SCOTUS cracks door to antitrust liability for State Professional Licensing Boards

In a 6 - 3 decision on February 25, 2015, the United States Supreme Court held that state licensing boards may be held liable for antitrust violations. The decision, North Carolina Board of Dental Examiners v.  Federal Trade Commission, marks a substantial, but probably unimportant, deviation from what had been well-settled law that the regulation of professionals engaging in their profession was "state action" exempted from antitrust law.

The previous standard, which the Court appears to have intended to preserve, provides for Parker immunity only if “‘the challenged restraint. . . [is] clearly articulated and affirmatively expressed as state policy,’ and . . . ‘the policy . . . [is] actively supervised by the State.’ ”

What changed:

SCOTUS has more definitively defined how the "state actor" doctrine applies in the context of immunity from antitrust litigation. Essentially, the Board lost because a controlling number of the Board’s decisionmakers were active market participants in the occupation the Board regulates. Where the majority of Board members are active market participants, the Board can invoke state-action antitrust immunity only if it was subject to active supervision by the State. In this case that requirement was not met.

The unique problem in this case was the absence of a clearly articulated standard for the regulated conduct. The underlying conduct in this case were multiple cease and desist letters sent to non-dentist engaging in teeth-whitening services. Teeth-whitening services were not defined as "dentistry" by the relevant North Carolina statute(s). Where the Board regulating dentistry began regulating outside the scope of what the State had defined as "dentistry" the Board opened itself to antitrust liability.

What that means:

Limits on state-action immunity are most essential when a State seeks to delegate its regulatory power to active market participants, for conflicting allegiances are not always apparent to an actor and prohibitions against anticompetitive self-regulation by active market participants are a key component of federal antitrust policy. Essentially, the State must take an active oversight role where the State delegates regulatory authority over an industry to those who participate in that industry. The question of available damages remains open, as this case did not offer occasion to address the question whether agency officials (including board members) may, under some circumstances, enjoy immunity from antitrust damages liability.

As we can see from previous application of the supervision requirement more clearly defined in this case, the need for supervision and clearly articulated standards are likely to be dispositive of an antitrust allegation against a state licensing board. In Texas, for example, the State Bar is predominantly regulated by the State Supreme Court, it is also subject to the review of the Legislature pursuant to the State Bar Act, a sunset legislation renewed periodically by the Texas Legislature.

What will change?

While no SCOTUS decision is unimportant, ultimately the decision here will likely result in (1)more clearly defined structures for regulation of licensed professions and (2)substantially increased oversight by non-market participants.

As the Court noted in its opinion, "[t]he Court applied this reasoning to a state agency in Goldfarb. There the Court denied immunity to a state agency (the Virginia State Bar) controlled by market participants (lawyers) because the agency had “joined in what is essentially a private anticompetitive activity” for “the benefit of its members.” 421 U. S., at 791, 792. This emphasis on the Bar’s private interests explains why Goldfarb, though it predates Midcal, considered the lack of supervision by the Virginia Supreme Court to be a principal reason for denying immunity. See 421 U. S., at 791; see also Hoover, 466 U. S., at 569 (emphasizing lack of active supervision in Goldfarb); Bates v. State Bar of Ariz., 433 U. S. 350, 361–362 (1977) (granting the Arizona Bar state-action immunity partly because its “rules are subject to pointed re-examination by the policymaker”).

This author believes the probability of a substantial shift in regulatory board liability to be exceptionally unlikely. The Court goes so far as to tell States how to minimize the possibility of liability: "States, furthermore, can ensure Parker immunity is available to agencies by adopting clear policies to displace competition; and, if agencies controlled by active market participants interpret or enforce those policies, the States may provide active supervision." Slip op. at 21. 
State regulatory boards will likely follow this instruction.

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