The Supreme Court ruled on February 25 that state professional boards controlled by private entities must be “actively” supervised by state governments to fall within the scope of the state-action antitrust immunity doctrine. North Carolina State Board of Dental Examiners v. FTC, S. Ct. No. 13–534 (Feb. 25, 2015). Companies and private market actors that participate on state regulatory boards, as part of hybrid agencies, or in trade associations should be aware of the decision’s potential impact on their activities. 

North Carolina’s Board of Dental Examiners (the Board) is charged with creating, administering, and enforcing a licensing system for dentists. Its eight members include six practicing dentists and one practicing dental hygienist, all elected by licensed members of their profession. The final member is referred to as a “consumer” and is appointed by the Governor. State law does not provide a mechanism for the removal of elected Board members by a public official. The Board must abide by the state’s Administrative Procedure Act, and it may promulgate rules and regulations governing the practice of dentistry in the state. These rules and regulations are subject to approval by the North Carolina Rules Review Commission, whose members are appointed by the state legislature. 

In 2003, non-dentists in North Carolina began offering teeth whitening services, which put them in competition with many dentists in the state—including some on the Board—who offered the procedure as well. The Board responded in 2006—not by promulgating rules or regulations subject to state oversight, but by sending at least 47 cease-and-desist letters to non-dentist teeth whitening service providers and product manufacturers, alleging that they were engaged in or assisting the unlicensed practice of dentistry, a misdemeanor. In 2007, the Board also persuaded the North Carolina Board of Cosmetic Art Examiners to warn cosmetologists not to offer teeth whitening services, and sent letters to malls asking them to expel kiosk operators offering the service. Neither the dental hygienist nor consumer members of the Board participated in these actions. This conduct, none of which was reviewable by the Rules Review Commission, eventually succeeded in preventing all non-dentists from offering teeth whitening services in the state. 

In 2010, the Federal Trade Commission (FTC) filed an administrative complaint against the Board for violating Section 5 of the FTC Act, alleging that its actions against non-dentists offering teeth whitening services constituted an anticompetitive and unfair method of competition. An FTC Administrative Law Judge (ALJ) made an initial determination that the Board was a “public/private hybrid” that was not immune from the antitrust laws because it lacked active supervision from the state, and the Commission affirmed. The ALJ eventually found the Board had violated the law. The Commission sustained the finding on appeal and ordered the Board to refrain from sending cease-and-desist letters and to advise prior recipients that they could seek declaratory rulings in state court that their services did not constitute the unlicensed practice of dentistry. The Board appealed the Commission decision to the Fourth Circuit, which affirmed the decision. The Supreme Court granted the Board’s petition for certiorari and affirmed. 

Justice Kennedy wrote the opinion for a six-Justice majority. As he explained, general antitrust immunity for state action—originally recognized in Parker v. Brown, 317 U. S. 341 (1943), and further elaborated upon inCalifornia Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U. S. 97 (1980) — arises from federalism concerns. The Midcal test for whether state-action immunity extends to a state agency’s conduct has two requirements: 1) the agency’s conduct must be "clearly articulated and affirmatively expressed as state policy;" and 2) the enforcement policy must be "actively supervised by the State." The Court assumed that the Board met the first requirement, but found that it did not satisfy the second. 

The Court drew a distinction between direct actions a state takes in its sovereign capacity, such as passing a law, and a state’s delegation of control over a market to a non-sovereign actor, such as a board made up of active participants in the market it regulates. The first type of action is immune from antitrust scrutiny; the second, delegated type must meet the Midcal "active supervision" requirements. This need for supervision does not turn on the "formal designation" the state gives an entity, but rather "on the risk that active market participants will pursue private interests in restraining trade."  The Court found that agencies like the Board in this case are more like trade associations granted regulatory authority by the state than prototypical state agencies, which are electorally accountable and without the structural risk of setting prices to further private ends, and thus such boards are not eligible for state-action immunity without meaningful state supervision. Since the Board did not argue that its anticompetitive conduct was closely supervised by the State, the Court found that Parker immunity did not apply: "The clear lesson of precedent is that Midcal’s active supervision test is an essential prerequisite of Parker immunity for any non-sovereign entity — public or private — controlled by active market participants." 

Justice Alito, joined by Justices Scalia and Thomas, dissented. As the dissenters saw it, active supervision is necessary only when a state authorizes entirely private entities to engage in anticompetitive conduct, whereas all state agencies should benefit from Parker immunity without any further inquiry. The majority rejected that bright-line rule in favor of a "flexible and context-dependent" standard that looks to the structure and incentives of agencies to determine if active supervision is required. The adequacy of supervision will generally depend on all the circumstances of a case, but the majority did give some guidance as to what level of supervision would be enough for a state board comprised of private participants in the market it regulates to qualify for state-action immunity. State involvement in every agency action is not required, but at a minimum there must be a "realistic assurance" that the agency’s potentially anticompetitive conduct will be substantively reviewed by a state supervisor (which is not itself an active market participant) with power to veto or modify the action. 

The bottom line of the Board of Dental Examiners decision is that a board, hybrid agency, or trade association consisting of active market participants unsupervised by the state should not expect that it will be entitled to state-action antitrust immunity. Companies engaged in such activity should consult with antitrust counsel to assess whether the state-action doctrine as newly clarified by the Court will protect it.