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Anti-Trust and Licensure Boards

  • March 6, 2015

On February 25, 2015, the U.S. Supreme Court issued its opinion in North Carolina State Bd. of Dental Examiners v. FTC, No. 13-534, slip op. (U.S. Feb. 25, 2015), holding that antitrust immunity is unavailable to state licensure boards where a “controlling number” of the board’s members are active, practicing members of the profession regulated by the board. The case arose out of the North Carolina State Board of Dental Examiners’ (the “Board”) attempts to enjoin non-dentists from offering cosmetic tooth-whitening services; services that dentists frequently perform. Id. at *3. The Federal Trade Commission (“FTC”) filed a complaint against the Board, alleging that it had engaged in an unfair method of competition in violation of the Federal Trade Commission Act when it excluded non-dentists from the tooth-whitening market. Id. at *4. Writing on behalf of a 6-3 majority, Justice Kennedy agreed with the FTC’s finding that the Board, though a state agency in name, was in reality a “public/private hybrid,” requiring “active supervision” from the state in order to claim immunity from antitrust liability. See id. at *1, *4, *14.

The Board argued that it was exempt from antitrust liability under the Sherman Act pursuant toParker v. Brown, 317 U.S. 341, 350-51 (1943), which held that states are immune from liability for anticompetitive conduct when acting in their sovereign capacity. North Carolina State Bd. of Dental Examiners, No. 13-534, slip op. at *5-6 (U.S. Feb. 25, 2015). The Court, however, rejected the argument that the Board had acted under the authority of the State of North Carolina. Id. at *6. Instead, it deemed the Board a “nonsovereign actor” due to the fact that six of the Board’s eight members were licensed, practicing dentists, and were therefore “active market participants” rather than state actors.  Id. at *1, *6.

The Court held that active market participants acting on behalf of a state are only immune from antitrust liability where the restraint on trade is both “clearly articulated and affirmatively expressed as state policy” and the action under the policy is “actively supervised by the State.” Id.at *6 (quoting California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980)). The Court and the litigants operated under the assumption that the Dental Practice Act established a “clearly articulated” policy prohibiting the unauthorized practice of dentistry. Id. at *6. However, because the Dental Practice Act does not explicitly classify tooth-whitening services as the practice of dentistry, the Board’s determination that tooth-whitening services could only be performed by dentists was based entirely on its own interpretation of the Act. Id. Because there had been neither express legislative endorsement, nor “active supervision by the State,” of the Board’s decision to preclude non-dentists from performing tooth-whitening services, the Board’s restrictions on tooth-whitening services were not immune from antitrust liability. Id. at *6.

Under North Carolina State Bd. of Dental Examiners, all policy and practices developed by professional licensure boards where a controlling number of the board’s members are active, practicing members of the profession will require state review and approval. The Court’s rationale for the state supervision requirement was the danger that private parties purporting to act on behalf of the state, such as the practicing dentists sitting on the Board, will act in their own interest rather than that of the state. Id. at *10. The Court seems to have viewed the restrictions on tooth-whitening services the Board adopted as primarily motivated by profit, citing the fact that most of the complaints that the Board received on the subject were from dentists expressing concern with the low prices charged by non-dentists, rather than asserting risk to consumers. Id. at *3.

Not only does North Carolina State Bd. of Dental Examiners now expose state licensure boards to antitrust liability, it leaves them with relatively little guidance on how to properly exercise the power to regulate their professions delegated to them by their respective states. According to the Court, states may ensure that Parker immunity (which the Board unsuccessfully sought to cloak themselves in) is still available to licensure boards adopting policies that restrain trade if two requirements are met: 1- the restraint on trade is “clearly articulated and affirmatively expressed as state policy,” and 2- there is independent, active supervision by the state where “active market participants” on such boards interpret or enforce those policies. Id. at *16. Unfortunately, the Court did not describe what supervisory structure it would have found appropriate in this instance, as the Board did not assert or present evidence that the state had exercised any supervision of its conduct. Id. at *17.

Going forward, judicial review of the adequacy of states’ supervisory structures of professional licensure boards will be “flexible and context-specific” and will depend on the circumstances of the individual case. Id. The state’s active supervision must provide “realistic assurance” that a licensure board is pursuing the interests of the state rather than those of the individual board members, but the Court stopped short of requiring daily involvement by the state in the activities of a licensure board. Id. at *17-18. Specifically, the state’s supervisory official must review the substance of every anticompetitive board decision, must have the power to veto or modify a board decision, and must not be an active market participant. Id. at *17-18.

The dissent criticized the majority opinion for meddling with a regulatory structure that has been in place since before the passage of the Sherman Act. North Carolina State Board of Dental Examiners v. FTC, No. 13-534, slip op. at *1 (U.S. Feb. 25, 2015) (Alito, J., dissenting). Traditionally, states have dictated that licensure boards include practicing members of regulated professions: for example, North Carolina’s Dental Practice Act specifically requires that six of the eight Board members be practicing dentists elected by other practitioners. Id. at *2. Justice Alito posed several questions about the impact of the Court’s holding, which licensure boards will no doubt be asking as they attempt to comply. He noted the uncertainty as to what constitutes a “controlling number” of “active market participants” in a board’s membership, such that state supervision is required to address the potential conflict of interest. Id. at *11-12.

No matter the resolution of such lingering questions, North Carolina State Bd. of Dental Examinersprohibits the previous norm of states delegating full authority to professional licensure boards to interpret the statutes that govern their professions. While states are free to implement deferential supervisory structures, it is clear after North Carolina State Bd. of Dental Examiners that regulation of professional occupations must be carried out with the participation and oversight of state officials outside such professions, the specifics of which oversight are yet to be established.

The Court’s North Carolina State Bd. of Dental Examiners opinion is available online at: http://www.supremecourt.gov/opinions/14pdf/13-534_19m2.pdf.

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