On February 25, 2015, the United States Supreme Court issued a
6-3 opinion in North Carolina State Bd of Dental Examiners v.
FTC, which held that a state agency controlled by active
market participants must be actively supervised by the state to
qualify for antitrust immunity under the state action doctrine.
This marks the second time in recent years that the Supreme Court
examined, refined, and limited the state action doctrine in
connection with a Federal Trade Commission ("FTC")
enforcement action. The FTC has stated its intention to try to
limit and cut back on the protects afforded by the state action
doctrine. The agency's victories before the Supreme Court in
some measure have helped the FTC achieve its stated goal.
The Supreme Court first recognized the state action defense in
Parker v. Brown, 317 U.S. 341 (1943). The defense rests on
the notion that states are sovereign and therefore legitimate state
action should neither be subjected to antitrust scrutiny nor held
to violate the antitrust laws. Almost four decades later, in the
early to mid-1980s, the Supreme Court refined the state action
doctrine with regard to its application to actions undertaken by
private parties and non-sovereign government entities. In the
Midcal case, in 1980, the Court announced that the state
action protection would extend to private parties only if the
challenged conduct was (1) undertaken pursuant to a clearly
articulated and firmly expressed state policy and (2) actively
supervised by the state. Just five years later, the High
Court's decision in the Town of Hallie case extended
in part the Midcal test to those circumstances in which a
municipality sought to invoke the state action defense. Under
Town of Hallie, a municipality has to show any alleged
anticompetitive conduct was undertaken pursuant to a clearly
articulated state policy, but the municipality need not show active
supervision by the state to qualify for the immunity. Lower courts
later extended Town of Hallie to other non-sovereign,
sub-state actors.
Against this background, the FTC sued the North Carolina Board of
Dental Examiners (the "Board") in 2010 for restraining
trade for teeth whitening services. The State of North Carolina,
well over a century ago, created the Board through legislation,
which provides that six of the eight seats on the Board shall be
filled by practicing dentists. The FTC claimed that the Board
violated the antitrust laws by taking steps to prohibit
lower-priced, non-dentists from offering teeth whitening services
in competition against dentists. In response, the Board asserted a
state action defense, arguing that the Board was a sovereign state
body and thus immune from the antitrust laws and, at the very
least, qualified for state action immunity without any need for
active supervision by the state. The FTC countered that the Board
cannot be considered a sovereign state body and cannot even qualify
for the Town of Hallie's abbreviated state action
standard because the Board is controlled by active market
participants and not genuine state actors.
In a majority decision written by Justice Kennedy, the Supreme
Court agreed with the FTC's position. The Court stated:
"When a State empowers a group of active market participants
to decide who can participate in its market and on what terms, the
need for supervision is manifest . . . The Court holds today that a
state board on which a controlling number of decisionmakers are
active market participants in the occupation the board regulates
must satisfy Midcal's active supervision requirement
in order to invoke state-action antitrust immunity." The
majority ruled this way despite the fact that no doubt existed that
the Board is a state agency.
The Board never claimed or tried to show that the State actively
supervised the Board's activities. The Court's opinion
therefore did not have an opportunity to examine and discuss how to
apply Midcal's active supervision prong to a sub-state
agency comprised of active market participants. Still, the Court
provide general guidance on applying the active supervision prong.
The majority opinion notes that active supervision is
"flexible and context-dependent." In addition,
"[t]he supervision must review the substance of the
anticompetitive decision" and not merely the process used to
reach that decision. And whatever state actors supervises the
conduct must have authority to veto or modify the challenged
conduct to ensure the conduct is consistent with state policy. But
the supervising state actor cannot itself be an active market
participant.
Judge Alito issued a dissenting opinion in which Justice Scalia and
Thomas joined. The dissent criticized the majority for injecting
public interest considerations into the analysis and taking what
should be a very straightforward issue and making it unduly
complicated. State action immunity in this context, according to
the dissent, should depend on one and only one question – is
the Board a state agency? If so, state action immunity should apply
without any further inquiry under the dissent's view. Justice
Alito criticized the majority for straying from a relatively
straightforward path and, in the process, heading into a
morass.
The opinion does not change how the state action doctrine applies
to sovereign state bodies, purely private actors, or even arguably
to municipal actors. It merely addresses how to apply the state
action defense in those situations in which the state body is
controlled by active market participants. But as the dissent points
out, the majority's opinion raises more questions than it
addresses. For instance, what is an "active market
participant" and under what circumstances will control by
these active market participants exist? Would a government entity
that sells services, such as a municipal landfill, be considered an
active market participant and, if so, how (if at all) does
North Carolina Board of Dental Examiners affect state
action immunity as applied to such sub-state government actors? The
majority opinion suggest that municipal actors still enjoy the more
relaxed standard set out in Town of Hallie and can qualify
for state action immunity even if the state does not actively
supervise the municipality. Under these circumstances, the new
standard announced in the majority opinion could make it more
difficult for certain state agencies to qualify for state action
immunity, as compared to municipalities.
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