Old and new regulations established by state professional boards that are composed of “active market participants” such as physicians, dentists and therapists, may be subject to antitrust challenge following the U.S. Supreme Court’s recent decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission. In most states, the boards of professional regulatory bodies are primarily composed of members who practice the applicable profession. Rarely are these boards’ decisions reviewed by a state agency that is not composed of active market participants.
In the case before the Supreme Court, the Federal Trade Commission (FTC) challenged a rule established by the North Carolina State Board of Dental Examiners (Board) that banned salons, spas, malls and other retailers from offering teeth whitening services. The FTC asserted that the dentists on the Board essentially precluded competition by making the competition unlawful after dentists began complaining to the Board about the lower prices for teeth whitening offered by non-dentists.
To preclude this competition, the Board sent out at least 47 cease-and-desist orders to non-dentist teeth whitening service providers on official letterhead, stating that teeth whitening constitutes the practice of dentistry. Despite having no authority over non-dentists, the Board ordered the recipients to cease offering teeth whitening services. In addition, the Board sent similar notices to mall landlords renting space to non-dentist teeth whitening providers.
North Carolina statutes did not specifically address whether teeth whitening constitutes the practice of dentistry. Consequently, the determination of whether non-dentists could lawfully provide such services required the Board to interpret the more generally worded statutory provisions.
The Supreme Court held that such professional boards, when composed primarily of active market participants (e.g., substantially composed of physicians, dentists, pharmacists, etc.) are exempt from antitrust claims only if they are actively supervised by the state government. Because these regulatory bodies are not often supervised, many market-limiting regulations, both old and new, may be subject to challenge on antitrust grounds.
The FTC argued that the Board’s prohibition on teeth whitening services constituted unfair competition in violation of the Federal Trade Commission Act because the Board was controlled by dentists who were “active market participants” that stood to benefit from the regulations. Historically, the professional boards argued that their actions were immune from antitrust challenge under the state action doctrine, an implied exception to the federal antitrust laws. In this case, however, the Supreme Court limited the state action doctrine and precluded boards composed of active market participants from being protected by state action immunity unless the actions were actively supervised by the state. In short, professional boards composed of market participants looking to benefit members by enacting and enforcing restraints that restrict competition better watch out.
The Board was particularly susceptible to challenge as a majority of its members were practicing dentists chosen by other dentists rather than by the public or by any politically accountable state official. In addition, the Board was funded exclusively by dues and fees paid by the dentists it licensed. Finally, it must be noted that at least eight of the Board’s 10 dentist members provided teeth whitening services in their private practices. The FTC also rejected the Board’s contention that its actions were justified by public safety concerns as there was no contemporaneous evidence that the regulatory actions were motivated by health or safety concerns rather than by its members’ desire to eliminate competition from non-dentist providers.
As a result, many professional board regulations, both old and new, may be vulnerable to antitrust suits for regulations that market participants view as anticompetitive. “[A]ctive market participants cannot … regulate their own markets free from antitrust accountability.” Regulations that can be characterized as self-dealing, arbitrary or excessive are likely to be most vulnerable. However, not all regulations will be subject to antitrust challenge. Regulations that legitimately protect the public from harm are unlikely to be set aside. Regulations are immune if the challenged regulatory restraint is “clearly articulated and affirmatively expressed as state policy” and the board’s “policy is actively supervised” by an arm of the state not composed of market participants.