After nearly two decades of silence on the state action doctrine, on October 14, 2014, the United States Supreme Court heard oral argument in the Court’s second case on the subject in two years: The North Carolina Board of Dental Examiners v. Federal Trade Commission, No. 13-534.

Under the state action doctrine, states may impose market restraints as an act of government, free from antitrust liability. Municipalities can enact anticompetitive regulations as long as they can show that their actions comport with a clearly articulated state policy. Private parties carrying out a state’s regulatory program, on the other hand, enjoy state action immunity from antitrust liability only if: (1) the challenged restraint is one clearly articulated and affirmatively expressed as state policy; and (2) the state actively supervises the policy. This two-prong approached is referred to as the Midcal test, after the 1980 Supreme Court case setting forth the standard, California Retail Liquor Dealers v. Midcal Aluminum, 445 U.S. 97 (1980).

In 2013, the Court defined the parameters of the first Midcal prong in Federal Trade Commission v. Phoebe Putney Health System, 568 U.S. __ (2013). In Phoebe Putney, the Court held that Georgia’s Hospital Authorities Law, which gives counties and municipalities the power to create hospital authorities and confers certain powers on the authorities, e.g., the power to acquire and operate hospitals, did not authorize a county hospital authority to acquire hospitals anticompetitively. The Court held that a state’s authorization to act in a manner with potentially anticompetitive consequences is insufficient to satisfy the doctrine’s clear articulation standard; rather, the anticompetitive effects of a state’s law must be a foreseeable result of what the state authorized in the law. Given that Georgia’s law failed to satisfy the first Midcal prong, the Phoebe Putney court did not address the active supervision requirement.

The North Carolina Board of Dental Examiners picks up where Phoebe Putney left off and asks the Court to expound on the second Midcal prong and determine whether a state regulatory board comprised of market participants constitutes a private actor subject to the active supervision prong.

The North Carolina Board of Dental Examiners is an agency of the State of North Carolina charged with regulating the practice of dentistry within the state. The Board is comprised of six licensed dentists practicing dentistry in the state, one licensed hygienist and one consumer member. The dentist-members are elected by licensed dentists in the state and serve three-year terms. The Board is the state’s sole licensing authority for dentists and is charged with policing the unauthorized practice of dentistry as defined by and pursuant to the North Carolina dental statute.

In response to non-dentists offering less-costly teeth-whitening services at North Carolina salons and other retail sites, the North Carolina Board of Dental Examiners (1) issued cease-and-desist letters to the non-dentist providers, stating that they were illegally practicing unlicensed dentistry; (2) threatened and discouraged non-dentist providers from engaging in teeth-whitening services; and (3) issued letters to various retail interests stating that teeth-whitening services offered at mall kiosks were illegal.

The issue before the Court is whether a state regulatory board created by state law may be treated as a private actor because it is comprised of market participants elected by other market participants. Whether or not state licensing entities are protected from antitrust liability under the state action doctrine has far-reaching impact given the number of professions regulated by various states, e.g., physicians, dentists, lawyers and engineers. The concerns of these professionals are illustrated in the scores of amicus briefs filed by various entities and several states in support of the Board. For example, the American Dental and Medical Associations argued that not only have the FTC and Fourth Circuit trampled on state sovereignty, they have set in motion “perverse consequences,” namely, inducing state regulatory agencies to subordinate their views of what is in the public’s best interest in favor of policy choices that are less likely to expose the agency to antitrust liability; discouraging conscientious professionals from serving on the regulatory boards due to fear of personal liability; and pushing states to alter their choices with respect to membership of the regulatory boards to comport with the FTC’s view of how these boards should be staffed and operated. The National Council of Examiners for Engineering and Surveying argue in theiramicus brief that federal regulators and courts should not be permitted to interfere in the states’ sovereign determinations about how best to regulate professions in the public interest. The National Council of Examiners for Engineering and Surveying expressed concern that the FTC and Fourth Circuit’s positions, if affirmed, will subject its member licensing boards to second-guessing by federal regulators and impede their ability to effectively carry out their state-appointed task of regulating engineering and surveying professions and protecting the general public.

While the question before the Court is whether state regulatory agencies comprised of market participants are subject to the state action doctrine’s active supervision requirement, at its core the question can be viewed more simply as which protector of the consumer will prevail: a state’s regulation of professionals providing services to its citizens or the antitrust agencies’ protection of consumers against anticompetitive conduct.