United States: Supreme Court Denies Antitrust Shield For NC Dental Board

Last Updated: March 5 2015
Article by Barton C. Walker, Howard Feller, Timothy J. Fry and John C. Saran

On Wednesday, February 25, 2015, the Supreme Court released a 6-3 decision in North Carolina Board of Dental Examiners v. Federal Trade Commission, a case with potentially broad implications for regulation by dental and medical boards across the country. The case asked whether the North Carolina Board of Dental Examiners ("NC Dental Board") could be treated as a "private" actor for federal antitrust law purposes because the board's members are also market participants (elected by other market participants) who took action to restrain trade against non-dentists. Here are our initial thoughts on the decision:

Key Facts

  1. The central issues in this case were: (i) how are state professional boards (like dental and medical boards) constituted, (ii) what are the limits of their powers, and (iii) what forms of state supervision are necessary over their decisions.

  2. Here, the NC Dental Board attempted to restrict teeth whitening services provided by non-dentists. These efforts included at least 47 cease-and-desist letters to individuals, the North Carolina Board of Cosmetic Art Examiners and even the landlords of some practices. The letters sometimes included threats of criminal action against those without dental licenses.

  3. Six of the eight members of the NC Dental Board must be licensed dentists (i.e., members of the same profession that the NC Dental Board sought to regulate), elected by other practicing dentists in the state. The seventh member must be a licensed dental hygienist similarly elected by other practicing dental hygienists in the state. Many of the dentists serving on the NC Dental Board provided teeth whitening services in their practices and now faced direct competition from the non-dental providers.

  4. The Federal Trade Commission (FTC) originally brought the complaint with the concern that the NC Dental Board's actions focused not on dental licensing for any safety or professional concerns, but instead on a new competitor lowering the cost of these services.

  5. The North Carolina legislature generally authorized the NC Dental Board to regulate and provide rules for licensed dentists. The legislature had not given the NC Dental Board any specific authority to regulate unlicensed persons (beyond the general right to file suit for the unlawful practice of dentistry).

  6. Many states have boards (and other regulatory agencies) that enjoy "state-action immunity" under the Sherman Act (a federal law that prohibits certain anticompetitive activities of private actors). In order to enjoy this immunity, the court ruled, the agency or board with a controlling number of market participants must (i) act under a clear articulation of state policy and (ii) be actively supervised by the state.

  7. The court held that the NC Dental Board was not actively supervised by the state and, as a result, (i) it did not have state-action immunity, and (ii) its attempt to regulate teeth whitening services was an anticompetitive and unfair method of competition under federal antitrust law.

Key Takeaways

  1. The stated purpose of state professional boards is to protect the integrity of the learned professions; however, legitimate regulation can easily slip into the realm of unprotected restraint of trade.

  2. This case demonstrates that boards (and state legislatures) should be vigilant about how they are elected (or appointed) and what activities they regulate.

  3. The decision almost certainly will trigger a re-evaluation of the way the NC Dental Board is appointed and its activities are overseen.

  4. It is unclear what effect (if any) this decision will have in other states. Professional boards in other states would be wise to revisit their own composition in light of the requirement for active supervision by the state. The medical and dental boards in all 50 states require professionals to participate; some of these boards may also have a controlling number of decision-makers who are market participants.

  5. The court provided suggestions for what it meant by "active supervision," which included (i) the state reviewing the substance of any anticompetitive actions of the board, (ii) a supervisor having the power to veto or modify decisions, (iii) actual supervision and not just its potential, and (iv) the supervisor not being an active market participant. The court made it clear, however, that this analysis will depend on "all the circumstances of a case."

  6. State corporate practice of dentistry regulations are not themselves directly affected by this decision, but they may help shape the role of state regulatory boards in the future.

Analysis of the Majority Opinion

In a 6-3 opinion authored by Justice Kennedy, the court held that a state board with a controlling number of decision-makers actively participating in the occupation the board regulates must have active supervision from the state in order to invoke state-action antitrust immunity. The court reached this conclusion by looking back at a series of cases that began with Parker v. Brown, 317 U.S. 341 (1943). In Parker, the court held that states have immunity from the antitrust laws when acting in their sovereign capacities and can legislate policies that restrain trade. North Carolina Board of Dental Examiners asked whether a state board on which a majority of the decision-makers are active market participants was entitled to such immunity.

In reaching its conclusion, the court found that non-sovereign actors, such as the NC Dental Board, receive Parker immunity only if (a) there is a clear articulation of state policy to allow anticompetitive conduct and (b) the policy is actively supervised by the state. The board provided no evidence that it was supervised by North Carolina. Indeed, it argued all along that it was the state and therefore did not need such supervision.

The court reasoned that state agencies need more than a "mere facade" of state involvement to qualify as the sovereign state itself. Without providing a bright line test for when an agency is a state actor, the court expressed discomfort with regulatory power held by active market participants. Indeed, while the NC Dental Board was created under North Carolina law, the court focused on the fact that since the agency was controlled by active market participants, the State had to provide active supervision.

Since all parties agreed the state did not provide oversight, the court ruled against the NC Dental Board. The majority then provided a few suggestions of what supervision might include to guide future actions. Further case law development is necessary to articulate this supervision prong, in particular since the holding could apply broadly to many state agencies that have participation from market participants.

Analysis of the Dissent

The dissent led by Justice Alito concluded that the court misinterpreted the doctrine of state-action antitrust immunity recognized in Parker. Justice Alito wrote that the state-action immunity analysis should have ended with the fact that the North Carolina board was a state agency. Justice Alito disapproved of the majority denying antitrust immunity to the North Carolina board because it was not structured in a way that merits a "good-government seal of approval." Justice Alito argued that the concept of a licensing board being dominated by licensed practicing professionals is not new and has been around since before the Sherman Act was enacted (in 1890). Finally, the dissent pointed out that the majority's efforts to combat regulatory capture of licensing boards through the creation of a vague test will inevitably cause more confusion.

The dissent notes that this decision may create practical problems for states' regulation of professions. States may seek to change the composition of their medical, dental and other boards, but the majority did not articulate what specific percentage constituted "control by active market participants." Furthermore, there are no explanations of what makes a board member "an active participant," or part of the scope of the market that causes conflicts of interest for the board member. Finally, if states have boards that are staffed and composed in a manner similar to the North Carolina board, it is possible that all future decisions of such boards could become subject to federal antitrust challenge.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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