Do you sit on a state board or are you regulated by one? If so, the United States Supreme Court decided a case yesterday that directly affects you.

Until recently, many assumed that a state agency or board enjoyed immunity from the antitrust laws by virtue of its existence as a state-created entity. Yesterday, however, the Supreme Court rejected that theory and held that a state agency must be “actively supervised” to enjoy antitrust immunity. 

In North Carolina State Board of Dental Examiners v. FTC, the FTC challenged, and won, on its claim that a state board, controlled by active practitioners, must be supervised by an independent state agency or officer to enjoy state action immunity from the antitrust laws. 

State boards license practitioners or set standards in more than 100 separate markets, ranging  from dentistry to law to taxicab services. Anyone who sits on a state board or agency, or who is regulated by one, needs to sit up and pay attention to this ruling, because your actions − either with or in front of an agency that is not “properly supervised” − could expose you to antitrust liability.

This is also important to those that interact with those boards, because lobbying or “petitioning” the state has also traditionally been immunized from antitrust law as protected First Amendment activity. But if the body you are “lobbying” does not enjoy immunity because it is not “actively supervised,” then it erodes your ability to claim protection for your activity as well.

In practical terms, what do you need to do to protect yourself?

First, ask whether the state board or agency (professional or otherwise) makes decisions that affect competition. This could be a conventional board (like physicians, lawyers, or dentists) or a more general standard-setting board. In either case, does that board have the power to restrict or exclude competitors or set standards that favor one group of competitors over another?  [Hint:  at times, nearly all do, so you need to look at the conduct on a case-by-case basis].

Second, understand who else sits is on the board or agency and what proportion includes active participants in the area being regulated. North Carolina Dental Board involved a state agency that was controlled by market participants, but we would advise caution even if active participants are in the minority. “Active supervision” by the state may be required even when the board does not consist solely of market participants, but a body that has active participants on it raises significantly the likelihood it needs active state supervision.

Third, is the agency or board “actively supervised” by the state? Unfortunately, this is not entirely black and white, but we know that that means that the state supervisor must (a) review the substance of the board’s action, not just the procedures; (b) have the power to veto or change the board’s resolutions; and, (c) obviously, not be a practitioner in that market.

Fourth, do not be misled by pleas of board members that a decision that could affect competition is “reasonable,” so that no supervision is required. You will be heading down the garden path if you believe that, because it is simply not the standard. In North Carolina Dental Board, the Supreme Court rejected that theory, stating, “the question is not whether the challenged conduct is efficient, well-functioning, or wise.” The real question is: is this the action of the “state,” where “state” means people independent of active practitioners? Attorneys general or full-time state agency employees are likely candidates to be independent. If independent individuals are not actively involved, proceed with caution. 

Fifth, if you have any doubt about what you see happening, remember the Supreme Court’s words: “the risk [that we want to prevent is] that active market participants will pursue private interests in restraining trade.” If you even suspect that this could arguably be happening, you need to check with your lawyer immediately to protect your own legal rights.                        

The Supreme Court’s decision is available here