Yesterday, the U.S. Supreme Court ruled against the North Carolina State Board of Dentistry in a closely-watched regulatory case that will have repercussions for state licensing boards across the country. A full copy of the opinion in North Carolina Board of Dental Examiners v. Federal Trade Commission, is available here. The Court ruled 6-3 in favor of the FTC.
The North Carolina Board of Dental Examiners—comprised almost entirely of licensed dentists—was concerned with the prospect of unlicensed individuals offering teeth-whitening services to patients. These individuals competed directly with teeth-whitening services from dentists. The board thought that this competition was unwelcome mainly because the prices charged by the unlicensed individuals undercut the market charged by licensed dentists. Accordingly, the board sent dozens of “cease and desist” letters to the unlicensed individuals seeking to impose fines or other liability upon them if they continued competition.
The Federal Trade Commission mounted a challenge to the board’s regulatory actions, claiming that it was anti-competitive. The dental board defended its actions by claiming it was operating under its state regulatory powers to protect the health and safety of North Carolina citizens. Known as the “state action doctrine,” the board sought to invoke immunity from the FTC’s scrutiny. Lower courts, and now the U.S. Supreme Court, did not agree with the state’s defense. Effectively, the board’s motivation in sending the “cease and desist” letters was only for anti-competitive purposes. Since the board was comprised almost entirely of dentists, there was insufficient showing that it was acting under “active state supervision” following a “clearly articulated state policy.”
The decision now provides boards with a detailed roadmap of how to seek state action immunity protections for anti-trust challenges. Board regulatory actions must be conducted under “active state supervision” following a “clearly articulated state policy.” The “supervision” requirement in particular may be the point of most confusion to state boards navigating the issue, as the court did not provide detailed guidance on what state supervision looks like. As such, we expect the need for additional lower court cases to opine on what is, and what is not, acceptable board activity to invoke immunity for anti-trust claims.
The case is a cautionary tale for state boards comprised of licensed professionals who regulate fellow licensed professionals. Practically speaking, this ruling confirms that boards cannot use their regulatory powers in a protectionist or anti-competitive way. It also confirms that if the FTC charges an anti-trust violation, the board cannot use state-action immunity as a defense unless it is clear that the activity is affirmatively expressed as state policy and the state government actively supervised the board’s decision.
It will be interesting to watch this decision filter down to the state board level nationally—regardless of profession. Boards sometimes struggle with balancing the need to protect the public safety against not stifling competition. Board regulations are often slow to adopt to changing industries and technologies. For instance, pharmacy boards, comprised mainly of pharmacists, are grappling with rapidly changing technology and innovative ways to dispense patient medications. If boards take aggressive action against such alternative models with a goal of protecting the market of their own licensees, they are likely opening up the door to anti-trust and other legal claims.