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If You Are on a State Regulatory Board or Regulated By One, Read This Article

by Steven B. Loy and Carl N. Frazier 

State governments are often immune from antitrust liability, but a recent U.S. Supreme case demonstrates that is not always the case.

The federal government recently brought an antitrust suit against the North Carolina agency that regulates dentists. The FTC claimed the agency unfairly attempted to keep non-dentists from performing cosmetic teeth-whitening procedures, even though teeth-whitening does not constitute the practice of dentistry or endanger the public. 

In North Carolina State Board of Dental Examiners v. Federal Trade Commission, the Supreme Court held that state regulatory agencies run by active market participants may be liable for antitrust violations unless the “the challenged restraint [is] clearly articulated and affirmatively expressed as state policy” and “the policy [is] actively supervised by the State.” The Court held that the North Carolina agency was not actively supervised by the state when it sought to close down cosmetic teeth-whitening by non-dentists. Therefore, the Court upheld the determination that the agency was liable for antitrust violations. 

State regulatory boards headed by active market participants are ubiquitous, regulating literally hundreds of occupations. In Kentucky, such boards regulate lawyers, physicians and an array of others including home inspectors, private investigators and diabetes educators.

Because of the role these agencies play and the decision in North Carolina State Board of Dental Examiners, the FTC issued guidelines [1] for state boards regulating occupations that explain: 

  • Reasonable restraints on competition do not violate antitrust laws, even if economic interests of  competitors have been injured (e.g. prohibiting licensees from engaging in deceptive practices or suspending licensees for substandard work);
  • Non-discretionary acts in good faith implementation of an anticompetitive statutory regime do not yield antitrust liability;
  • Initiating and prosecuting a lawsuit by a regulatory board does not create antitrust liability unless it is a sham; 
  • If a board member participates in professional or occupational sub-specialties that are regulated by the board, that board member is an active market participant; and
  • When a controlling number of the state board’s members are active market participants, the board is deemed “headed” by active market participants.

“Active supervision,” the FTC notes, requires that a supervisor review the anticompetitive decision—not merely the procedures followed to produce it—and be authorized to veto or modify decisions that don’t concur with state policy.[2] To assess if active supervision has occurred, the FTC considers:

  • If the supervisor obtained necessary information to properly evaluate the action recommended by the regulatory board;
  • If the supervisor evaluated substantive merits of the recommended action to ensure that the recommended action comports with standards established by the state legislature; and
  • If the supervisor issued a written decision approving, modifying or disapproving the recommended action, explaining the rationale.[3]

If a regulatory body can show that an allegedly anticompetitive action is clearly articulated and affirmatively expressed as state policy, and the policy is actively supervised by the state, it will be immune from antitrust liability. Otherwise, the regulatory body may be liable for violation of antitrust laws. 

If you have been adversely affected by a potentially anticompetitive action of a state regulatory body, or if you are responsible for a regulatory body and have questions about immunity from antitrust liability, consider consulting an attorney experienced in antitrust laws. Stoll Keenon Ogden PLLC’s team of experienced antitrust litigators can help guide you through this evolving area of law. 

 


[1] FTC Staff Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants, available at https://www.ftc.gov/system/files/attachments/competition-policy-guidance/active_supervision_of_state_boards.pdf

[2] Id. at p.9 (quoting North Carolina State Board of Dental Examiners).

[3] Id. at p.10.