expansive authority.
Under the DPA, there is a unique opportunity for companies to work together for the national defense. Historically, companies have cooperated in activities ranging from weapons manufacturing to providing petroleum tanker capacity. The DPA creates a defense to claims of antitrust violations, but only under certain circumstances.
To invoke this defense, the President or his designee must authorize and supervise the agreement or action and the participants must be acting in furtherance of that plan. Given the limited circumstances under which this defense applies and the unfolding response to the COVID-19 crisis that is occurring in real time, companies should be cautious when considering whether the protections of the DPA could apply to potential collaborations.
But Collaborations Still Carry Antitrust Risk
The procompetitive rationale for cooperating to address COVID-19 is clear, but antitrust enforcers will not turn a blind eye to all collaborations and conduct that could violate the antitrust laws. The DOJ’s recent announcement that it would hold accountable companies and individuals that violate the antitrust laws during this pandemic is a testament to this fact. Specifically, the DOJ noted that the entire supply chain – from manufacturing to sale – of public health items like face masks, respirators and diagnostics are in its focus. The DOJ’s commitment to enforcing the antitrust laws, even during a pandemic, is not surprising. In the wake of past crises, including Hurricane Katrina and the September 11 terrorist attacks, the DOJ has been vigilant in bringing cases against businesses and individuals who violated the antitrust laws.
Businesses should continue to follow best practices to stay within the boundaries of the antitrust laws and avoid entering into any agreements with competitors on prices, allocation of territories or customers or on how to respond to bids. For example, as prices go down for some products that are in lower demand during a crisis, joining with other suppliers to stop the fall in prices, or to “stop the bleeding,” by imposing a minimum price should be absolutely avoided. Agreements with competitors to hold a minimum price is just as much a violation of the antitrust laws as is an agreement to raise prices.
In addition, businesses should avoid exchanging competitively sensitive information, including in the context of standard setting or benchmarking activities, related to pricing, margins or other sensitive business data. Sharing technical know-how, rather than competitively sensitive information, can have procompetitive benefits, a fact recognized by the FTC and DOJ.
Seeking guidance from antitrust counsel now on these issues and considering whether the protections of agency guidance would be worth pursuing could be critical to achieving significant benefits to society and avoiding questions from antitrust enforcers in the future. And nothing about the agencies’ recent statement prevents private plaintiffs from bringing suits.
Businesses should also be careful not to engage in price gouging and to keep on the lookout for this practice by resellers. Price gouging is the practice of raising prices on certain types of products to an unfair level, particularly during a public emergency or disaster. Consumer protection laws prohibit this practice in many states.
Such laws have been triggered in recent days and weeks as more states and the federal government respond to the spreading COVID-19 pandemic. Some resellers and wholesalers have sharply increased prices for health and sanitation products. In response, state AGs have issued warnings against price gouging and unfair trade practices, vowed to take action against violators and alerted the public to resources designed to identify potential price gougers.
The precision of state laws prohibiting price gouging varies widely by state. States like Arkansas, California and New Jersey have laws prohibiting companies from charging prices more than 10 percent higher than the price of an item before the state or locality declared an emergency. Other states use definitions that are more subjective. For example, North Carolina prohibits setting prices that are “unreasonably excessive under the circumstances.”
Regardless of the language of the statute, state attorneys general have been increasingly devoting resources to this area. The New York AG ordered two New York City merchants to cease and desist charging excessive prices for hand sanitizers and disinfectants. New York AG Letitia James warned sellers looking to “prey on others’ anxiety and line their own pockets” that her office would prosecute unlawful price gouging. The New Jersey AG announced that the New Jersey Division of Consumer Affairs is redirecting its resources and dedicating approximately 55 investigators to inspecting retail locations in response to a surge in price gouging complaints from consumers.
Governors and other state executives are using emergency regulations and executive orders to further curb the practice. An emergency regulation filed by the Massachusetts attorney general expanded the state’s price gouging statute, which previously only covered petroleum products, to include goods and services for the health, safety and welfare of the public during an emergency. In Illinois, Governor Pritzker invoked the Illinois Emergency Management Agency Act and, as a result, prohibited any increases in the prices of goods or services intended for the prevention or treatment of COVID-19. The Illinois attorney general is prioritizing enforcement actions for price gouging of protective gear, medical supplies and drugs for treating COVID-19. Even though Michigan already had a broadly applicable price gouging statute in effect, Governor Whitmer recently announced enhanced price gouging measures. As states continue responding to the pandemic based on conditions on the ground, enhanced price gouging prohibitions are likely to roll out on a state-by-state basis.
Federal antitrust laws do not address the practice of price gouging, but could apply (e.g., if a group of retailers conspired together to set prices). Through the authority of the DPA, the DOJ can federally prosecute price gouging on scarce resources, as designated by the HHS.
Some actions aimed at curbing price gouging could create antitrust risk for manufacturers and online platforms. For example, setting maximum resale prices could give rise to a Sherman Act Section 1 claim at the federal level or potentially violate state antitrust laws. Technology platforms or marketplaces and manufacturers or retailers, acting together to set maximum retail prices, even if acting with benevolent intentions, may be viewed as a hub-and-spoke cartel and could face civil and criminal penalties. Platforms and marketplaces have addressed these behaviors by working with state AGs to facilitate state enforcement and banning the sale of certain medical and sanitization products that have seen demand spikes. Whatever response platforms and marketplaces choose to employ in combatting price gouging should be carefully crafted to minimize antitrust and other legal risks, which could arise either through unilateral action or when cooperating with state and federal enforcers.
Businesses should anticipate that state attorneys general will continue to be active in this area and take enforcement actions regardless of the jurisdiction and ensure its pricing is in compliance with the laws.
The United States is in the midst of an unprecedented public health crisis. Businesses that have the opportunity to more effectively respond and confront COVID-19 through collaboration should not be discouraged by the antitrust laws, but antitrust and consumer protection laws are still in force and impose restrictions on the shape those collaborations take and prices that businesses can charge.
As always – but especially so during these dynamic times – companies interested in pursuing collaborations or implementing changes to their pricing policies should consult experienced antitrust counsel. In addition to staying current on the latest COVID-19 guidance from government agencies like the Centers for Disease Control and Prevention, businesses should remain informed of the latest thinking on how COVID-19 could affect their business and legal obligations.
 National Infrastructure Advisory Council, Framework for Dealing with Disasters and Related Interdependencies: Final Report and Recommendations, Appendix G: The Defense Production Act, Washington, D.C., July 14, 2009,
p. 45, available at http://www.dhs.gov/xlibrary/assets/niac/niac_framework_dealing_with_disasters.pdf.
 50 U.S.C. § 4558(j).
 The DOJ secured the criminal convictions of two individuals who engaged in a conspiracy and bribery scheme following Hurricane Katrina. One of the largest series of collusion cases ever brought by the Antitrust Division involved airlines in the wake of the September 11 terrorist attacks. Many airlines began charging “security surcharges” to compensate for the significantly increased costs due to greater security measures in the aftermath of the attacks. The DOJ alleged that multiple airlines reached agreements on the timing and amount of these new fees. That kind of collective action was not legal, and many companies pleaded guilty to Sherman Act offenses and paid significant fines. See, e.g., DOJ Press Release, Cargolux Airlines International Executives Plead Guilty for Fixing Surcharge Rates on Air Cargo Shipments, available at https://www.justice.gov/opa/pr/cargolux-airlines-international-executives-plead-guilty-fixing-surcharge-rates-air-cargo.
 There are many more examples of activity at the state level, including:
- The Washington AG acknowledged ongoing price gouging investigations in the wake of COVID-19.
- In California, the AG issued a price gouging alert on March 4, 2020. Violators of the California price gouging statute could face up to one year in prison and/or a fine of up to $10,000.
- The Florida AG activated a price gouging hotline on March 9, 2020. Violators of the state’s statute face civil penalties of $1,000 per violation, up to a total of $25,000 for multiple violations within a 24-hour period.
- On March 9, 2020, the Pennsylvania AG tweeted that his office is receiving complaints about price gouging in the state, reminded Pennsylvanians that price gouging is illegal and encouraged the public to report violations.
- The Vermont AG has cautioned businesses against price gouging and prepared a plain language guidance resource to assist small businesses in their response to the health crisis.
- In Tennessee, the AG ordered two brothers to cease and desist selling medical goods and products following complaints about the pair’s pricing practices.
- The South Carolina price gouging law is now in effect, according to the state’s AG, following the state and federal declarations of emergency.
- The Michigan AG is warning residents that businesses selling items like face masks, hand sanitizers, and cleaning supplies aimed at combating the spread of COVID-19 at high prices may be violating the state’s Consumer Protection Act.
 See White House, President Donald J. Trump Will Not Tolerate the Price Gouging and Hoarding of Critical Supplies Needed to Combat the Coronavirus (Mar. 25, 2020), available at https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-will-not-tolerate-price-gouging-hoarding-critical-supplies-needed-combat-coronavirus/; see also 50 U.S.C. § 4512 (“In order 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…”).