Private enterprise has joined state and local governments in the fight against rampant price gouging during the COVID-19 pandemic. In response to the pandemic, state and local governments across the country have declared states of emergencies, triggering laws prohibiting price gouging. Consumers are not the only targets of price gouging; state and local government procurement offices also are receiving offers for products at exorbitant prices. The outrage over perceived price gouging is often misdirected at the manufacturers and brands behind the products involved. These manufacturers and brands are joining governments’ fights against price gougers.
Last month, medical product manufacturer 3M filed four lawsuits against alleged price gougers in four states: New York, California, Texas, and Florida. The New York defendant’s conduct was pretty egregious. In New York, the City Office of Citywide Procurement (the NYC Procurement Office) was offered millions of highly demanded N95 respirator masks made by medical product manufacturer 3M at prices 500%-600% higher than 3M’s list prices. Last week, 3M took the matter into its own hands and filed an action in the Southern District of New York against the company that made the offer, alleging that it used 3M trademarks to dupe the NYC Procurement Office into believing the seller was affiliated with 3M.
In its April 10 complaint, 3M alleged that Performance Supply LLC (Performance Supply) used 3M’s “famous ‘3M’ trademarks to perpetrate a false and deceptive price-gouging scheme on unwitting consumers, including agencies of government, during the global COVID-19 pandemic.” According to the complaint, Performance Supply emailed the NYC Procurement Office on March 30 offering to sell it a total of 7 million 3M-brand N95 respirators. Performance Supply’s offer was for two models of 3M N95 respirators. 3M’s suggested list price for the respirators ranged from $1.02 to $1.27 per respirator. Performance Supply allegedly offered to sell 2 million model 8210 respirators for $6.05 each (about 600% over 3M’s list price) and 5 million 1860 model respirators for $6.35 each (about 500% over 3M’s list price).
The email offer from Performance Supply used 3M trademarks nine different times. “Technical Specification Sheets,” which accompanied the email offer from Performance Supply, also prominently featured the 3M design mark and the 3M slogan. The email offer also falsely gave the impression that 3M itself was making the offer. The email indicated that acceptance of any order was “at the full discretion of 3M,” stated that “3M can begin shipping in 2-4 weeks” and used 3M’s address of its Minnesota headquarters rather than Performance Supply’s headquarters address in New Jersey.
Based on this conduct, 3M’s complaint included claims for federal and state trademark infringement, unfair competition, false association, false endorsement, false designation of origin, trademark dilution, false advertising, and deceptive acts and practices. It is seeking preliminary and permanent injunctive relief, damages, and attorneys’ fees. 3M will donate any damages, costs or fees it recovers from Performance Supply to charitable COVID-19 relief efforts.
3M explained in its complaint that this action is part of its efforts to protect purchasers of its products from price gouging. But the lawsuit also seeks to counter the negative publicity and reputational damage caused by resellers’ price gouging for 3M’s products. In the complaint, 3M details the actions it is taking to increase production capacity of protective equipment for healthcare workers and notes that it “has not increased the prices that it charges for 3M respirators as a result of the COVID-19 outbreak.” The complaint also details 3M’s efforts to combat fraudulent activity, price gouging and counterfeiting related to its N95 respirator masks, including working with law enforcement, publishing list prices and creating a hotline for customers to report suspected counterfeiting and price gouging. The great lengths to which 3M is going to address these issues likely reflects the significant amount of damage that price gouging by others has done to 3M.
As 3M seeks to do in this lawsuit, manufacturers and brands like it can successfully use their trademark rights to both combat misdirected reputational damage and public outrage while also helping government agencies fight price gouging. Under federal and state trademark laws, third parties cannot use trademarks to misrepresent the source of goods or services, to create a false association between the third party and the trademark owner, or to unfairly compete with the trademark owner. Further, federal and state laws against false advertising prohibit third parties from making false claims about the goods and services being offered and the source of those goods and services.
Manufacturers of supplies critical in the fight against COVID-19 would be wise to follow 3M’s lead by taking proactive measures against resellers charging exorbitant prices for their products in this time of crisis. Such proactive measures in conjunction with government action likely will be useful in staving off misdirected private or government actions against them for the price gouging taking place across the marketplace.