In North Carolina Board of Dental Examiners v FTC on February 25, 2015 the Supreme Court handed down a potentially wide reaching decision on antitrust immunity as it relates to State agencies and boards.
In North Carolina Board of Dental Examiners v FTC on February 25, 2015 the Supreme Court handed down a potentially wide reaching decision on antitrust immunity as it relates to State agencies and boards. The outcome of this case has potential implications for U.S. healthcare providers, regulatory bodies and other professional boards such as Bar Associations.
The Court was asked to clarify the scope of the state-action antitrust immunity doctrine, which typically exempts State and municipal authorities from the reach of federal antitrust laws. Specifically, the question posed to the Court was whether State-appointed boards composed of officials who are also market participants should be covered by state-action antitrust immunity absent "active supervision" by the State.
The Court's recent ruling precludes extending antitrust immunity to such boards unless the State (1) had a clearly articulated statutory policy to regulate the relevant industry, and (2) actively supervised the board. This ruling upholds decisions at both the FTC level and in the Fourth Circuit, and could lead to overhauls in the supervision of regulated professions, potentially increasing costs and litigation risks for practicing board members.
The North Carolina Board of Dental Examiners (the "Board") is a State-appointed agency responsible, by law, for the licensing and supervision of dentists in North Carolina. The Board may promulgate rules and regulations governing the practice of dentistry within North Carolina, provided that such mandates are not inconsistent with the State's Administrative Procedure Act and are approved by the North Carolina Rules Review Commission, whose members are appointed by State legislature. The Board itself is comprised of eight members, including six practicing dentists and a practicing dental hygienist, all elected by members of their respective professions. The eighth member is a "consumer" appointed by the State Governor. There is no State law provision for the removal of elected Board members by a public official.
In 2003, the growing demand for teeth whitening services led non-dentist providers to enter the market by offering cheap treatments at spas and malls. In response to complaints from dentists, the Board issued 47 cease and desist orders starting in 2006 to these non-dentist providers and to businesses providing them with retail space, alleging they were engaged in or assisting in the unlicensed practice of dentistry, a misdemeanor offense in the State. Resultantly non-dentists ceased offering teeth whitening services in North Carolina.
The Federal Trade Commission ("FTC") filed an administrative complaint against the Board in 2010, alleging that the Board's actions unreasonably suppressed non-dentist competition in the State's teeth whitening market, in violation of Section 5 of the FTC Act. An administrative law judge ("ALJ") conducted a hearing on the merits and determined that the Board had unreasonably restrained trade in violation of antitrust law. On appeal, the FTC affirmed the ALJ decision and, on petition for review, the 4th Circuit ultimately affirmed the FTC in all respects.
The state-action antitrust immunity doctrine, first recognized in Parker v Brown, 317 US 341 (1943), draws from the principles of federalism and State sovereignty in providing a defense for State governments and certain state-authorized private economic actors from application of federal antitrust law. The defence grants a degree of leeway for a State agency to promote one or more legitimate State interests (e.g., health and welfare regulations), even if facially anticompetitive.
Initially, legislative acts of the State were considered to be absolutely immune from antitrust law. Subsequently, the Supreme Court clarified the scope of the doctrine in respect of state-authorized private actors by setting out a two-part test to apply state-action immunity to actors other than the State or a State agency: (1) there must be a "clearly articulated" State policy which leads to the displacement of competition and, (2) if the actor is not a State agency, the policy is to be "actively supervised" by the State itself. California Retail Liquor Dealers Assn. v Midcal Aluminum, Inc., 445 US 97 (1980).
North-Carolina Board of Dental Examiners v FTC relates to the interpretation of the active supervision requirement.
Supreme Court decision
On February 25, 2015, the Court agreed with the FTC and 4th Circuit that professional boards controlled by active market participants must be actively supervised by the State in order to invoke state-action antitrust immunity.
The Court distinguished prototypical State agencies that lack a private price-fixing agenda from specialized State boards dominated by active market participants who often have personal economic incentives to restrain competition. The Court found that the need for active State supervision did not turn on the formal designation given to the board by the State, but rather on the risk that board members (as continuing active participants in the market) would pursue private interests by restraining trade in their roles on State boards. According to the Court, such private economic incentives are not eliminated simply because the board is given a formal State designation, vested with a measure of government power, or required to follow procedural rules.
The Court fully acknowledged the importance of respecting federalism, but stressed that States must "accept political accountability for anticompetitive conduct they permit and control". In its 6-to-3 decision, the Court went on to say that it does not question the good faith of State officers, but rather that private actors may not even be aware that they are also pursuing their own interests or "dual allegiances" when carrying out State policy goals.
If a board or organization which is not clearly the State or a State agency, engages in conduct that harms competition, it may face a high burden to qualify for state-action antitrust immunity. Companies that may have been harmed by potentially anticompetitive actions taken by such boards or organizations should carefully consider the extent to which such actions were taken under then active supervision of the State.
Moreover, any private persons who serve on such boards or in these types of organizations are advised to consult with antitrust counsel before relying on state-action doctrine to exempt actions that potentially violate federal antitrust laws.