The Federal Trade Commission Takes Aim at Professional Regulatory Boards

Date: May 19, 2014

Written with assistance from Stacey Pine.

Take-away:  The Supreme Court will hear a case this fall as to whether state licensing boards composed of regulated professionals are entitled to  the 'state action' exception to the antitrust laws.

In 2003, the North Carolina State Board of Dental Examiners (“the Board”), the dental licensing and disciplinary body within the state, sent cease-and-desist letters to non-dentists who were providing teeth whitening services and distributing teeth whitening products throughout North Carolina.  The letters advised the non-dentist providers that they were practicing dentistry in violation of North Carolina law and ordered the providers to immediately stop providing services and distributing products. In response to the Board's actions, the FTC filed a complaint and entered an order against the Board in 2010, charging it with anticompetitive behavior in violation of the FTC Act and the Sherman Act.  The FTC specifically found that the Board's actions led to higher prices and reduced choices for consumers, and concluded that the Board's actions had “a clear tendency to suppress competition and lacked any countervailing procompetitive virtue.”

The Board appealed the FTC's decision to the 4th Circuit Court of Appeals asserting, among other things, that the Board was exempt from antitrust laws under the “state action” doctrine.  The state action doctrine provides antitrust immunity for states agencies taking regulatory action that, if taken by a private actor, would otherwise result in violations of the federal antitrust laws.   After hearing the case, the 4th Circuit Court rejected this argument, finding the majority of the Board members were dentists, elected by other dentists rather than state officials, and the Board members obviously had a direct interest in competition within the dental market. Most concerning to the court was the fact that a Board comprised of market participants could exclude competitors from the marketplace without supervision by a disinterested state authority. The court ultimately held that a state regulatory board comprised of market participants that did not need approval from a disinterested state authority for its decisions was a “private actor” and, therefore, not exempt from antitrust laws.  In other words, the court held that action by a state agency comprised of those practitioners regulated by the agency would not be considered bona fide state action, granting immunity under the antitrust laws.

This ruling may be of concern for associations that work on behalf of their members to ensure proper regulation of the professions they represent. The 4th Circuit's ruling effectively limits the ability of various state licensing boards that are comprised of market participants from regulating certain allegedly unlawful practice by non-licensed, practitioners.  This could have an impact in certain situations because the purpose of state regulatory boards is to regulate professional conduct and provide public protection by ensuring those who practice certain professions meet minimum standards and are duly licensed.   Typically, those most qualified to ensure the state is providing proper protection are those who are most knowledgeable about the profession being regulated. Additionally, requiring  a licensing board to obtain formal state approval for decisions would create bureaucratic problems, and delay public protection efforts.

The Board petitioned the Supreme Court for certiorari, and the Supreme Court has agreed to hear the case this fall. It will be interesting to see how the court rules.