The United States has a strong tradition of professional self-regulation, particularly in the learned professions. States frequently delegate regulatory authority to state boards largely comprised of professionals actively regulating their own occupations. Such self-regulating boards generally have enjoyed immunity from Federal antitrust scrutiny under the state-immunity doctrine. However, the Supreme Court’s 2015 decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission^[1] will make it more difficult for self-regulating boards to qualify for immunity. A state board controlled by active market participants no longer can invoke state-action antitrust immunity without showing active state supervision.

The Facts in State Board of Dental Examiners

By statute in North Carolina, the “practice of dentistry” is regulated by the State Board of Dental Examiners (the “Board”). The Board must consist of eight members, including six licensed and practicing dentists. The Board has authority to promulgate rules and regulations concerning the practice of dentistry, as long as such rules are consistent with state law and approved by a rules commission appointed by the legislature.

By 2003, non-dentists began competing effectively with North Carolina dentists by providing lower-cost teeth whitening services. The Board took no formal rulemaking or regulatory action, but sent out scores of cease-and-desist letters to non-dentist whitening providers. In response, non-dentists ceased offering teeth whitening services in North Carolina.

Soon thereafter, the Federal Trade Commission (FTC) commenced an action against the Board alleging its concerted action was an unfair method of competition and, therefore, a violation of federal antitrust law. The FTC, and later the U.S. Court of Appeals for the Fourth Circuit, held that the Board’s conduct violated federal antitrust law. On appeal to the Supreme Court, the Board did not challenge the findings that its conduct was anticompetitive. The only issue before the Supreme Court was whether the Board’s actions were immune from Federal antitrust regulation under the state-action doctrine.

Under prior Supreme Court precedent, where a non-sovereign actor such as a regulatory board, is acting, state-action immunity does not apply unless and until the non-sovereign actor satisfies one—and sometimes two—additional requirements. First, it must prove that “the challenged restraint [is] one clearly articulated and affirmatively expressed in state policy.”^[2] In some circumstances, the non-sovereign actor also is required to prove a second element, namely that “the policy [is] actively supervised by the state.”^[3]

The Rule Articulated in State Board of Dental Examiners

As active market participants are likely to have private incentives and interests, the Supreme Court articulated a clear rule “that a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates must satisfy [the] active supervision requirement in order to invoke state-action antitrust immunity.”^[4] The Supreme Court noted that the point of the active participation requirement is to avoid the risk that “[e]ntities purporting to act under state authority might diverge from the State’s considered definition of the public good” in pursuit of “private incentives” or “the party’s individual interests.”^[5]

Obtaining Immunity for Self-Regulating Boards

Professional regulatory boards often are required to take actions that may have anticompetitive effects in order to achieve policy goals, establish ethical boundaries and ensure quality standards are met. In so doing, boards no longer may assume that the state-action doctrine will immunize their actions from antitrust scrutiny. However, a State can ensure state-action immunity by adopting clear policies to displace competition and provide active board supervision. Regulatory boards then can take official rule-making or regulatory actions to invoke oversight by a politically accountable state official.^[6] Regulatory boards may consider inviting procedural and substantive supervision of any specific potentially anticompetitive actions. States and boards may also consider changing the board’s composition so that active market participants no longer control board decisions.

Conclusion

Participation in regulatory boards is typically a voluntary public service. Board member exposure to antitrust liability certainly would chill the enthusiasm of busy professionals when asked to serve. To ensure the availability of critical expertise on regulatory boards, professional organizations should collaborate with state government to conform regulatory procedures to the Supreme Court’s new requirements. Professional organizations and regulatory boards also should review board structures, composition and processes to forestall antitrust risk.

Notes:

[1] 135 S.Ct. 1101, 574 U.S. ___ (2015).

[2] Id. This element was not at issue in State Board of Dental Examiners. The “clear articulation” requirement generally requires that the anticompetitive conduct be the foreseen and implicitly endorsed effect of the clearly stated policy goal.

[3] Id. The active supervision test generally requires that one or more politically accountable state officials “have and exercise” power to review the anticompetitive action and to veto any acts not in accord with state policy. Id. at 1112.

[4] Id. at 1114.

[5] Id. at 1112.

[6] Although not expressly stated by the Supreme Court, State Board of Dental Examiners likely would have had a different result if the Board had exercised its official authority subject to state supervision rather than sending unmonitored and privately self-serving letters to competing non-dentists.