Court ruling may impact how professionals attempt to limit competition from alternative providers.

The North Carolina State Board of Dental Examiners (“Board”) failed to convince the United States Court of Appeals for the Fourth Circuit that the Board’s successful effort to “expel non-dentist providers from the North Carolina teeth-whitening market” is immune from antitrust attack.  Instead, in a ruling last week, the Court found the case to be “about a state board run by private actors in the marketplace taking action outside of the procedures mandated by state law to expel a competitor from the market.”  The Court affirmed the ruling by the Federal Trade Commission (“FTC”) that the Board’s connection with state government was insufficient to shield the Board from the antitrust laws.

With the growth and availability of teeth-whitening services from non-dentist providers, a number of dental associations across the country have embarked on a campaign to limit competition from these alternative providers.  In some states, legislation was introduced to define the practice of dentistry to include teeth-whitening except for use of an over-the-counter product for personal use.  In other states, like North Carolina, the dental boards took the view that the provision of teeth-whitening services requires a dental license and sent cease-and-desist letters to stop these competitive teeth-whitening services.

After receiving complaints from dentists about non-dentists offering teeth-whitening services, often at a significantly lower price than offered by dentists, the Board sent at least 47 cease-and-desist letters to 29 non-dentist teeth-whitening providers.  Those letters, among other things, demanded that the non-dentist cease-and-desist “all activity constituting the practice of dentistry.”  The Board’s letters, the Court said, “effectively caused non-dentists to stop providing teeth-whitening services in North Carolina and also caused manufacturers and distributors of teeth-whitening products used by these non-dentist providers to exit and hold off entering North Carolina.”  The Board went even further, and sent cease-and-desist letters to landlords who rented kiosk space in malls to teeth-whitening services.

The FTC sued the Board to stop its exclusion of non-dentist teeth whiteners from the market and it won.  On appeal, the Court swiftly rejected the Board’s attempt to justify its efforts to exclude non-dentist teeth whiteners on health and safety grounds, and also made quick work of the Board’s main argument—that it is exempt from the antitrust laws under the “state action” doctrine, which exempts from the antitrust laws anticompetitive restraints imposed by the states “as an act of government.”

The Court identified three ways to qualify for an antitrust exemption under the “state action” doctrine:  (1) state legislature and state supreme courts when acting legislatively automatically qualify as sovereign entities; (2) private actors can qualify when acting pursuant to a “clearly articulated and affirmatively expressed [] state policy” and their conduct is “actively supervised by the State itself”; and (3) even without active state supervision, municipalities and “substate governmental entities” qualify “when they act pursuant to state policy to displace competition with regulation or monopoly public service.”

The Board argued that, as a state agency, it was acting “pursuant to state policy to displace competition with regulation” and, thus, qualified for an antitrust exemption under number (3) above.  But the Court rejected the Board’s claim that it is a state agency, concluding instead that it is a private actor.  Significantly, the Court noted that even though the Board is a state created agency charged with granting dental licenses that can also seek a court order enjoining the unlicensed practice of dentistry, six of its eight members are active dentists that are elected by other dentists.  As such, the Court agreed with the FTC that “when a state agency is operated by market participants who are elected by other market participants, it is a ‘private’ actor” that  must satisfy the requirements under number (2) above to qualify for an antitrust exemption.

Having rejected the Board’s claim that it automatically qualified for an antitrust exemption, the Court also was unconvinced by the Board’s other argument that the “‘particular anticompetitive acts’” being challenged were approved by the state.  The Court noted that “the cease-and-desist letters were sent without state oversight and without the required judicial authorization.”

The Court then went on to affirm the FTC’s other findings that:  (1) the Board has the capacity to conspire under § 1 of the Sherman Act; (2) the Board’s members are separate economic actors who cannot escape liability under § 1 of the Sherman Act by organizing under a “single umbrella”; (3) the Board engaged in a combination or conspiracy under § 1 of the Sherman Act; (4) the Board’s behavior was likely to cause significant anticompetitive harms, because “[i]t is not difficult to understand that forcing low-cost teeth-whitening providers from the market has a tendency to increase a consumer’s price for that service”; and (5) the Board’s behavior violated § 1 of the Sherman Act.

What does the Court’s decision mean for dental boards in other states?  The Court answered that question when it said “if the Board was actively supervised by the State, it would be entitled” to an antitrust exemption under the “state action” doctrine.  But dentists and other health care professionals should be mindful of the FTC’s continuing enforcement initiative to narrow the scope of the state action doctrine, and to prevent professional organizations from using that doctrine to build competitive obstacles to non-professional providers.