In a ruling with significant implications for state professional licensing boards and their members, on February 25, 2015, the United States Supreme Court found that practitioner-controlled state boards do not have inherent immunity from federal antitrust liability if they operate without active supervision by disinterested state actors.  In North Carolina State Board of Dental Examiners v. FTC, the Court held that North Carolina’s dental board was not immune from a Federal Trade Commission (FTC) action to enjoin the board from threatening nondentists who provide teeth-whitening services with prosecution for the unlicensed practice of dentistry.  This decision portends a restructuring of state licensing boards throughout the country and a flurry of antitrust litigation by those whose economic interests are adversely affected by such boards.  In summary, the Court:

• • Rejected the notion that a professional licensing board that is largely composed of market participants is entitled to the same antitrust protection as “prototypical state agencies.”
  • Held that where a “controlling number” of a professional board’s decisionmakers are “active market participants in the occupation the board regulates,” the board will enjoy antitrust immunity only if it is subject to “active supervision” by the state.
  • Addressed concerns that board and member exposure to antitrust liability would deter participation on such boards by suggesting that states indemnify board members or provide for rigorous supervision by competitively disinterested parties.
  • Avoided defining “active supervision” precisely because the concept is “flexible” and “context-dependent,” but provided some guidance about the components a supervisor ought to possess to ensure that it is more than a “mere façade of state involvement.”

This update highlights key provisions of the Supreme Court’s decision.

State professional licensing boards have often acted as if they were inherently shielded from federal antitrust liability based on their status as state agencies.  The Supreme Court has now confirmed that professional licensing boards and their members cannot enjoy “state action” immunity from federal antitrust liability if the boards are (1) controlled by practitioners in the field regulated by the board and (2) not subject to active supervision by disinterested state actors. 

The question before the Court was whether the state action immunity doctrine shielded the North Carolina dental board from an unfair competition enforcement action by the FTC.  The FTC had filed an administrative complaint charging the board with violating § 5 of the Federal Trade Commission Act for its efforts to stop nondentists from performing teeth-whitening procedures.  The FTC alleged that the North Carolina dental board, of which six of the eight members were dentists, sought to rid the state of nondentist teeth whiteners who offered their services at lower prices than dentists.  The board sent cease-and-desist letters to the nondentist teeth whiteners threatening them with prosecution for the unlicensed practice of dentistry.  The letters had the intended effect, causing these nondentist providers to leave North Carolina teeth whitening to dentists (or their employees). 

Under longstanding federal antitrust law, state action and private action undertaken under the auspices of state authority are immune from federal antitrust prosecution if (1) undertaken under a clearly articulated state policy that favors regulation over competition and (2) actively supervised by the state.  While actions taken by the state itself are generally shielded from federal antitrust law under the state action immunity doctrine, where a state delegates its regulatory power to nonsovereign actors, limits on that immunity may be imposed.  Such limits are “most essential” according to Justice Kennedy, writing for the Court’s majority, when the regulatory power has been delegated to “active market participants” such as the dentists on North Carolina’s dental board. 

Although North Carolina vested regulatory authority in the dental board and thus satisfied the first part of the test, the Court found that the state failed to actively supervise the board’s actions.  In fact, the board did not even argue that it was actively supervised; instead, it argued that such supervision was unnecessary because it was a state agency.  The Court disagreed, concluding that “specialized boards dominated by active market participants” such as the North Carolina dental board are “more similar to private trade associations” than to “prototypical state agencies.”  Thus, the need for state supervision was “manifest.” 

While the Court did not delineate the type of supervision that would suffice to qualify board action for state action immunity, it did indicate that the supervisor must not be an active market participant, must review the substance of a decision rather than just the procedures, and must have the power to veto or modify the decision.  The precise parameters of the supervision will be left to the state legislatures, and the ultimate determination whether those parameters satisfy the state action doctrine will be left to the courts in subsequent litigation.  Therefore, we can look forward to considerable activity by state legislatures and agencies to restructure their professional licensing boards to ensure supervision by more disinterested state actors.  We may also see a flurry of antitrust challenges filed against the boards and their members for stepping into competitively sensitive areas.  This threat of further litigation should be carefully weighed by the state boards, their members and private parties that work with them on board business.

© 2015 Perkins Coie LLP