January 28, 2023

Volume XIII, Number 28

Advertisement

January 27, 2023

Subscribe to Latest Legal News and Analysis

January 26, 2023

Subscribe to Latest Legal News and Analysis

January 25, 2023

Subscribe to Latest Legal News and Analysis

Federal Trade Commission (FTC) Wins Another "State Action" Case as 4th Circuit Finds State Board Can be a "Private Actor"

When is a board that is organized by a state to regulate an industry not considered a state agency worthy of antitrust deference under the "state action" exemption? According to the Federal Trade Commission – and now the Court of Appeals for the Fourth Circuit – it is not considered a state agency when a "decisive coalition" of the board is made up of participants in the regulated market and its actions are not actively supervised by the state. That May 31, 2013, finding in The North Carolina State Board of Dental Examiners v. FTC is another victory for the FTC in its quest to limit the state action exemption from the antitrust laws. It is also a warning to doctors, dentists, pharmacists and others who sit on local licensure boards.

The North Carolina State Board of Dental Examiners was established by the North Carolina legislature to protect public health and safety by ensuring that only qualified persons practice dentistry and dental hygiene in the state. Six of the eight Board members are dentists elected by other dentists; one is a dental hygienist elected by other hygienists; and one is a consumer, appointed by the governor. The Board licenses dentists and dental hygienists and regulates their actions. It does not have the authority to discipline unlicensed individuals.

About ten years ago, unlicensed individuals started providing teeth whitening services at lower prices than did licensed dentists, and in non-traditional locations such as mall kiosks. Responding to dentist complaints, the Board issued letters to these unlicensed providers – and even some mall operators – requesting that they cease and desist "all activity constituting the practice of dentistry." The letters worked and the providers stopped their services. The FTC investigated and found the Board's actions to be an anti-competitive conspiracy among competitors that violated Section 5 of the FTC Act. The Board raised several defenses, including that its actions were exempt from the antitrust laws under the "state action exemption."

The Supreme Court and lower courts have developed standards for when actions by a state that would normally violate the antitrust laws are exempt. First, actions by a state legislature are automatically exempt. Second, actions by substate governmental entities, such as agencies and municipalities, are exempt if made pursuant to "clearly articulated" policies of the legislature. Finally, actions by private actors are exempt if made pursuant to "clearly articulated" policies and if "actively supervised" by the state. The FTC has sought to narrow the scope of the exemption through a series of cases and was successful in limiting the meaning of "clear articulation" in the Supreme Court's recent opinion in FTC v. Phoebe Putney. For more background on the exemption and Phoebe Putney, see these two client alerts: October 29, 2012 and February 20, 2013.

The key question for the FTC and the 4th Circuit was whether the actions of the Board should be considered actions of a substate governmental entity or, instead, those of a private actor that must be actively supervised to qualify for the state action exemption. The court agreed with the FTC that "state agencies in which a decisive coalition (usually a majority) is made up of participants in the regulated market, who are chosen by and accountable to their fellow market participants, are private actors" and must be actively supervised to meet the exemption. A concurring opinion emphasized that it was crucial that the dentist Board members were elected by other dentists, not appointed by state officials, otherwise, "a much stronger case would have existed" to ignore the "active supervision" prong of the exemption. After making that determination, the court quickly found that the Board's actions were not "actively supervised" (therefore, not exempt) and were anti-competitive under the antitrust laws.

The importance of the opinion is exemplified by the number of amici supporting the Board: twenty-four different professional associations, including the American Dental Association and American Medical Association. This case makes it more likely that other local licensure boards made up primarily of competing doctors, dentists, veterinarians, physical therapists, funeral directors and the like will need to more closely examine how their members are elected and what actions they take.

© 2023 ArentFox Schiff LLPNational Law Review, Volume III, Number 155
Advertisement
Advertisement
Advertisement

About this Author

ArentFox Schiff is a pioneer in manufacturer-pricing litigation, and continues to work with clients around the globe to address complex antitrust problems.

Our experience spans the spectrum of federal and state antitrust practice: contracts, pricing, and distribution strategy; litigation; government investigations; and matters involving the intersection of intellectual property and antitrust.

We have worked with nearly every industry, ranging from trade associations, health care, and finance, to fashion, insurance,...

202-715-8590
Advertisement
Advertisement
Advertisement