Licensing Board Violated Antitrust Laws

READ THE FULL DECISION: N. Carolina State Bd. of Dental Examiners v. F.T.C., 135 S. Ct. 1101 (U.S. 2015)

The Supreme Court of the United States has considered whether a state professional regulatory agency violated federal antitrust laws when the agency’s commissioners (mostly industry participants) used their powers to issue cease and desist to non licensees who were providing services in competition with the industry members.

North Carolina’s Dental Practice Act (“Act”) established the North Carolina State Board of Dental Examiners (“Board”) as the agency that regulates the practice of dentistry in the state.  The Board is responsible for licensing dentists, and has broad authority over licensees.  The Board also has the power to enjoin the unlawful practice of dentistry by unlicensed persons.  The Board is composed of eight members: six licensed dentists who are currently active; one dental hygienist; and a consumer appointed by the governor.  The dentists on the Board are elected by their peers, and serve 3-year terms.

In the 1990s, dentists began offering teeth whitening services.  Eventually, non dentists offered teeth whitening services at a lower cost than dentists typically charged.  Even though teeth whitening was not included within the Act’s definition of dentistry, the Board interpreted the Act as covering teeth whitening.  Therefore, the Board began sending out cease-and-desist letters to the unlicensed teeth whitening entities.  Eventually, the non dentists stopped offering teeth whitening services in the state.

The Federal Trade Commission (“FTC”) filed an administrative action alleging that the Board violated the FTC’s antitrust rules by excluding non dentists from the teeth whitening market.  The FTC’s administrative process determined that the Board had unreasonably restrained trade, and ordered the Board to stop issuing cease-and-desist letters to non dentist teeth whitening providers.  The Board appealed, and the Fourth Circuit Court of Appeals upheld the FTC.  The Board appealed again.

The Supreme Court of the United States affirmed the rulings of the FTC and the Fourth Circuit.  Antitrust law exists to protect competition, but the courts have carved out the so-called Parker exception that protects a state’s regulatory activities from antitrust scrutiny when the state is acting in its sovereign capacity.  In order for a state to qualify for the Parker exception, it must satisfy two requirements: the challenged restraint must be expressed as a state policy; and second, the policy must be actively supervised by the state.  All parties assumed that the first part of the test was satisfied, and so the question before the Court was whether the Board received active supervision from the state.

The state argued that the Board was created pursuant to a state statute and so qualified for the Parker  immunity.  However, the Court determined that the Parker  exception required more than a mere “façade” of state involvement, particularly where market participants (i.e., the dentists) were in charge of enforcing the license law.  Instead, when a state agency is composed of active market participants and they are in charge of enforcing the state regulations, the state must actively supervise the agency in order to qualify for the state to qualify for Parker immunity.

The Court ruled that the state did not actively supervise the Board, and so therefore the Board did not qualify for Parker immunity.  The Board did not have any active state supervision, and the state’s only involvement with the Board was through the statute creating the Board.  The state also had no involvement in the Board’s decision to issue cease-and-desist letters to the non dentist teeth whiteners. 

While what would constitute adequate state supervision will depend on the circumstances, the Court cited some examples from other decisions: the substance of the anti competitive decisions are reviewed by the supervisor; the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy; and finally, the mere potential for state supervision is not a substitute for adequate supervision.  Because the Board was not actively supervised by the state, the Court upheld FTC and Fourth Circuit’s rulings.

Three judges dissented from the Court’s opinion, finding that the Court’s opinion “distorted Parker”  and argued that it would be difficult for state agencies to meet the active supervision requirement set forth in the opinion.

N. Carolina State Bd. of Dental Examiners v. F.T.C., 135 S. Ct. 1101 (U.S. 2015).