The Pharmaceutical Cartels Profiting from Covid
It was inevitable that someone had to profit from the Covid-19 pandemic, whether that was going to be the giant pharmaceutical companies charging for life-saving vaccines or the big corporates who were propped up using taxpayer money during lockdowns.
Who could possibly have seen it coming, though – the local pharmacy down the road, the one manned by the same pharmacist for forty years, or perhaps the big chain pharmacy you visit as much as once a week, even your local petrol station – all these retailers if not guilty, then certainly suspected, of price gouging.
And it is all thanks to the soaring demand for Rapid Antigen Tests (RATs).
RATs – generally
Put simply, there are 18 approved RATs currently available on the Australian market, 13 of which we source from China. Six of the Australia Therapeutic Goods Association approved tests are considered “very high sensitivity tests” i.e. can detect the virus with up to 95% accuracy either by way of a nasal swab or a saliva test.
The Western Australian government was late to allow the sale of RATs in the state and it is expected that there will be significant product shortages and, therefore, an increased risk of unlawful selling behaviour.
Thanks to the rampant Omicron variant and the federal government’s decision to fully back PCR tests instead of RATs, Australia is now in a place where demand has outstripped supply. This has shifted the power unfairly out of the hands of the consumer and into the hands of retailers, which is reflected in the increasing prices attached to RATs.
It may surprise some readers that the regular retail price for a RAT sits around $10 – $20 per one single test. A quick google search reveals a plethora of articles claiming consumers have seen prices several times the regular price (in one instance as high as $50). This practice is known as price gouging and is in some circumstances illegal.
The Australian Competition and Consumer Commission (ACCC) is the watchdog for Australian consumers. On 4 January 2022, they released a media statement acknowledging public concern around RAT price gouging and reminded major suppliers and retailers of their obligations to substantiate any claims they make to consumers about the reason for higher prices.
Price gouging is generally not illegal (though Consumers do have the ability to report suspected instances of price gouging) unless misleading representations are made about the reason for that price gouging or if the gouging is sufficiently bad as to constitute unconscionable conduct.
Whether or not price gouging will become unconscionable conduct is ultimately a decision for the Courts. However, a quick look over the law surrounding unconscionable conduct gives us some idea what factors are relevant.
Section 20 of the Competition and Consumer Act 2010 (CCA) prohibits unconscionable conduct. What will be considered “unconscionable” will turn on the facts of each case but may include deliberate unconscionable dealings, serious misconduct, or conduct which is clearly unfair and unreasonable as judged against the norms of society.
Per Section 22 of the CCA, the court may consider the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods from a person other than the supplier and the extent to which the parties acted in good faith. That suppliers might be strategically relying on this increased demand to their sole benefit could well count against any “good faith” argument. After all, it is not for the supplier or retailer to get the best price from the consumer, but to compete with their competitors and offer their consumers the most competitive price.
An example of unconscionable conduct could be where a retailer takes on a 20 pack of RATs and sells them individually for double the cost of one twentieth of the 20 pack price.
No, not the Pablo Escobar kind! We are talking business cartels where one or more retail competitors agree to act in tandem, rather than competing against one another. One obvious example of cartel (anti-competitive) conduct is agreed price fixing. This is a breach of the CCA and the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cartel Act).
Penalties and Fines
Whether or not the ACCC will start to pursue cases against offending retailers and/or suppliers remains to be seen. The ACCC in its public statement on 4 January said that they did not yet have enough evidence of unlawful conduct but they were looking.
For a breach of the CCA, fines of up to $500,000 for the individual and a whopping $10,000,000 for corporations are contemplated. Where the ACCC has reasonable grounds to believe a person has breached a provision of Australian Consumer Law (as contained in Schedule 2 of the CCA), it can issue an infringement notice and fine for each alleged instance of a breach of approximately $1300 for an individual or $13,000 for a corporation.
For a breach of the Cartel Act (whether that be for agreed price fixing, bid rigging, market sharing, and controlling the amount of goods or services available), a person could face up to 10 years imprisonment and/or fines of up to $420,000 per criminal cartel offence for an individual. The penalties are worse yet for corporations caught in price-fixing cartels.
The ACCC chair, Rod Sims, claims that they have yet to see evidence of widespread price-gouging and that the reports remain largely “anecdotal” at this early stage.
There is, we believe, genuine concerns around a) the availability and b) the cost of RATs in Australia. As noted by the Guardian in one of their articles, when the cost of one pack of five RATs represents 15% of your income (as it does for those on a base rate jobseeker payment), there are permutations and an inevitable ripple effect for those wanting to participate in everyday life.
Suppliers and retailers ought to familiarise themselves with the legislation so that are not caught, knowingly or otherwise, in breach of a provision of the CCA or Cartel Act. After all, the duty of good faith is a broad one. Chances are, if what you’re doing doesn’t feel right or conscionable, it’s probably not.
If in doubt, contact the team at Lynn & Brown Lawyers.
About the author: Caitlin is a Perth Lawyer currently working at Lynn & Brown Lawyers. She was admitted to the Supreme Court of Western Australia in March 2021 and has a focus in both commercial and dispute resolution matters.