US Supreme Court Holds Licensing Boards Not Completely Exempt from Antitrust Laws

The U.S. Supreme Court affirmed the United States Court of Appeals for the Fourth Circuit in North Carolina Board of Dental Examiners v. FTC. In doing so, the Supreme Court rejected state-action immunity for a professional-licensing board dominated by a coalition of private-market participants—dentists—that engage in anticompetitive conduct under the guise of state health, welfare, and safety regulation.

The North Carolina Board of Dental Examiners is a state agency with the authority to oversee the licensure and discipline of dentists and dental hygienists in North Carolina. Like many state professional-licensing boards, it is composed of part-time board members of the regulated profession in private practice. Licensed dentists, including eight of the board’s ten members, derive substantial fees from teeth-whitening services. But technology has made teeth whitening safe and easy, and competition from non-dentists began eating into their revenues.

Unsurprisingly, the board began sending cease-and-desist letters to non-dentist teeth whiteners; the board asserted that only licensed dentists could whiten teeth under the state’s dental practice act, which was passed half a century before teeth whitening existed.

The Federal Trade Commission (FTC) took notice, brought an administrative complaint against the board, and ultimately found the board had violated federal antitrust law. Importantly, the FTC also held that the board was not entitled to state-action immunity because its actions interpreting the dental practice act were not reviewed by a disinterested state official to ensure that they accorded with state policy. The Fourth Circuit agreed with the FTC, and the Supreme Court granted certiorari.

The case centered on whether a state professional-licensing board dominated by private market participants must show both elements of Midcal’s two-prong test: (1) a clear articulation of authority to engage in anticompetitive conduct, and (2) active supervision by a disinterested state official to ensure the policy comports with state policy. Previous Supreme Court decisions exempted certain non-sovereign state actors, primarily municipalities, from the active supervision requirement. The board argued it should be exempt as well.

The Supreme Court rejected the board’s arguments and held 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 Court also reaffirmed that the active-supervision inquiry is “flexible and context-dependent.” Because the board’s actions were completely unsupervised by the state, the Court did not have occasion to determine what procedures would be sufficient to show active supervision. The Court left us with four basic requirements for active supervision that a board must show:

  1. Review must be substantive, not merely procedural
  2. The supervisor must have the power to veto or modify the particular decisions
  3. The mere potential for review is not enough; it must actually occur
  4. The supervisor must be a disinterested state official

Ultimately, the case reaffirms the oft-stated maxim that states cannot immunize private market participants from the Sherman Act by authorizing them to violate it. North Carolina Board of Dental Examiners does not spell the end to professional-licensing boards or the anti-competitive conduct they often engage in, but it does ensure that courts will not so easily give them a free pass to violate the antitrust laws.

Bona Law PC has particular experience in bringing antitrust actions against professional-licensing boards dominated by self-interested private market participants. In fact, Bona Law filed an amicus brief in North Carolina Board of Dental Examiners v. FTC, urging the Court to affirm the United States Court of Appeals for the Fourth Circuit.

If you have been harmed by the anticompetitive actions of a state professional-licensing board, please contact us.