On February 25, the US Supreme
Court released its decision in North Carolina State Board of Dental Examiners v.
Federal Trade Commission, reaffirming the rule that state
professional licensing boards controlled by active market participants that are
not “actively supervised” by the State do not enjoy state-action immunity from
antitrust enforcement. As a result, both
regulators and regulated health care professionals may find a need to
reevaluate state licensing board activity.
Like most states, including
Delaware, the North Carolina legislature created a board—the State Board of
Dental Examiners—to regulate the “practice of dentistry.” By state law, a majority of the Board was
comprised of practicing dentists. In
2003, North Carolina dentists started to complain to the Board about
nondentists offering teeth whitening services at lower costs. The Board appointed a dentist member to lead
an investigation into nondentists offering these services. The investigation led the Board to issue
cease-and-desist letters to these nondentists, warning that the unlicensed
practice of dentistry was a crime and either strongly implying or expressly
stating that teeth whitening constituted “the practice of dentistry.” The Board also convinced the North Carolina
Board of Cosmetic Art Examiners to warn cosmetologists against providing such
services and even wrote letters to shopping mall operators to advise them to
remove teeth whitening kiosks because that activity violated the North Carolina
Dental Practice Act. The Act did not
specify that teeth whitening constituted the practice of dentistry. As intended, nondentists ceased offering
teeth whitening services in North Carolina.
In 2010, the Federal Trade
Commission “FTC”) filed an administrative complaint charging the Board with
violating Federal antitrust law.
Essentially, the FTC alleged that the Board’s resolute action to exclude
nondentists from the market for teeth whitening services was anticompetitive
and an unfair method of competition. An
Administrative Law Judge (“ALJ”) rejected the Board’s argument that the Board
was immune from antitrust enforcement under the state action immunity
doctrine. Ultimately, the case was
decided on the merits in favor of the FTC, and the FTC ordered the Board to
stop sending cease and desist letters and to issue notices to all earlier
recipients explaining the Board’s proper scope of authority. The Board filed a petition for review to the
Fourth Circuit, which subsequently affirmed the FTC’s decision. The Supreme Court granted certiorari on the
issue of whether the Board enjoyed state action immunity.
The Supreme Court restated the
standard for state action immunity set forth in Parker v. Brown, which provides that antitrust laws confer immunity
on the anticompetitive conduct of States that are acting in their sovereign
capacity. The Board argued that its
members were conferred with the power of the State by virtue of the State creating
the Board to regulate the practice of dentistry. The Court disagreed that creation of the
Board was enough. Where a nonsovereign
actor is controlled by active market participants, such as the Board, the actor
will only enjoy Parker immunity if:
(1) the action is clearly articulated and affirmatively expressed as state
policy; and (2) the policy is “actively supervised” by the State. The second requirement was at the heart of
the parties’ arguments.
In its holding, the Court made
clear that where a State empowers a licensing board run by a majority of
members that practice the profession they regulate, “the need for supervision
is manifest.” Where a board is
essentially controlled by active market participants, there is a risk that
private interests may lead to anticompetitive regulation. The Board did not claim that the State of
North Carolina exercised any supervision over its conduct regarding teeth
whitening. The Court held that because
there was no active supervision of the Board’s actions, the Board was not
immune to antitrust laws.
In its decision, the Court
established the parameters for what a State must do in order for its agencies
controlled by active market participants to enjoy immunity from antitrust laws. At the very least, the inquiry is whether the
State provides “realistic assurance” that an agency’s anticompetitive conduct
promotes state policy, rather than the actor’s self-interest. The Court stated that to satisfy the
requirement, a “supervisor,” who may not be an active market participant, must
look at a board’s decision and review its substance,
and act on the power, if necessary, to veto or modify decisions to ensure such
decisions achieve state policy.
The Court’s decision in North Carolina State Board of Dental
Examiners v. Federal Trade Commission should prompt states to review the
composition and conduct of their licensing boards. Where a board is controlled by a majority of
individuals who practice the profession they seek to regulate, states should
seek to actively supervise the board decisions if immunity is desired.
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