Download After North Carolina State Board of Dental Examiners v. FTC

After North Carolina State Board of
Dental Examiners v. FTC: What’s Next?
Mark Emery
Partner
August 19, 2015
Introduction
•  The federalism battleground: state regulatory boards possess
significant power over trade in goods and services. Sometimes
they restrain trade, in violation of federal antitrust law.
•  For seven decades, U.S. Supreme Court has recognized some
form of antitrust immunity for state regulatory agencies.
•  In its 2015 decision in North Carolina State Board of Dental
Examiners v. FTC, (“N.C. Board”), the Supreme Court attempted
to further clarify the antitrust immunity doctrine in the context of a
state-established dental licensing board.
•  The Issue: whether, and to what extent, state-established
regulatory boards staffed by “active market participants” must be
supervised in order for their members to be immune from the
federal antitrust laws.
•  NCEES filed an amicus brief in support of North Carolina’s dental
board.
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Legal Background
The Creation of Antitrust Immunity
Section 1 of the Sherman Act, 15 U.S.C. § 1, makes unlawful “every
contract, combination . . . or conspiracy, in restraint of trade or
commerce among the several States.”
1943: Parker v. Brown—claim that California’s agricultural price
support program for raisins violated the Sherman Act.
The Sherman Act would make nearly every anticompetitive act
illegal, including common forms of state regulation.
Wary of reading the Sherman Act to reach such a disruptive result,
the Court interpreted the law to immunize states acting in their
sovereign capacities.
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Legal Background continued…
Post-Parker Developments
– Local Governments: In one case, a billboard company challenged regulations
imposed by a South Carolina city on the size and location of billboards. The
Court found the city to be immune, but only because:
(1) the restriction on competition was an authorized implementation of
state policy, and
(2) the suppression of competition was the “foreseeable result” of that
authorization.
– Private Actors: In cases involving price-fixing by private entities, the Supreme
Court found that anticompetitive actions by private entities could receive
antitrust immunity. For immunity to exist, the private entity must show that the
anticompetitive action is
(1) “clearly articulated and affirmatively expressed as state policy,” and
(2) “actively supervised” by the state.
(“Midcal” factors). To be “clearly articulated,” a state policy must do more than
“anticipate” the occurrence of anticompetitive actions; it must “affirmatively
contemplate” them.
What is “active supervision?” Wait and see…
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Federal Trade Commission Enforcement
In 2001-2002, the head of the FTC convened a State Action Task
Force to study the courts’ application of state antitrust immunity.
The Task Force recommended that the FTC focus on enforcing the
“active supervision” requirement regarding private entities.
The Task Force also recommended increased enforcement against
“quasi-governmental” entities that
(1) are composed, in whole or in part, of market participants,
or
(2) pose an “appreciable risk” that their anticompetitive
conduct will deviate from state policy.
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The N.C. State Board of Dental Examiners Decision
The Supreme Court was not asked to decide how antitrust immunity
applied to state-established licensing boards that have market
participant members, until…
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Factual Background of N.C. Board
-  Board was a state agency with eight members—majority must be
currently-practicing dentists—and authorized by state statute to
promulgate rules and regulations to enforce its mandate.
-  Board considered the practice of teeth-whitening to constitute the
practice of dentistry.
-  As non-dentists began providing teeth-whitening services, Board
responded with cease-and-desist letters, and encouraged other
entities to pressure non-dentists to end their teeth-whitening
services.
-  Board was successful. But attracted the reinvigorated FTC’s
attention.
-  FTC filed an administrative complaint, and prevailed at all levels
of review—notwithstanding the Board’s assertion of antitrust
immunity.
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The Decision in N.C. Board
Majority Opinion (Justice Kennedy)
Holding: a state agency that has a “controlling number” of “active
market participants” must be “actively supervised” in order to
receive state antitrust immunity.
A state agency composed of participants in the regulated market
implicates the same antitrust concerns as any other group of selfregulating private actors. Risk that market participants will “act[] to
further [their] own interests, rather than the governmental interests
of the State.”
Antitrust immunity does not depend on “formal designations”
conferred by states to regulatory bodies. “[N]ot every act of a state
agency is that of the State as sovereign.”
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State agencies controlled by active market
participants, who possess singularly strong
private interests, pose the very risk of self-dealing
[that the active] supervision requirement was
created to address.… The similarities between
agencies controlled by active market participants
and private trade associations are not eliminated
simply because the former are given a formal
designation by the State, vested with a measure
of government power, and required to follow
some procedural rules.
The Decision in N.C. Board
Majority Opinion continued…
The Court did not define “active supervision,” however, because the
Board never argued that it was actively supervised.
The Court offered some guideposts for what level of “supervision” is
sufficiently “active:”
•  (1) The supervisor must review the substance of the
anticompetitive decision, not merely the procedures followed to
produce it;
•  (2) The supervisor must have the power to veto or modify
particular decisions to ensure they accord with state policy, and
the mere potential for state supervision is not an adequate
substitute for a decision by the State; and
•  (3) The state supervisor may not itself be an active market
participant.
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The Decision in N.C. Board
The Dissent (Justice Alito)
The fact that the Board was designated as a state agency by statute
was sufficient to make the Board “the state” for purposes of state
antitrust immunity:
“Under Parker, the Sherman Act . . . do[es] not apply to state agencies; the
[Board] is a state agency; and that is the end of the matter.” “North Carolina
did not authorize a private entity to enter into an anticompetitive
arrangement; rather North Carolina created a state agency and gave that
agency the power to regulate a particular subject affecting public health and
safety.”
Certainty of a bright-line rule—treating every state-agency as “the
state”—was preferable to the majority’s open-ended approach.
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As a result of today’s decision, States may find it
necessary to change the composition of medical,
dental, and other boards, but it is not clear what
sort of changes are needed . . . . Determining
whether a state agency is structured in a way that
militates against regulatory capture is no easy
task, and there is reason to fear that today’s
decision will spawn confusion.
Potential Implications of N.C. Board
The N.C. Board decision could undermine the merits and objectives
of licensing boards that are staffed by professionals.
•  Autonomy:
–  One of the virtues of licensing boards being staffed with professionals from
the regulated industry is that the industry enjoys a level of autonomy and selfgovernance. Licensing boards may be required to relinquish a significant
amount of that autonomy to the “active supervisor” in order to avoid antitrust
liability.
•  Expertise:
–  Another virtue of self-regulation is the ability to utilize the expertise of
professionals in designing appropriate rules to govern the profession. The
N.C. Board decision could make recruitment of professionals more difficult:
(1) Professionals wary of exposing themselves to antitrust liability may
be deterred from serving on licensing boards;
(2) Professionals may also be less willing to serve if their expert opinions
are being second-guessed and overturned by a “non-expert” supervisor.
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Potential Implications of N.C. Board
Early comments from Maureen K. Ohlhausen, FTC Commissioner:
-  State boards have several viable options for avoiding both
antitrust liability for, and excessive oversight of, their conduct.
-  “These options should not be terribly onerous to implement and
should help states retain individuals with sufficient relevant
expertise on their regulatory boards.” Examples:
- 
- 
- 
- 
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Being more cognizant of and minimizing, the competitive effects of a board’s
regulatory decisions (i.e., if you’re not doing wrong; there’s nothing to worry
about!)
Active market participants “could comprise less than a majority of the board—
or perhaps abstain from matters in which they have a financial interest.”
Ultimate regulatory decisions could be made by legislative committees,
umbrella state agencies (e.g., rules review commissions), or other
disinterested state officials.
As a last resort, states can opt to indemnify individual board members in the
event that antitrust damages are imposed on them.
Test Time!
Hypothetical 1: What is a “controlling number”?
•  Suppose the state-established engineering and surveying
licensing board of State X is composed of nine members, what is
the “controlling number” of market participant members that would
trigger the “active supervision” requirement?
• A.
• B.
• C.
• D.
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1
4
5
Nobody knows.
Test Time, continued…
Hypothetical 2: Who is an “active market participant”?
•  Suppose the same State X licensing board has five members who
are currently-licensed engineers, but two of them have withdrawn
from practice during their term on the board. How many “active”
market participants are on the board?
•  A. 5
•  B. 3
•  C. Nobody knows.
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Test Time, continued…
Hypothetical 3: What is the relevant “occupation”?
•  Suppose that the same State X licensing board, which issues
rules and regulations for engineers of all kinds, is composed of
four civil engineers and one electrical engineer. How many of
those engineers count as “active market participants” when it
comes to regulating electrical engineers?
•  A. All five
•  B. The four civil engineers
•  C. The one electrical engineer
•  D. Nobody knows
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Test Time, continued…
Hypothetical 4: Who can be an “active supervisor?”
•  Of the following, which person or entity can provide the “active
supervision” to ensure that antitrust immunity is maintained for our
State X engineering board?
•  A. Non-market participant member of the board.
•  B. An independent panel of practicing engineers and surveyors
appointed by the governor.
•  C. An individual in the governor’s office with oversight over all
science-based professions.
•  D. The State Attorney General.
•  E. Legislature-appointed professional licensing review board with
veto power over board action.
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