On February 25, 2015, the Supreme Court of the United States issued a decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission limiting the scope of state-action antitrust immunity in circumstances where the state action is performed by a board composed of active participants in the market that the board regulates.1  In 6-3 decision authored by Justice Kennedy, the Supreme Court held that state-action antitrust immunity could be invoked in these circumstances only if the State was engaged in active supervision of the board's activities.  Because such supervision was lacking in the North Carolina State Board case, the Supreme Court found that state-action antitrust immunity could not be invoked to shield the board's activities.

Background

As described by the Supreme Court, under North Carolina's Dental Practice Act, the North Carolina State Board of Dental Examiners is "the agency of the State for the regulation of the practice of dentistry."2  The Act provides that the Board is composed of six members engaged in the active practice of dentistry, one dental hygienist, and one consumer.3

During the 1990s, dentists in North Carolina, including the dentist members of the Board, began to offer teeth whitening services, which were very profitable.4 Within the next decade, non-dentists began to offer these services as well, leading to complaints from dentists in North Carolina, which primarily were related to the low prices charged by the non-dentist teeth whiteners.5  The Board opened an investigation of these other providers, and beginning in 2006 it "issued at least 47 cease-and-desist letters on its official letterhead to non-dentist teeth whitening service providers and product manufacturers."6  Many of these letters insinuated that by providing teeth whitening services, these non-dentists were engaging in the unlicensed practice of dentistry -- a crime.7  As a result, non-dentists in North Carolina ceased offering teeth whitening services.8

The Federal Trade Commission brought an administrative complaint against the Board in 2010, alleging violations of the FTC Act, 15 U.S.C. § 45, in connection with these actions.9  The FTC's administrative process found a violation of the FTC Act, which was affirmed by the Fourth Circuit Court of Appeals before reaching the Supreme Court.10  At each stage of the proceedings, the Board asserted that its actions were entitled to state-action antitrust immunity under the Supreme Court's decision in Parker v. Brown 11, where the Court held that the Sherman Act was not intended to reach anticompetitive actions of state governments.  While action of a state itself is immune from antitrust scrutiny, where a state seeks to immunize the conduct of private actors, their conduct is immune only where they act pursuant to a clearly articulated state policy to allow the anticompetitive conduct and where their conduct is actively supervised by the state.12 Actions by municipalities are immune where the conduct is authorized by a clearly articulated state policy, but municipalities are not required to satisfy the "active supervision" prong.13

The question before the Court was the standard that should apply to the actions of the Board.  The Board claimed that "its members were invested by North Carolina with the power of the State and that, as a result, the Board's actions were cloaked with Parker immunity."14  The FTC argued that the Board's actions were not automatically exempt under Parker because actions of the board could not be considered actions of the state itself.  Rather, because the Board was comprised of practicing dentists, the Midcal test applied and the Board's actions would be exempt only where the Board acted pursuant to a clearly expressed state policy and where its actions were actively supervised by the state.

The Court's Holding

The Supreme Court rejected the Board's state-action immunity defense, holding that "[a] nonsovereign actor controlled by active market participants-such as the Board-enjoys Parker immunity only if its satisfies two requirements: first that the challenged restraint . . . be one clearly articulated and affirmatively expressed as state policy, and second that the policy . . . be actively supervised by the State."15 In its opinion, the Supreme Court noted that "[w]hile North Carolina prohibits the unauthorized practice of dentistry . . . its Act is silent on whether that broad prohibition covers teeth whitening."16  The fact that the Act did not explicitly include teeth whitening as a service that constitutes the practice of dentistry and the lack of State supervision of the Board's actions in sending its cease-and-desist letters

led the Supreme Court to the conclusion that neither prong of the Midcal test was satisfied and state-action antitrust immunity did not apply.  As the Supreme Court noted, "[s]tate agencies controlled by active market participants," such as the dentist members of the Board, "who possess singularly strong private interests, pose the very risk of self-dealing Midcal's supervision requirement was created to address."17 

The Dissent

Justices Scalia, Alito, and Thomas dissented.  While acknowledging that active supervision by the state is required when a state attempts to immunize a private entity from antitrust immunity, the dissenting justices noted that "North Carolina did not authorize a private entity to enter into an anticompetitive arrangement; rather, North Carolina created a state agency and gave that agency the power to regulate a particular subject affecting public health and safety."18  The dissenting justices thought it irrelevant that a majority of Board members were practicing dentists, both because regulatory agencies are subject to "capture" by the groups they regulate regardless of their composition, and because it makes sense to put the regulation of the professions in the hands of knowledgeable practitioners.19 

Implications

The decision is a shining example of the maxim that bad facts make bad law.  Even if the dental board had a plausible argument that teeth whitening involved the practice of dentistry, it is not difficult to assume that board members acted to protect their financial interests rather than to protect patient health.  But the Court's decision turns on the identity of the decision makers and the absence of active state supervision rather than the wisdom of the Board's decision.  State professional boards controlled by practitioners face the risk of having to defend antitrust litigation, even where they act to protect the public.  While state boards seem likely ultimately to prevail in such circumstances, it may be difficult to dispose of challenges on a motion to dismiss.  Under the Supreme Court's holding, a state medical board comprised of practicing physicians that orders a shaman to stop treating heart disease with leaches is subject to the same antitrust claims as dentists who are looking out for their wallets if the complaint alleges that market participants acted because they wished to foreclose competition.

State legislatures that wish to protect professional boards from having to defend antitrust claims may choose to restructure state boards so that they are not controlled by "market participants," such as by replacing private practitioners with state employees.  Alternatively, legislatures may add a layer of active state supervision between boards and the professionals they regulate in the same way that state supreme courts must act to implement the decisions of state bar associations with respect to attorney discipline.