North Carolina State Board of Dental Examiners v. Federal Trade Commission

The Supreme Court will decide whether a state-created regulatory board composed of market participants who are elected by other market participants is a “private” actor for purposes of federal antitrust immunity. A public actor’s anti-competitive conduct is exempt from federal antitrust law if the conduct simply furthers a “clearly articulated” state policy. A private actor’s anti-competitive conduct is exempt from federal antitrust law only if the conduct both (1) furthers a “clearly articulated and affirmatively expressed state policy” and (2) is subject to the state’s active supervision. Though both sides agree that North Carolina has clearly articulated a state policy to displace competition in the dental industry, the Supreme Court must determine two other legal issues: (1) whether the Board is a public actor or private actor for purposes of federal antitrust liability; and (2) if the Board is a private actor, whether the Board is subject to North Carolina’s active supervision.

The Board argues that it is a public actor for purposes of federal antitrust liability. The Board also argues that, as a public actor, it does not need “active supervision” to be immune from federal antitrust law and that financial self-interest is not sufficient to require active state supervision.

The FTC argues that the Board is a private actor.The FTC also argues that, as a private actor, the Board does need “active supervision” to be immune from federal antitrust law and that financial self-interest is sufficient to require active state supervision.

PRIVATE OR PUBLIC STATE ACTOR?

The Board claims that it is a public actor, regardless of the fact that market participants both dominate the board and elect officials to the board. Specifically, the Board argues that a majority market-participant membership does not equate the Board’s conduct to a private action when the Board is enforcing a clearly articulated state policy. The Board further argues that the fact that practicing dentists elect the Board’s dentist members is irrelevant for purposes of immunity to antitrust liability. The Board believes that an intrusion upon the state’s discretion regarding the manner of selecting public officials violates the basic principles of federalism.

As substantive evidence of the board’s public status, the Board refers to its quasi-governmental powers to enact regulations governing the practice of dentistry, to investigate potential violations of those regulations, to issue licenses, and to issue subpoenas. The Board also claims that the state itself has proven that the board’s public status is more than a “label” by imposing administrative obligations, such as ethics requirements and judicial review, on the board. Furthermore, the Board cites to Hallie v. Eau Claire for the proposition that a state agency is one of the state’s “officers and agents” when the state clearly directs the agency to perform anti-competitively.

The FTC claims that the Board is a private actor and that an entity’s formal label as a state agency does not necessarily create an “antitrust shield” conferring absolute immunity upon the agency. Furthermore, the FTC claims that federal antitrust law does not grant immunity to state agencies merely because the state legislature has bestowed regulatory powers upon the agency. The FTC believes that federal antitrust law considers the substantive character, rather than the formal label, of a public entity in determining whether immunity is appropriate. Citing the Hallie Court’s analysis, the FTC argues that state-law regulatory authority does not immunize an otherwise private actor from federal antitrust scrutiny.

The FTC concludes that the board’s constituency and election process suggest that the market-participant officials are “only loosely affiliated” with the State of North Carolina. The FTC further argues that, given the dominance of market participants in the Board’s membership and the fact that the members are elected by and accountable only to other market participants, the Board is analogous to a “private trade association.” The FTC believes these structural features increase the likelihood that the Board’s anti-competitive conduct serves exclusively private interests.

ACTIVE-SUPERVISION REQUIREMENT

The Board believes that the active-supervision requirement serves a “narrow evidentiary function” to show that private actors are following an “affirmative state policy of anti-competitive regulation.” The Board cites to Hallie to emphasize that the active-supervision requirement exists only to regulate private actors and is neither “necessary nor proper” where a public actor is enforcing anti-competitive conduct authorized by the legislature. The Board also claims that the active-supervision standard is not a substitute for administrative review, which the Board claims is the proper mode of policing public officials’ allegedly defective exercise of state-law authority.

The Board further argues that the fact that its conduct may financially benefit its members as market participants is an illegitimate basis for requiring active supervision. In the Board’s view, the “clear-articulation” prong, which requires any anti-competitive conduct performed pursuant to state law to be the “inherent, logical, or ordinary result” of state-law authority, ensures that board officials act pursuant to the state’s governmental interests. Given that case precedent mandates a tight link between the anti-competitive conduct and the exercise of state-law authority, the Board argues that the state’s interests and any coexisting financial interests of its officials are “presumptively aligned.” The Board also cites Omni for the proposition that federal antitrust enforcers are precluded from basing their claims on “perceived conspiracies” among agency officials who are market participants. The Board explains that federal antitrust law does not “second-guess” whether public officials are “sufficiently independent” from the private interests of market participants when the officials are enforcing a clearly articulated anti-competitive state policy.

The FTC claims that the Board does need active state supervision to be immune from federal antitrust law because the active-supervision requirement applies to private actors. The FTC also cites to Hallie for the proposition that the purpose of the active-supervision requirement is to safeguard against the threat of public officials acting in furtherance of private interests. The FTC believes that the aim of the active-supervision requirement is to ensure that “disinterested state officials” exercise “sufficient[ly] independent judgment and control” in effecting the state’s directives.

The FTC further argues that the composition of the Board’s membership creates a substantial risk that any attempt to displace competition from non-dentists is a product of the Board’s purely private economic incentive. To that end, the FTC rejects the Board’s interpretation of Omni and argues that the Board is disentitled to state-action immunity in the first instance as a result of the board’s financial self-interests. The FTC also asserts that it has found no credible evidence to support the Board’s claim that the Board’s attempts to exclude non-dentists from the teeth-whitening market were motivated by a concern for public health and safety.