(CN) — Minnesota-based manufacturer 3M filed a federal lawsuit Friday against a New Jersey company it claims tried to sell respirator masks to New York City officials at enormously inflated prices by pretending to be a licensed 3M vendor.
In a 26-page complaint brought in Manhattan federal court, attorneys for 3M wrote that Englishtown, New Jersey-based Performance Supply LLC used 3M’s trademarks without its permission in a bid to sell N95 respirator masks to the city, which is the U.S. epicenter of the coronavirus outbreak.
The masks, which are used as protective equipment by health care workers, have been in high demand during the Covid-19 pandemic sweeping the globe and the nation, a fact that Performance Supply allegedly sought to take advantage of by offering to sell 7 million masks at over $6 each. 3M has been selling the masks at just over $1 each, a price the company said has not risen in light of the ongoing crisis.
Performance Supply’s bid deceived New York City officials into thinking that it was an authorized vendor for 3M, the manufacturer argues in its complaint. 3M denounced the would-be seller and others who might take advantage of the disease’s spread at the public’s expense.
“Not only does such price-gouging further strain the limited resources available to combat Covid-19, but such conduct justifiably has caused public outrage, which threatens imminent and irreparable harm to 3M’s brand as defendant and similar pandemic profiteers promote an improper association between 3M’s marks and exploitative pricing behavior,” the lawsuit states. “3M does not – and will not – tolerate individuals or entities deceptively trading off the fame and goodwill of the 3M brand and marks for personal gain.”
As the case plays out in court, 3M says it intends to double its global respirator production, and recently announced its plan to import 166.5 million of the masks into the United States to supplement that production increase.
Performance Supply President Ron Romano did not answer phone call requests for comment Friday afternoon and his voicemail box was full. No other contact information for the defendant company was available online.
Denise Rutherford, 3M’s senior vice president for corporate affairs, said in a statement that the company would continue working with law enforcement to prevent profiteering.
“This lawsuit is only one of the many legal tools 3M is using to protect the public,” she said. “3M is also making referrals to law enforcement authorities, taking down websites with fraudulent or counterfeit product offerings, removing false or deceptive social media pages, and sending cease and desist letters as a first step prior to taking further legal action.”
New York City has been the hardest-hit area in the U.S. during the Covid-19 crisis, and over 5,800 residents had died of the disease as of Friday afternoon, according to a Johns Hopkins University tracker.
Reporting by New York-focused website Gothamist found that tests for the disease were not being conducted on dead bodies found at home, meaning that the death toll could be undercounted by as much as 40%. Hospitals and morgues in the city have been overwhelmed with patients and bodies.
Thomas Jeitschko, an economics professor at Michigan State University who has studied price-gouging, said in an interview that cases like this could be more common in the coming months.
Under normal circumstances, he said, a jump in prices would indicate a spike in demand that companies might not recognize without an economic incentive. When the demand is all over the news, the signaling benefit of rising prices isn’t as strong. In addition, there are no federal laws comprehensively forbidding price-gouging, so states whose laws don’t adequately address it could be left scrambling for remedies.
Some amount of rising prices makes sense, Jeitschko added, but deliberate price-gouging is unproductive.
“I do think it’s important that people recognize that sometimes in these crises, the things that we need most are only available at a higher cost, and they come at a higher cost because we are dealing with scarce resources,” he said. “Essentially, the notion of trying to extract as much as the market might bear in a situation like this is certainly not ethical behavior. And for those who claim that this is just how markets work …. They’re not designed to respond perfectly to these situations, and I think most people know that.”
Jeitschko also expressed sympathy for 3M and other manufacturers dealing with scammers.
“We know that there’s extremely high demand for [personal protective equipment] right now, and I’m sure that any company that can produce PPE of any type is operating at capacity,” he said. “3M especially is an iconic brand in this area, so for them it must be really horrible for them to be associated with something like this …. There’s no question that they’re upset about this.”
Jeitschko added, “It is, of course, also their name recognition and brand recognition that is allowing others to scam off of them.”