Last week the Federal Trade Commission (“FTC”) released guidance to help state regulatory boards avoid antitrust issues in the wake of N.C. State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. 1101 (2015). This guidance is aimed at helping state regulatory boards made up of market participants understand the scope of the so-called “state action defense” to antitrust suits.
The state action defense exempts states, acting in their sovereign capacity, from federal antitrust scrutiny. The defense is also available to regulatory bodies comprised of market participants—that is, regulatory boards whose decisions are controlled by members of the market that the board regulates. Boards controlled by market participants do not enjoy automatic antitrust immunity. A state regulatory board controlled by market participants has antitrust immunity, however, when an anticompetitive behavior is (1) clearly articulated and affirmatively expressed as state policy and (2) is actively supervised by the state. In N.C. State Bd. of Dental Exam’rs v. FTC, the Supreme Court found that the state dental board controlled by market participants did not have immunity because the “active supervision” element was lacking.
The FTC’s new guidance focuses on this “active supervision” requirement, delineating standards for when immunity might exist. When reviewing whether a state has actively supervised the regulatory board’s actions, the FTC stated that its inquiry would be flexible and context-dependent.
The following factors will be the FTC’s touchstones in evaluating whether the active supervision requirement has been satisfied:
- Whether the state’s designated supervisor obtains information necessary for a proper evaluation of the regulatory board’s recommendation.
- Whether the state supervisor evaluates the substance of the board’s recommendation to determine if the recommendation comports with the standards set by the legislature.
- Whether the state supervisor issues a written decision approving, modifying, or disapproving the recommended action and explaining the reasons for that decision.
Even if the state action defense does not apply, the FTC guidance noted that other antitrust defenses might still be available to a state regulatory board facing an antitrust challenge.