The North Carolina State Board of Dental Examiners can no longer regulate the practice of dentistry without active state supervision—and neither can other state professional boards controlled by active market participants. Last Wednesday, the U.S. Supreme Court concluded in North Carolina State Board of Dental Examiners v. Federal Trade Commission (FTC) that the state action doctrine does not protect the board from the Federal Trade Commission’s challenge to its policy prohibiting non-dentists from offering teeth whitening services.
We previously discussed the background of this case and the state action doctrine here and here. In short, the North Carolina Board of Dental Examiners regulates the practice of dentistry in North Carolina pursuant to state statute. Six of its eight members are licensed, practicing dentists. Upon receiving complaints from dentists that non-dentists were offering teeth whitening services—generally at cheaper rates than those charged by the dentists—the board sent at least 47 cease and desist letters to non-dentist teeth whitening service providers. The FTC alleged that the board’s concerted action to exclude non-dentists from the teeth whitening market was unfair and anticompetitive under the Federal Trade Commission Act.
The U.S. Supreme Court has long held that states can confer antitrust immunity. The mechanism for doing so, however, differs depending on the identity of the actor engaged in the anticompetitive conduct. Conduct by the state itself (e.g., governor, legislature, even Supreme Court) is automatically immune. If the actor is a state agency or municipality, then the anticompetitive conduct must be undertaken pursuant to a clearly articulated state policy to displace competition. Conduct by private actors may also be immune if, in addition to being undertaken pursuant to state policy, the state also provides active supervision of the anticompetitive conduct. This case tested the distinction between state agency and private actor. On the one hand, the board was a state agency, whose members were appointed by the governor, while on the other it was comprised of private dentists who competed with each other and with the teeth whitening providers they were seeking to regulate. The board argued that entities designated by the states as agencies were exempt from the active state supervision prong of this test. An administrative law judge, the Fourth Circuit, and ultimately, the U.S. Supreme Court, however, agreed with the FTC that the board’s conduct was immune only if active state supervision was present, which it was not.
The Court’s ruling that the board could invoke state action antitrust immunity only if it was subject to active state supervision turned on the fact that a controlling number of the board’s decision makers were active market participants in the occupation regulated by the board. Writing for the majority, Justice Kennedy noted that “[i]n important regards, agencies controlled by market participants are more similar to private trade associations vested by States with regulatory authority than to” state agencies or municipalities: “When a State empowers a group of active market participants to decide who can participate in its market, and on what terms, the need for supervision is manifest.” The majority provided that the test of adequate state supervision is whether “the State’s review mechanisms provide ‘realistic assurance’ that a non-sovereign actor’s anticompetitive conduct ‘promotes state policy, rather than merely the party’s individual interests.’’ The Court provided few examples of “active supervision,” but observed that the adequacy of such supervision must be determined on a case-by-case basis. The dissent, though, pointed out the many practical questions raised by the majority opinion, which provided little guidance to state professional boards as to how to guarantee qualification for state action immunity.
The Court’s decision therefore puts states and state professional boards, particularly state dental and medical boards, in the tricky position of determining whether such boards are currently adequately supervised and, if not, what changes must be made to qualify for state action immunity. Such boards, particularly those that regulate healthcare related fields, will also need to find individuals who are qualified to provide active supervision but who are not themselves active market participants. The question is whether states will be willing to create the needed infrastructure to meet the active supervision prong. Perhaps qualified retirees will find a home on these boards in their golden years?