The U.S. Supreme Court recently held that the North Carolina State Dental Board Examiners did not have the authority to regulate teeth-whitening services. The Court’s ruling agreed with the FTC’s claim that although state entities are usually exempt from federal antitrust laws, the exemption did not apply in this case because the Board, which was compromised of active market participants, was not actively supervised by the State of North Carolina.
The FTC filed a complaint against the dental Board in 2010. According to the FTC, the Board violated antitrust law when it sent letters to non-dentist teeth whitening businesses, ordering the businesses to stop offering the services on the grounds that they were not licensed dentists. The Board responded by moving to dismiss, alleging state-action immunity, but the motion was denied. The FTC sustained the ALJ ruling, reasoning that, even assuming the Board had acted pursuant to a clearly articulated state policy, the Board must still be actively supervised by the State to claim immunity. The Fourth Circuit affirmed the FTC’s ruling on appeal, and the Board petitioned the U.S. Supreme Court for a writ of certiorari.
The U.S. Supreme Court granted certiorari to determine whether, for purposes of the state-action exemption, the North Carolina State Board of Dental Examiners is entitled to immunity where it is unsupervised by the state and a majority of the board is made up of private dentists elected by other market participants. The Court’s opinion starts out by retracing the history of state-action immunity from antitrust laws, beginning with the Court’s decision in Parker v. Brown in 1934. The Court has long held that some actions, which might be considered anticompetitive, are permitted if done by states. However, in this case, the Court found the Board’s actions were not cloaked in Parker immunity. The court determined that because the Board was made up of active dentists it could only invoke state-action immunity if it was supervised by the State according to the Court’s decision in Midcal Aluminum. The Board had argued that it was exempt from the Midcal active supervision requirement, but the Court disagreed holding, in a 6-3 decision, that a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates must satisfy Midcal’s active supervision requirement in order to invoke state-action antitrust immunity. Writing for the majority, Justice Kennedy stated:
Immunity for state agencies, therefore, requires more than a mere facade of state involvement, for it is necessary in light of Parker’s rationale to ensure the States accept political accountability for anticompetitive conduct they permit and control. Limits on state-action immunity are most essential when the State seeks to delegate its regulatory power to active market participants, for established ethical standards may blend with private anticompetitive motives in a way difficult even for market participants to discern. Dual allegiances are not always apparent to an actor. In consequence, active market participants cannot be allowed to regulate their own markets free from antitrust account ability.
However, not everyone on the Court saw the decision the same way. Justice Alito who was joined by Justices Thomas and Scalia, wrote in his dissenting opinion that the decision:
Will create practical problems and is likely to have far-reaching effects on the States’ regulation of professions … States may find it necessary to change the composition of medical, dental and other boards, but it is not clear what sort of changes are needed to satisfy the test that the Court now adopts. The Court faults the structure of the North Carolina Board because ‘active market participants’ constitute ‘a controlling number of (the) decision makers,’ … but this test raises many questions.
The Court’s decision carries potentially big implications for established state regulatory boards. But beyond that it shows the Court is for now pulling back on its traditional broad grants of state-action immunity. It will be interesting to see if the Court’s decision changes how state boards are composed or whether the various States ramp up their supervision of boards composed of professionals in that area of practice. For now though, the Court’s opinion makes clear that professional boards cannot have antitrust immunity unless their work is explicitly authorized and actively supervised by lawmakers.