State Price-Gouging Laws Don't Violate Dormant Commerce Clause for Products on Amazon

Steven D. Schwinn, University of Illinois Chicago School of Law

The Sixth Circuit ruled that enforcement of Kentucky's anti-price-gouging laws to Kentucky products sold on Amazon doesn't clearly violate the dormant commerce clause. The preliminary ruling allows the Kentucky AG to enforce the state's anti-price-gouging laws against Kentucky businesses who sell products on Amazon, even though Amazon rules mean that those businesses must sell their products for the same price to customers in different states.

The case, Online Merchants Guild v. Cameron, arose when Kentucky businesses started charging outsized prices for hand sanitizer, disinfecting wipes, masks, and other cleaning and COVID-protective products on Amazon. The state AG opened civil price-gouging investigations, and the businesses sued.

The businesses argued that application of the state's anti-price-gouging laws would require them to drop their prices for products sold in Kentucky and, under Amazon's rule that retailers sell their products for a single price to customers in different states, other states as well. They claimed that this meant that Kentucky's laws would apply extraterritorially and thus create a nationwide "price ceiling," in violation of the dormant commerce clause.

The district court agreed and granted a preliminary injunction. But the Sixth Circuit reversed.

The court held that any extraterritorial effect of the state's laws was due to Amazon, not the laws themselves, and that Amazon's rules broke any "direct or inevitable" link between the state laws and their effects:

It does not follow, however, that Kentucky's price-gouging laws are unconstitutional--a state law's effect on out-of-state commerce must be direct or inevitable to be invalid under the extraterritoriality doctrine. That is not the case here because the effect of Kentucky's price-gouging laws depends entirely upon Amazon's independent decisions in how it structures its online marketplace. If Amazon allowed for state-specific pricing or allowed third-party sellers to limit where their goods were sold--and no one contends that Amazon lacks the power to structure its marketplace in this fashion--then there would be no effect at all on interstate commerce (or at most the effect would be de minimis).

In other words, without Amazon's rule, the Kentucky AG could enforce state laws against these Kentucky businesses, reducing the prices they charge to Kentuckians, but still allowing them to charge outsized prices to customers in other states.

The court vacated the district court's preliminary injunction and remanded for further proceedings.