Cavity Filling or Root Canal? How Courts Should Apply North Carolina State Board of Dental Examiners v. FTC
Richard F. Walker III
This Comment argues that federal courts and the FTC should narrowly construe a recent Supreme Court decision restricting the scope of the antitrust state-action doctrine. In North Carolina State Board of Dental Examiners, the Supreme Court held that state boards controlled by active market participants must receive active state supervision to invoke state-action antitrust immunity. Notably, the majority opinion did not provide a test for determining whether active market participants control a state agency. Nor did it offer guidance on the adequate level of supervision states must provide to satisfy the active supervision requirement.
Fortunately, states and courts can look to an FTC Staff Guidance Statement and the Parker doctrine as polestars for answering the questions left open by the Court. The FTC Staff Guidance Statement provides insights into how to identify when active market participants control a state board. The Parker doctrine supports a presumption that a state supervisory scheme is adequate when it satisfies the four constant requirements identified by Justice Kennedy in N.C. Dental. Taken together, the FTC Staff Guidance Statement and the Parker doctrine suggest that N.C. Dental is amenable to an interpretation that does not eviscerate the antitrust state-action doctrine.
What's more, strong policy reasons support an interpretation of N.C. Dental that does not unduly trammel states' rights. To be sure, state-sanctioned cartels in the form of licensing commissions and regulatory boards represent a pervasive problem in the United States economy. Nonetheless, this Comment argues that N.C. Dental need not portend the demise of antitrust federalism, especially as it applies in the context of state health care regulation. Supreme Court precedent and structural principles that undergird the Constitution weigh in favor of an interpretation and application of N.C. Dental that does not vitiate the antitrust state-action exemption. Additionally, even when immunity fails, courts should adopt a recently proposed "modified rule-of-reason analysis" for cases involving state regulatory boards. This approach maximizes the holding's upside while avoiding the downside of
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disrupting states' regulatory regimes in sensitive industries such as health care and medical regulation.
In a dual system of government in which, under the Constitution, the states are sovereign, save only as Congress may constitutionally subtract from their authority, an unexpressed purpose to nullify a state's control over its officers and agents is not lightly to be attributed to Congress.1
Recently, a considerable amount of economic and legal commentary has focused on a controversial but ubiquitous practice: state delegation of regulatory authority to private actors.2 Much of this commentary has been negative, and rightfully so. When a state delegates regulatory authority over an industry or profession to persons who are active market participants in that same industry, a stark conflict of interest arises because those private delegates might "confuse[] their own interests with the State's policy goals."3 Put bluntly, delegating regulatory authority to active market participants invites self-dealing.4
The purported benefit of occupational licensing is that it helps improve the safety and quality of goods and services offered in a state.5 However, recent studies suggest that, despite an explosion in occupational licensing regimes throughout the United States,6 these regimes yield only marginal safety and quality benefits and, further, increase the prices of goods and services7 and
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reduce job availability.8 In other words, empirical evidence indicates that the costs of occupational licensing far exceed the benefits.9
At first blush, the Sherman Act appears an effective tool for addressing the problem of private-regulatory delegations. After all, occupational licensing is a deliberate restriction of competition, and the entities that impose these restraints closely resemble a prime target of the antitrust laws: cartels.10 Yet, because of the Supreme Court's decision in Parker v. Brown,11 the Sherman Act often has trouble reaching licensing boards that enact anticompetitive restraints under the auspices of state authority.12
Parker established that acts of state legislatures are automatically immune from the Sherman Act.13 Two later cases, Retail Liquor Dealers Ass'n. v. Midcal Aluminum, Inc.14 and Town of Hallie v. City of Eau Claire,15 addressed the status of private actors and municipalities within the antitrust state-action doctrine. In Midcal, the Supreme Court formally established a two-pronged test for private actors to obtain immunity: (1) they must act pursuant to a clearly articulated state policy to displace competition (the "clear articulation" requirement); and (2) the state must actively supervise the conduct of private actors to whom it has delegated the authority to displace competition (the "active supervision" requirement).16 In Town of Hallie, the Court held that municipalities only need to satisfy the first, clear articulation prong because "[w]here the actor is a municipality, there is little or no danger that it is involved in a private price-fixing arrangement."17
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Parker, Midcal, and Town of Hallie establish "three categories of state-action antitrust immunity:" (1) state legislatures enjoy complete immunity without having to satisfy either prong of Midcal; (2) municipalities need only satisfy the first prong by showing that they acted pursuant to a clearly articulated policy; and (3) private actors must satisfy both the clear articulation and active state supervision prongs.18
A footnote in Town of Hallie suggested that "true [(i.e. public)] state agencies" should be treated the same as municipalities for purposes of Parker immunity.19 Though it was dictum, courts generally adhered to this principle.20 However, "determining whether an actor is sufficiently 'public' so as not to require supervision has often proven difficult."21 Indeed, until 2015, there was a three-way circuit split on this issue.22 Then, in North Carolina State Board of Dental Examiners v. FTC (N.C. Dental), the Supreme Court resolved the split, at least partially.23
In N.C. Dental, the Court held that state boards controlled by active market participants must satisfy the active supervision requirement to receive Parker immunity.24 Because "[state] boards [throughout the United States] are typically dominated by active members of the very profession that they are tasked with regulating,"25 the effect of this holding is significant: assuming states want to immunize their boards from antitrust suit, they will need to either reorganize or "actively supervise" boards that previously did not require
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supervision.26 Moreover, the active supervision requirement is more difficult to satisfy than the clear articulation requirement.27 As such, N.C. Dental restricts the scope of the antitrust state-action doctrine, though it remains to be seen how expansively the FTC and lower courts will apply the decision.28
Some commentators view N.C. Dental as a step in the right direction in the fight against state-sanctioned cartels.29 Others, however, have expressed concern at the potential threat the decision poses to the predominant model of state economic regulation and, in particular, state health care regulation.30 professional self-regulation, such as doctors regulating doctors or lawyers regulating lawyers, has existed since the mid-nineteenth century. 31 That this practice continues to this day, with every state relying to some extent on professional self-regulation, is not surprising: delegating regulatory authority to persons with experience in a particular field enables states to draw upon these individuals' expertise in formulating their regulatory policies. 32 Because it restricts the scope of the Parker immunity, N.C. Dental may make professionals reluctant to serve on state regulatory boards, thereby interfering with the states' ability to regulate such internal affairs. Thus, the decision implicates federalism concerns at the heart of the antitrust state-action doctrine. Indeed, Parker embodies the structural constitutional principle that states are entitled to a significant amount of authority as co-sovereigns under our federalist system.33
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In addition to these federalism concerns, the holding in N.C. Dental raised two key questions. First, what constitutes a controlling number of active market participants: only a majority, or perhaps a minority that sets a board's agenda or generally gets its way?34 Second, what constitutes active state supervision? In other words, if a state decides to comply with N.C. Dental by subjecting its regulatory boards to "active state supervision," what must that supervision entail? As to this latter question, the majority gleaned from Parker's progeny four "constant requirements" for satisfying the active state supervision requirement:
[1] The supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it; [2] the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy; [3] the "mere potential for state supervision is not an adequate substitute for a decision by the State" . . . [and 4] the state supervisor may not itself be an active market participant.35
To be sure, the majority ultimately characterized the inquiry as "flexible and context-dependent," and stated that "the adequacy of supervision otherwise will depend on all the circumstances of a case."36 Although the Court acknowledged that...
