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U.S. Supreme Court Affirms: State Licensing Boards Without Active State Supervision Susceptible to Antitrust Suits for Anticompetitive Behavior

On February 25, the US Supreme Court released its decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission, reaffirming the rule that state professional licensing boards controlled by active market participants that are not “actively supervised” by the State do not enjoy state-action immunity from antitrust enforcement. As a result, both regulators and regulated health care professionals may find a need to reevaluate state licensing board activity.

Like most states, including Delaware, the North Carolina legislature created a board—the State Board of Dental Examiners—to regulate the “practice of dentistry.” By state law, a majority of the Board was comprised of practicing dentists.  In 2003, North Carolina dentists started to complain to the Board about nondentists offering teeth whitening services at lower costs. The Board appointed a dentist member to lead an investigation into nondentists offering these services. The investigation led the Board to issue cease-and-desist letters to these nondentists, warning that the unlicensed practice of dentistry was a crime and either strongly implying or expressly stating that teeth whitening constituted “the practice of dentistry.” The Board also convinced the North Carolina Board of Cosmetic Art Examiners to warn cosmetologists against providing such services and even wrote letters to shopping mall operators to advise them to remove teeth whitening kiosks because that activity violated the North Carolina Dental Practice Act.  The Act did not specify that teeth whitening constituted the practice of dentistry.  As intended, nondentists ceased offering teeth whitening services in North Carolina.

In 2010, the Federal Trade Commission “FTC”) filed an administrative complaint charging the Board with violating Federal antitrust law. Essentially, the FTC alleged that the Board’s resolute action to exclude nondentists from the market for teeth whitening services was anticompetitive and an unfair method of competition. An Administrative Law Judge (“ALJ”) rejected the Board’s argument that the Board was immune from antitrust enforcement under the state action immunity doctrine. Ultimately, the case was decided on the merits in favor of the FTC, and the FTC ordered the Board to stop sending cease and desist letters and to issue notices to all earlier recipients explaining the Board’s proper scope of authority. The Board filed a petition for review to the Fourth Circuit, which subsequently affirmed the FTC’s decision. The Supreme Court granted certiorari on the issue of whether the Board enjoyed state action immunity.

The Supreme Court restated the standard for state action immunity set forth in Parker v. Brown, which provides that antitrust laws confer immunity on the anticompetitive conduct of States that are acting in their sovereign capacity.  The Board argued that its members were conferred with the power of the State by virtue of the State creating the Board to regulate the practice of dentistry. The Court disagreed that creation of the Board was enough.  Where a nonsovereign actor is controlled by active market participants, such as the Board, the actor will only enjoy Parker immunity if: (1) the action is clearly articulated and affirmatively expressed as state policy; and (2) the policy is “actively supervised” by the State. The second requirement was at the heart of the parties’ arguments.

In its holding, the Court made clear that where a State empowers a licensing board run by a majority of members that practice the profession they regulate, “the need for supervision is manifest.”  Where a board is essentially controlled by active market participants, there is a risk that private interests may lead to anticompetitive regulation. The Board did not claim that the State of North Carolina exercised any supervision over its conduct regarding teeth whitening. The Court held that because there was no active supervision of the Board’s actions, the Board was not immune to antitrust laws.

In its decision, the Court established the parameters for what a State must do in order for its agencies controlled by active market participants to enjoy immunity from antitrust laws. At the very least, the inquiry is whether the State provides “realistic assurance” that an agency’s anticompetitive conduct promotes state policy, rather than the actor’s self-interest. The Court stated that to satisfy the requirement, a “supervisor,” who may not be an active market participant, must look at a board’s decision and review its substance, and act on the power, if necessary, to veto or modify decisions to ensure such decisions achieve state policy.

The Court’s decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission should prompt states to review the composition and conduct of their licensing boards. Where a board is controlled by a majority of individuals who practice the profession they seek to regulate, states should seek to actively supervise the board decisions if immunity is desired.

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