Earlier this year, we covered the Supreme Court’s decision in North Carolina State Board of Dental Examiners v. FTC, which held that a state regulatory board composed of “active market participants” was not immune to federal antitrust laws unless the state “actively supervised” the board.  We noted that the Court left open what level of active supervision would be required for a state board to enjoy antitrust immunity.

Last week, the FTC issued guidance to help states and practitioners answer the questions left open by the Supreme Court’s decision.  The FTC’s guidance addresses (a) when a board is “composed of” active market participants; and (b) if the board is so composed, the level of “active supervision” required for antitrust immunity.

A board requires active supervision when it is composed of a “controlling number” of decision makers who are active market participants in the occupation the board regulates.  A “controlling number” does not necessarily mean a majority of the board.  Rather, whether a board is composed of a “controlling number” of active market participants depends on the composition, structure, voting rules, and other circumstances of the board.  For example, if a majority of the board members are non-market participants, but those members routinely defer to those members who are market participants, the board might be controlled by the active market participants.

If a board that is comprised of a “controlling number” of active market participants desires antitrust immunity, it must be subject to active supervision by the state to ensure any anticompetitive decisions are consistent with state policies.  The FTC provided a helpful list of factors that it will consider in determining whether the level of active supervision is sufficient to warrant antitrust immunity.  The FTC is more likely to find active supervision if the supervising entity:

  • Gathered information necessary for a proper evaluation of the board’s decision;
  • Evaluated the substantive merits of the action, and did not merely bless the board’s process or conduct a perfunctory review; and
  • Issued a written decision approving, disapproving, or modifying the recommended action and explaining the reasons for its decision.

The supervising entity cannot itself be controlled by active market participants and must have full authority to disapprove anticompetitive acts that don’t accord with state policy.  The FTC has indicated that active supervision is more than just a monitoring function and requires substantive independent review of a board’s decisions.

The FTC’s guidance should provide some certainty for state boards and inform them how to ensure they fit within the state antitrust exception.