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The Supreme Court heard oral arguments this week in a case that could have sweeping impact on thousands of doctors, lawyers, and other licensed professionals.  As reported by The New York Times, Washington Post, NPR, and ScotusBlog, the issue in North Carolina Board of Dental Examiners v. Federal Trade Commission is whether state licensing boards have immunity from antitrust laws under the "state action" doctrine when members of a state board take action to exclude non-licensed professionals from the relevant market, and the individuals who sit on the state board stand to gain by excluding competitors from that market.

 

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Facts

 

As reported by ScotusBlog and NPR, the North Carolina Board of Dental Examiners regulates dentists and dental hygienists in North Carolina. According to the FTC, dentists complained to the board that non-dentists offered teeth whitening services and charge less than dentists for teeth whitening. Teeth whitening in a dentist's office can range from $400 to $1,300, while spas, salons, and stores in North Carolina offer similar serves for $75 to $125.  The board ordered the non-dentists to stop whitening teeth. The FTC found that the board’s actions violated the Sherman Act because it constituted a “combination” or “conspiracy, in restraint of trade.” Specifically, the FTC charged that the eight-member board -- which included six dentists with an active practice -- tried to exclude non-dentists from the market for teeth whitening services, and the dentists who sat on the board stood to gain from excluding competitors from that market.

 

The board maintained they were immune from antitrust prosecution under the "state action" doctrine, which exempts liability under the Sherman Act to anticompetitive actions taken by state governments, ScotusBlog reports.  However, private actions taken pursuant to state policy are not automatically exempt, but instead must satisfy a two-step test. In step one, private anticompetitive action enjoys exemption only if the state “clearly articulated” the policy to displace competition with regulation. In step two, the state must “actively supervise” the policy.

 

The FTC found that the dental board is not exempt from antitrust laws because North Carolina did not actively supervise the agency's actions. The Fourth Circuit agreed.  The dental board argues that because it is a bona fide state agency, it does not need to be actively supervised by another part of the state government.  The Supreme Court granted cert to resolve the dispute.

 

Supreme Court oral arguments

 

NPR reports that the justices were "bristling with questions" at oral argument this week.  Justice Samuel Alito noted that the state could not avoid federal antitrust laws by simply deeming a group of private dentists to be a state entity. Justice Stephen Breyer then jumped in, maintaining that if "the state says to a group of wine merchants, you go fix your own wine prices, [just] be sure they're reasonable," they can do that under the antitrust law, "if and only if, there is supervision" by the state.  Justice Elena Kagan then expressed concern that the dental board's argument would "strip" out the meaningful state supervision it required in the past. Without state supervision, "there's no way to make sure" that the dentistry board is not merely there "to serve their own interests," she said.

 

But NPR also reports the justices found cause for concern with the FTC's position.  When the FTC argued that the antitrust laws require there to be some "disinterested" state employee or group of employees who serve as a check on boards of private individuals, Justice Scalia had plenty to say.  "Really, really? ... You are going to have a review board composed of non-neurologists ... I don't want that. I want a neurologist to decide it."  And Justice Kennedy said that the consequence of the "disinterested state employee" rule advocate is  that no private practitioner would be willing to serve.

 

How will the Supreme Court rule?

 

As ScotusBlog points out, this case comes to the Court against a backdrop of criticism of state licensing boards. State licensing boards frequently exclude competitors, raise barriers to entry, reduce supply, and raise prices. A private cartel would almost surely violate the Sherman Act if it took the same actions as a state licensing board. But the licensing boards are blessed by the states, which may be enough to exempt them from the Sherman Act even when they use the power of the state to keep out competition. No one expects the Supreme Court to strip the power of states to create professional licensing boards that can operate with antitrust immunity. Rather, the central question is whether a state may create a licensing board and set it loose, as North Carolina did, or if instead it must actively supervise the board’s actions.  Stay tuned.

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