If you’re happy about the recent Supreme Court decision that professional licensing boards don’t automatically get antitrust immunity, you need to think twice. The decision in North Carolina Board of Dental Examiners v. Federal Trade Commission isn’t a victory for economic liberty, and it won’t do much to reduce corruption and rein in abusive regulations.
What it will do is undermine federalism and state sovereignty, disrupt the state’s ability to protect its citizens, and weaken the democratic process by putting more distance between voters and bureaucrats who make policy decisions about everyone’s health and well-being.
States Have Immunity from Antitrust Laws
Since Parker v. Brown in 1943, certain forms of state action have been protected from antitrust liability because, out respect for federalism, the court recognized that states have the right and duty to pass laws with anticompetitive results for the public’s welfare. Unlike a private entity, each state can decide how commerce is regulated and how those regulations should be enforced.
A common example is the medical profession. Only doctors can practice medicine because letting anyone hand out prescriptions or perform surgery is a threat to public safety. An individual, therefore, must be licensed by the state to practice medicine. Anyone who isn’t licensed can’t go crying to the Federal Trade Commission (FTC) that he’s being unfairly shut out from the market. That’s because the state is acting within its power as a sovereign entity to police the medical profession.
This is true for many professions—too many, actually (in the 1950s only 5 percent of professions were licensed by the state; that has shot up to nearly 30 percent today, including florists and African hair braiders). While people across the political spectrum agree our country needs serious occupational licensing and regulatory reform, this is not what’s at issue in the dental board case. Despite the Supreme Court ruling, states will still pass anticompetitive laws and impose needless regulations on the public.
Are State Boards Part of Government?
The question in this case is, are state boards with active market participants (practicing dentists) the same as the state itself and free to enjoy immunity without active supervision by the state, or are they more like a private entity that requires more oversight? Until now, professional licensing boards have received immunity as long as they abide by clearly articulated anticompetitive statutes. The courts have not required active supervision.
They haven’t needed active state supervision because their actions are the “state’s own.” They were created by the state, and they enforce regulations according to state policy. They are not like private entities (e.g., trade associations) that have to receive active state supervision to make sure they’re complying with statutes and not abusing their authority.
In this case, the court affirmed the Fourth Circuit’s decision that state boards with active market participants should be treated like a private entity. They must, therefore, meet the two-test requirement for immunity that is given to private entities: a clearly articulated anticompetitive statute and active supervision by the state. Professional licensing boards—boards with certified public accountants, lawyers, dentists, doctors—are now considered “quasi-government” bodies that need another layer of bureaucracy to keep them politically accountable.
While this might not seem like a big deal, it has sweeping implications regarding federal intrusion into state governance and public safety.
It All Started With Teeth Whitening
Before we get to that, let’s look at how we got here. Some non-dentists in North Carolina were offering teeth-whitening services at much cheaper rates than those dentists charged. The dentists complained to the NC Dental Board, which is composed mostly of dentists, that non-dentists shouldn’t whiten teeth because it is a dental procedure. The board, which the state legislature has vested with the “full power and authority to enact rules and regulations governing the practice of dentistry within the State,” agreed.
After all, dentistry, by NC statute, includes removing “stains, accretions or deposits from the human teeth.” The statute isn’t clear whether this applies to all teeth-whitening procedures, but this is how the board interpreted the law. As a result, the board sent cease-and-desist letters to non-dentists who were offering teeth whitening services.
Enter the FTC. When the FTC found out about the threatening letters, it investigated and brought a complaint against the board for unlawful restraint of trade under Section 1 of the Sherman Act and unfair competition under the FTC Act. The complaint said the “actions of the Dental Board prevent and deter non-dentists from providing or expanding teeth whitening services, increase prices and reduce consumer choice without any legitimate justification or defense, including ‘state action’ defense.”
The NC Dental Board filed to dismiss, claiming its conduct complied with clearly articulated anticompetitive statutes and was protected by state antitrust immunity. The FTC responded by saying the board, which is controlled by market participants and not public officials, didn’t qualify for immunity because it hadn’t received “active supervision” by the state when it decided to send out the cease-and-desist letters.
The board disagreed, saying that because it was a state agency, empowered by the state and acting as the “state’s own,” it didn’t require state supervision. The Fourth Circuit didn’t see it that way and denied the board’s petition for review of the FTC’s order. In a 6-to-3 decision, the Supreme Court affirmed the Fourth Circuit, holding that the dental board is not immune from antitrust laws.
The Supreme Court’s Licensing Decision
Justice Anthony Kennedy, who wrote the opinion for the court, said, “While the Sherman Act confers immunity on the States’ own anticompetitive policies out of respect for federalism, it does not always confer immunity where, as here, a State delegates control over a market to a non-sovereign actor. State agencies are not simply by their governmental character sovereign actors for purposes of state-action immunity.” He then referenced Goldfarb v. Virginia State Bar: “The fact that the State Bar is a state agency for some limited purposes does not create an antitrust shield that allows it to foster anticompetitive practices for the benefit of its members.”
The court’s reference to Goldfarb is problematic because it doesn’t apply in this case. The issue in Goldfarb was that the state agency did not have a clearly articulated anticompetitive policy. State agencies can’t just engage in anticompetitive activities carte blanche. They have to be compelled by state policy. That wasn’t happening in the Goldfarb case. This was a point made by Hashim Mooppan who spoke on behalf of the dental board in oral arguments. “The question in this case, unlike in Goldfarb, is whether a board that has public—that has market participants on it—is entitled to immunity even when enforcing a clearly articulated policy of displaced competition.”
Justice Samuel Alito said the board is entitled to immunity, and the court, by concluding otherwise, will spawn confusion. Justice Antonin Scalia and Justice Clarence Thomas agreed and joined Alito’s dissent. “When the States first created medical and dental boards, well before the Sherman Act was enacted, they began to staff them in this way,” Alito wrote. “Under Parker, the Sherman Act (and the Federal Trade Commission Act) do not apply to state agencies; the North Carolina Board of Dental Examiners is a state agency; and that is the end of the matter.”
Rulings in the Fifth and Ninth Circuits support Alito’s view. In Earles v. State Board of Certified Public Accountants of Louisiana (1998), the Fifth Circuit recognized that the State Board of CPAs, which was “composed entirely of CPAs who compete in the profession they regulate” and who were chosen by their peers, did not require “active supervision.” In Hass v. Oregon State Bar (1989), the Ninth Circuit found that the board did not require supervision because “those members of the public who are interested parties, the members of the Oregon State Bar, do have the ability to ‘check’ the actions of the Board by the electoral process.”
The court’s decision to ignore these rulings and treat state agencies as nonsovereign entities that require more oversight by even more bureaucrats will create practical problems and have “far-reaching effects on the States’ regulation of professions,” Alito wrote.
Unqualified Public Officials Will Replace Experts
Practitioners have always staffed licensing boards, so this is nothing new. There’s an obvious reason for this. The best people to regulate technical professions are the people in those professions. “Staffing the State Board of Dental Examiners with certified public accountants would certainly lessen the risk of actions that place the well-being of dentists over those of the public,” Alito wrote, “but this would also compromise the State’s interest in sensibly regulating a technical profession in which lay people have little expertise.”
As a result of the Supreme Court’s decision, states will most likely need to change the composition of their boards to avoid litigation. There are also questions about who is an actual market participant. Can someone withdraw from his profession for a short time to serve on a board? What is the scope of the market in which a board member may not participate? These are the questions Alito asks, and no doubt they will be questions states ask as they try to avoid litigation.
In addition, it might prove difficult for states to find practitioners who will serve on boards because they’ll be afraid of lawsuits. Who will want to take time out of their private lives to serve on a board with the FTC breathing down their necks?
Instead of states being primarily concerned about protecting the public through licensing and regulations (as broken as that system is), they will be more concerned about avoiding costly antitrust litigation.
Some might think this is a good thing. The fewer regulations, the better. The less licensing, the more freedom for people to break into the marketplace. While regulatory reform is necessary, this is the wrong way to go about it. That’s because while bad regulations come out of these boards, good regulations do, too. Wouldn’t it be better for a board to license healthcare professionals who are qualified instead of licensing people who aren’t simply because the board is afraid the FTC will bring an antitrust lawsuit against it? By inserting itself into the regulatory process in this way, the FTC will influence decisions that should be left solely to states.
Undermining State Sovereignty
The NC Dental Board must now comply with strict FTC orders. If the board exercises its authority to regulate dentistry in any way that violates the FTC’s order, it will face civil penalties of up to $10,000 for each violation. As stated in an amicus brief, “This is precisely the kind of interference with decisions of legislatively-created state regulatory agencies that this Court has held to be outside the purview of the federal antitrust laws in a system of dual sovereignty.” Parker v. Brown was very clear that antitrust laws do not “restrain a state or its officers or agents from activities directed by its legislature.”
If a federal agency with no connection to a particular profession can invalidate regulatory and licensing decisions, that agency becomes the final authority on matters of public health and safety. No longer is the state responsible for the welfare of its citizens. The federal government is.
This is a dangerous precedent. If the federal government basically becomes the final authority in licensing professions—albeit indirectly—then the federal government, not 50 different states, will decide who can be doctors. In light Obamacare causing individuals to lose the freedom to pick their own doctor and get the healthcare they want, the next step of having the federal government decide who can and cannot practice medicine is a profound loss of liberty for the American people.
Until now, the democratic process checked state boards, as imperfect as it is. If they did something wrong or if the state passed intolerable anticompetitive laws, voters could deal with it at the ballot box or in the state courts. The state legislature and agencies would get the message and make appropriate changes. However, if boards make decisions based on what the FTC wants and not on what is best for the public, elections won’t matter. State actors will answer to bureaucrats and federal agencies, not the people of the state.
Federal agencies will also promote uniform standards across all states, chilling diversity and making it difficult for each state to do what’s best for its citizens. Regulations that work for California might not be appropriate for West Virginia or Texas. States need to be free to do what’s best for their citizens specifically without being indirectly or directly forced to comply with the uniform standards of a centralized government.
Active State Supervision
This decision may also force states to be more involved in the affairs of each board, which will cost money and time. FTC Commissioner Maureen Ohlhausen recently said at the Heritage Foundation that people don’t need to worry about excessive oversight of the boards. “The state’s supervision need not entail day-to-day involvement in an agency’s operations or micromanagement of its every decision,” she said. “Rather the critical inquiry is whether the State’s review mechanisms provide ‘realistic assurance’ that a nonsovereign actor’s anticompetitive conduct ‘promotes state policy, rather than merely the party’s individual interests.’”
Ohlhausen said that while she understands the concerns of those who oppose the ruling, state boards have viable options for avoiding antitrust liability. “These options should not be terribly onerous to implement and should help states retain individuals with sufficient relevant expertise on their regulatory boards.” Ohlhausen hopes that, at the very least, states will become “more cognizant of, and hopefully minimizing, the competitive effects of a board’s regulatory decisions. That would go a long way toward eliminating any antitrust exposure.”
To put it simply, Ohlhausen said, “If a board is not engaging in conduct that is a violation of the antitrust laws, it need not even address the issue of active supervision.”
But the court said the reason these boards need active supervision is because they include market participants, not because corruption is necessarily happening. Regulatory capture, after all, is hard to prove. Ohlhausen’s comment also sounds a lot like the response we get about the National Security Agency spying on innocent Americans. “Don’t worry about it. If you’re not doing anything wrong, you don’t need to worry!”
This is the point. These boards, by their very nature, engage in anticompetitive activities. That’s why they need immunity in the first place. Notice, Ohlhausen didn’t say boards don’t need to worry about litigation as long as they properly enforce the state’s anticompetitive statutes, which is what they should be doing. Instead, she says boards don’t need to worry as long as they don’t violate any antitrust laws. This speaks volumes about the meddlesome and manipulative nature of federal involvement in state issues and its undermining of state sovereignty.
These concerns don’t mean there shouldn’t be regulatory reforms. We need change more than ever, but it should be done through the political process—as slow as that is—and not by federal agencies strong-arming states through the courts and putting Americans more at risk and making them less free.