May 1, 2017

U.S. Supreme Court Denies Antitrust Protection for State Professional Boards

U.S. Supreme Court Denies Antitrust Protection for State Professional Boards

In a 6-3 decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission, the United States Supreme Court ruled today that state professional boards comprised of active professionals in the occupation the board regulates cannot invoke state-action antitrust immunity unless the board is actively supervised by the State.

The Federal Trade Commission (“FTC” or “Commission”) originally filed an administrative complaint against the North Carolina State Board of Dental Examiners (“Board”) after the Board issued at least 47 cease-and-desist letters to non-dentists offering teeth whitening services in the state.  The FTC alleged that the Board’s actions illegally excluded non-dentists from the market for teeth whitening services and constituted an anticompetitive and unfair method of competition under the Federal Trade Commission Act.

The Board defended its actions before an Administrative Law Judge and the federal courts on the ground of state-action immunity.  The Supreme Court had previously ruled that federal antitrust laws confer immunity on the anticompetitive conduct of States acting in their sovereign capacity.  A non-State entity may invoke state-action immunity where a State delegates control over a market to a non-sovereign actor but retains political accountability for the anticompetitive actions.

But an entity controlled by active market participants must satisfy a two-part test to withstand an antitrust challenge:  (1) the challenged restraint must be clearly articulated as state policy; and (2) the policy is actively supervised by the state.  In some cases the second prong may be excused, such as for municipalities or agencies that are electorally accountable.

Here, the Board argued that it was exempt because the State designated the Board as an agency of the State.  The Supreme Court disagreed, noting that entities controlled by active market participants—like the practicing dentists in this case—posed the very risk of self-dealing that the two-part test was designed to address.  The Court compared the Board to a professional trade association vested by the State with regulatory authority, which must be actively supervised by the State to enjoy state-action immunity from the antitrust laws.  Because the Board did not even attempt to argue that the State actively oversaw its actions, the Court sided with the Commission.

Though the Supreme Court noted that an inquiry into “active supervision” may be flexible and context-dependent, other professional boards can attempt to structure a supervisory system that provides “realistic assurance” that their anticompetitive conduct “promotes state policy, rather than merely the party’s individual interests” (citing Patrick v. Burget, 486 U.S. 94).  Such a structure may include a supervisor who is not also an active market participant and who reviews the substance of the alleged anticompetitive action with the power to veto or modify the action.

The Supreme Court’s full opinion may be found here.

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