Excessive pricing and COVID-19

The outbreak of the COVID-19 pandemic has changed almost everything we know, especially the business landscape. Whilst many of us scramble to survive and limit the financial harm where possible, other opportunistic individuals and companies are trying to cash in on the panic by taking advantage of the public. The surge in demand for essential goods have made the public particularly vulnerable to paying highly inflated prices.

The American multinational conglomerate 3M Company recently instituted proceedings in the Manhattan Federal Court against Performance Supply LLC for reselling 3M branded masks at grossly inflated prices. The lawsuit is not based on price-gouging itself, but rather that the association to such-gouging causes harm to the 3M brand.

In South Africa, on 19 March 2020, the Minister of Trade and Industry, Ebrahim Patel, issued Regulations aimed at protecting consumers against price gouging of certain essential items during the national disaster.

In essence, the Regulations prohibit price gouging of basic food and consumer goods (such as sugar, milk, maize meal, baby formula, canned foods, nappies), medical and hygiene supplies (such as masks, disinfectants, toilet paper, sanitary, all-purpose cleaners) and the provision of private medical services relating to the testing, prevention and treatment of COVID-19. Contravening these regulations can trigger substantial fines (up to R1000 000.00 or 10% of the company’s turnover) or even imprisonment.

Furthermore, in the context of the COVID-19 crisis, the goodwill of a business, which supplies essential goods, may be negatively affected by the unauthorized resale of such goods at inflated prices.

Price gouging may also give rise to an action of unlawful competition, if its shown the price gouging constituted a contravention of the lockdown Regulations and resulted in, or caused, the business to suffer damage to its right to attract customers.

The aggrieved party may seek an interdict restraining and prohibiting the reseller’s unlawful conduct and can claim damages resulting from the injury caused to its goodwill.

Therefore, during this period, companies would be well advised to refrain from price gouging as it may lead to criminal penalties and civil damages claims.