Locke Lord QuickStudy: Supreme Court Opens State Regulatory And Licensing Boards With Private Members To Antitrust Challenge

Locke Lord LLP
February 26, 2015
The United States Supreme Court issued a ruling yesterday that may have profound effects on occupational licensing and other forms of regulation at the state level. In North Carolina State Board of Dental Examiners v. Federal Trade Commission (FTC), No. 13-534 (U.S. Feb. 25, 2015), the Court ruled that when a state establishes a regulatory or licensing board controlled by private actors subject to the board’s regulatory oversight, the board’s actions are not immune from federal antitrust laws unless they are actively supervised by the state.

The case involves the North Carolina State Board of Dental Examiners, an entity created by the North Carolina Legislature with authority to establish and enforce licensing requirements and regulations for the practice of dentistry. The Board undertook to prevent persons not licensed as dentists from performing teeth-whitening services, through such actions as sending cease-and-desist letters to unlicensed persons providing these services. The FTC filed an administrative complaint against the Board, contending that its actions constituted an anticompetitive and unfair method of competition, in violation of  § 5 of the FTC Act, 15 U.S.C. § 45. The Board moved to have the complaint dismissed, arguing that its actions were immune from federal antitrust laws under the state-action doctrine.

The state-action doctrine, established by the Supreme Court in Parker v. Brown, 317 U.S. 341 (1943), holds that the antitrust laws do not apply to restraints on competition imposed by a state as an act of government. The Court reasoned in Parker that the antitrust laws were not intended to constrain the ability of a state to impose regulations that restrict competition in pursuit of another goal that the state legislature deems to be in the public interest, such as limiting the practice of dentistry to persons with the necessary skills and training. The Board argued that its decision to limit teeth whitening services to licensed dentists is the type of decision that the state-action doctrine allows states to make without regard to the antitrust laws, even though it restricts competition.

The Supreme Court in North Carolina State Board found that the antitrust laws applied, nonetheless, because of the Board’s membership composition. Six of the eight Board members were licensed dentists actively engaged in the practice of dentistry, elected to the Board by vote of the other licensed dentists. The Court reasoned that “active market participants cannot be allowed to regulate their own markets free from antitrust scrutiny.” Slip at 8. “If a State wants to rely on active market participants as regulators,” the Court ruled, “it must provide active supervision if state-action immunity under Parker is to be invoked.” Id. at 18.
The Court also provided some guidance on the substance of the active supervision requirement, Id. at 17-18 (quoting Patrick v. Burget, 486 U.S. 94, 100-03 (1988).

Active supervision need not entail day-to-day involvement in an agency’s operations or micromanagement of its every decision.  Rather the question is whether the State’s review mechanisms provide “realistic assurance” that a nonsovereign actor’s anticompetitive conduct “promotes state policy, rather than merely the party’s individual interests.” . . . .

The supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it . . .; the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy . . . .  Further, the state supervisor may not itself be an active market participant.

Licensing and regulatory boards with memberships that include private persons who are active and are subject to the board’s regulatory oversight are common throughout the United States. After the Supreme Court’s decision in North Carolina State Board, these boards and the persons who participate in them will have to take care.  If they are not subject to adequate state supervision of their actions or decisions, they may be at risk for violations of the federal antitrust laws.

The Supreme Court’s decision can be found here.

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Thomas F. Bush  |  312-201-2127  |