On February 25, 2015, the Supreme Court of the United States issued an opinion against the North Carolina Board of Dental Examiners (the “NC Board”) finding that the NC Board had violated federal antitrust law by issuing cease and desist letters to non-dental licensed persons who performed teeth whitening services. The case involved an administrative complaint filed by the Federal Trade Commission (“FTC”) against the NC Board alleging anti-competitive and unfair methods of competition under the Federal Trade Commission Act. The FTC had ordered the NC Board to stop sending the cease and desist letters prohibiting non-dentists from offering teeth whitening services. The Supreme Court affirmed the FTC order which could impact State licensing boards across the country.
The North Carolina Dental Practice Act provides that the NC Board is the agency of the State for the regulation of the practice of dentistry with the duty to create and enforce a licensing system for dentists. The NC Board is composed of: six licensed dentists engaged in the active practice of dentistry elected by licensed dentists in North Carolina; one dental hygienist elected by other licensed hygienists; and one consumer member appointed by the Governor. When licensed dentists complained to the NC Board that non-dentists were providing teeth whitening services and charging lower fees, the Board sent cease and desist letters threatening the unlicensed persons with criminal liability if they continued to provide the service. As a result of the NC Board’s actions, the non-dentists stopped offering teeth whitening services.
The FTC alleged that the NC Board’s concerted action to exclude non-dentists from the teeth whitening market constituted anticompetitive and unfair methods of competition. The Board argued that, as a state agency, it was immune from any antitrust claims because it was acting in the sovereign capacity of the state. However, the Supreme Court determined that “State agencies are not simply by their governmental character sovereign actors for the purpose of state-action immunity.” The Supreme Court held that where active market participants regulate their own markets by deciding who can participate in the market “active supervision” is required by the State in order to invoke state-action antitrust immunity.
The Supreme Court identified the following requirements of active supervision: the supervisor must review the substance of the anticompetitive decision, not merely that the procedures are followed to produce it; the supervisor must have the power to modify or veto the particular decisions to ensure they incorporate state policy; and the state supervisor may not itself be an active participant. Active supervision of the NC Board was missing because there was no evidence of any decision by the State of North Carolina to initiate a review of and to concur with the NC Board’s actions against the non-dentists. Further, North Carolina’s review mechanisms of the NC Board’s actions did not provide “realistic assurance” that the Board’s anticompetitive conduct promoted the State’s policy rather than the individuals’ interests. As a result, the Supreme Court affirmed the FTC’s order to the NC Board to stop sending the cease and desist letters or other communications asserting that a non-dentist cannot offer teeth whitening services and products.
The decision against the NC Board could result in an increase in State supervision over licensing boards comprised of market participants. The Supreme Court appears to suggest that the State must have an active oversight policy and procedure in place prior to a licensing board taking action against competitors in the marketplace. State licensing boards may be required to seek direct State approval in order to avoid antitrust violations when making decisions impacting competitors. Another consequence may be a change in the composition of licensing boards away from professionals regulating their own. Many States currently compose the membership of a licensing board with persons practicing within the industry regulated by the board and rely on their professional expertise to protect the public interest. However, to avoid any potential antitrust claims, the States may have to reconfigure board membership. In any event, the Supreme Court’s decision will require each State to evaluate the current structure, policies and procedures of its respective licensing boards to ensure that the boards do not act violation of the antitrust laws.