Price-Gouging Laws Create a Headache for Amazon

If you increase your prices in time of emergency, everybody knows you might run afoul of your state’s price-gouging laws. But suppose you offer goods online to the whole country? Can your state make you lower the price? What if you’re selling on Amazon, which does not permit you to discriminate among states in pricing? All of these questions were involved in Online Merchants Guild v. Cameron, decided recently by the U.S. Court of Appeals for the 6th Circuit. The court’s answers, although plausible, seem ill-suited to the internet age.

The issue arose after Daniel Cameron, Kentucky’s attorney general, received complaints about online sellers who early in the pandemic had raised the price of such popular items as hand sanitizer and N95 masks far beyond the state emergency limit of 10%.  In late March of 2020, Cameron opened an investigation into certain Kentucky-based businesses for price-gouging. The sellers in turn brought suit, arguing that applying the state’s price-gouging laws to internet sales was unconstitutional under the Dormant Commerce Clause, a judge-made doctrine that prevents states from exerting control over transactions that happen entirely outside their borders.

The trial court agreed with the plaintiffs and issued an injunction. The 6th Circuit reversed. Kentucky’s price-gouging laws, the panel wrote, did no more than restrain price increases within the state’s borders. Nothing in the laws directly or indirectly forbade the plaintiffs from charging whatever they wanted elsewhere.

But we’re not talking about a mom-and-pop store that deals mainly with walk-in trade and now and then makes up a package to send to an out-of-state buyer. We’re talking about sellers offering their goods on Amazon, which doesn’t allow them to do what Kentucky seems to want them to. If the sellers want to stay on Amazon, they have to charge the Kentucky price everywhere.

Faced with this argument, the court shrugged. Any difficulty the situation might pose a problem for the plaintiffs wasn’t Kentucky’s fault: “The laws’ effect on out-of-state commerce would be virtually nonexistent but for Amazon’s limitations on third-party sellers.”

Nicely put — but unrealistic. The world is what the world is. Fueled by the very emergency that Kentucky cites in justification for enforcing its price-gouging rules, Amazon has seized fully half of the online retail market. The company’s not likely to change its prohibition on state-level price discrimination just because Kentucky doesn’t like it. Nor would Kentucky-based retailers be likely to succeed should they somehow band together to set up an online sales platform of their own. They must either sell their goods on Amazon or quit the online business.

Thus the effect of price-gouging law in the internet age is indeed to control prices at which goods are sold outside of the state. More than thirty states limit price increases during an emergency. The net effect of the many different rules is that online prices everywhere will be governed by the laws of the state where the retailer happens to be incorporated: the precise situation that the U.S. Supreme Court has ruled repeatedly the Dormant Commerce Clause forbids.

Still, not every federal court would reach the result the 6th Circuit did. The most directly analogous case, decided in 2018, involved a Maryland law that limited price increases of unpatented drugs sold within the state. The drug-makers sued. A panel of the U.S. Court of Appeals for the 4th Circuit found a violation of the dormant commerce clause. Why? Because whatever the legislature’s intentions, the law’s practical effect was to regulate the prices of goods sold outside the state.

In Online Merchants Guild v. Cameron, the 6th Circuit devoted only a single footnote to the Maryland case, which it said was different because the effect there was direct rather than indirect. But this is unpersuasive. Both cases involved a statute that in trying to limit prices inside the state inevitably would affect prices outside the state. At some either the U.S. Supreme Court or the Congress will have to settle the matter.

Notice that I haven’t said a word about whether laws against price-gouging are good or bad. My own view, oft-stated, is that limiting price increases in an emergency is a well-intentioned but costly move, at least if one believes that price signals affect the decisions of new players about whether to enter a market — which they obviously do. In the peculiar moment in which we find ourselves, a special problem arises: If we think that laws against price-gouging are more important during an emergency, we ought to give a lot more thought to what qualifies as an emergency, who gets to decide, and whether the emergency continues as long as the decision-maker says so. At some point along that spectrum, we’re just being ruled by fiat. But that’s another column.

It’s not clear how large the price increases were. The court cites complaints to the attorney general’s office of “markups up to 1,951%” but does not say whether these were markups were by the sellers under investigation.

Amazon, which prohibits certain significant price increases, reportedly supports a federal price-gouging statute.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Stephen L. Carter is a Bloomberg Opinion columnist. He is a professor of law at Yale University and was a clerk to U.S. Supreme Court Justice Thurgood Marshall. His novels include “The Emperor of Ocean Park,” and his latest nonfiction book is “Invisible: The Forgotten Story of the Black Woman Lawyer Who Took Down America's Most Powerful Mobster.”

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