On October 13, 2015, the Federal Trade Commission (FTC) released guidance regarding the level of state supervision required for state regulatory boards to receive immunity from antitrust claims.1 This guidance comes on the heels of the U.S. Supreme Court's ruling in theNorth Carolina State Board of Dental Examiners case earlier this year, holding that when a controlling number of state board members are active market participants, such boards will not be immune from the antitrust laws under the "state action" defense unless they are "actively supervised" by the state.2 (For a discussion of this decision, please see our June Health Update.) Since the Supreme Court's ruling, several new antitrust cases have been initiated against state licensing boards, making the FTC's guidance very timely.
Summary of FTC Guidance
In response to requests for advice from state officials regarding antitrust compliance for state licensing boards, the FTC Staff guidance addresses:
- When a state regulatory board requires active supervision to invoke the state action defense; and
- The factors relevant to determining whether the active supervision requirement is satisfied, including examples of sufficient and insufficient state supervision.
When State Supervision Is Required
In requiring active state supervision, the Supreme Court's decision in theNorth Carolina State Board of Dental Examiners case focused on whether the state regulatory board included a controlling number of "active market participants." The FTC provides guidance on who is an "active market participant" in the occupation regulated by the board.
The guidance defines the term broadly as a person who is licensed by the board or provides any service that is subject to the board's regulatory authority. It is not a defense to antitrust scrutiny that board members are not directly or personally affected by a particular restraint. Board members who are not currently practicing the regulated occupation and board members who do not perform the particular service that is subject to a given restraint may still be considered "active market participants" for state action purposes. Further, the method of selecting board members, such as by appointment or election, has no bearing on who is considered an active market participant.
The guidance also clarifies that the supervision requirement will apply where active market participants constitute a controlling number, and not necessarily a numerical majority, of actual decision makers. This issue is fact-specific and will be determined on a case-by-case basis. The FTC will consider such factors as the regulatory board's structure, the rules governing its exercise of authority, and whether the active market participant board members have veto power over the board's regulatory decisions.
Factors Considered by the FTC in Assessing Supervision
The guidance also outlines factors the FTC will consider in determining whether the "active supervision" requirement is satisfied. These include whether the supervisor has:
- Obtained necessary information to evaluate the recommended restraint by collecting data, conducting public hearings, soliciting and reviewing public comments, investigating market conditions, and reviewing documentary evidence, as applicable;
- Evaluated the substantive merits of the recommended action and assessed whether it complies with standards established by the state legislature; and
- Issued a written decision regarding the recommended restraint, explaining the reasons for the decision.
By way of example, the FTC describes that a state board regulation restricting the performance of teeth whitening services to licensed dentists in order to further the state's policy of protecting the health and welfare of its citizens and promoting competition is actively supervised where the supervising agency:
- Was designated by the state legislature to review and approve the state board's recommended regulations prior to them becoming effective;
- Provided notice of the regulations and an opportunity to be heard to interested and affected persons;
- Took steps necessary for proper evaluation of the recommended regulation;
- Assessed whether the recommended regulation aligns with state policy; and
- Issued a written decision, explaining its rationale.
The FTC guidance also sets out examples of inadequate supervision, such as: simply having a state official serve ex officio as a member of the regulatory board with full voting rights, but without authority to disapprove of anticompetitive acts that are inconsistent with state policy; where a state official provides advice to the regulatory board on an ongoing basis; or where an independent state agency merely performs a cursory review and perfunctorily approves a board's recommendations.
Significance of FTC Guidance in Light of Recent Litigation Activity
Because the state action defense analysis is fact-specific, compliance with the FTC guidance does not guarantee antitrust immunity. Conversely, failure to comply with the guidance does not necessarily indicate that state action immunity is inapplicable. When state action immunity does not apply, boards may, of course, assert other defenses generally available to antitrust defendants.
Nonetheless, the FTC's guidance serves as a helpful guidepost, particularly amid a recent flurry of antitrust lawsuits against state licensing boards. In the healthcare field, for example, cases are currently pending against the Texas Medical Board3 and the North Carolina Acupuncture Licensing Board.4 These cases may be harbingers of future litigation activity since many states' health-related professional boards may be composed of a controlling number of actively practicing members. The FTC's guidance is particularly relevant to these boards, which may face heightened litigation risks in the wake of the Supreme Court's decision.