Continuing our series on the 2016 Spring Meeting, Brodie Butland summarizes the contentious panel discussion at the 2016 ABA Antitrust Conference, titled “Telemedicine: Are Old Definitions Restricting Competition?”
The Supreme Court’s 2014-15 term was nearly unprecedented. Same-sex marriage is now legal across all 50 states. The Affordable Care Act survived yet another challenge. Lethal injection protocols were upheld, as was a nonpartisan redistricting initiative. Free speech was considered three times, as was freedom of religion.
To be sure, all of the foregoing cases were important. But one case that has received almost no popular media coverage has the potential to completely upend licensure and regulation provisions in every state in the nation. That case is North Carolina State Board of Dental Examiners v. Federal Trade Commission, 135 S. Ct. 1101 (2015), and the case and its fallout were the subject of a contentious panel discussion at the 2016 ABA Antitrust Conference, titled “Telemedicine: Are Old Definitions Restricting Competition?”
Professional licensure and traditional antitrust exemption
First, a little background. Every state regulates occupations. Regulation of the medical, legal, engineering and accounting professions is universal, but many states also regulate myriad other occupations, including (but by no means limited to) auctioneers, athletic trainers, teachers, dentists and even hairdressers. Recently there has been a push for governmental licensure of personal trainers, which I have previously discussed on this blog.
Most regulation of occupations is done through boards, whose members typically consist of active occupational participants. Although this makes intuitive sense (after all, members of an occupation will often have the best insights on how to best regulate that profession), it has the potential to create a conflict of interest. Indeed, the very professionals benefiting from regulation and strict licensure requirements are also the ones making the rules governing what constitutes practice of their occupation and what entry barriers new professionals will have to clear.
Despite these anticompetitive risks, state occupation boards have traditionally enjoyed antitrust exemption. Starting in 1943 with Parker v. Brown, 317 U.S. 341 (1943), the Supreme Court has immunized sovereign activities of “the state itself.” Nearly 40 years later, in California Retail Liquor Dealers Ass’n v. Mical Aluminum, Inc., 445 U.S. 97 (1980), the Supreme Court expanded sovereign immunity to non-sovereign state actors if they (1) pursued “clearly articulated” state interests, and (2) their conduct was “actively supervised by the state.”
For state agencies, this traditionally meant that the agency needed only to act within their legislative authority to enjoy immunity from suit. And for nearly another 40 years, state occupation boards enjoyed immunity from antitrust suits, even when their actions reeked of anticompetitive intent.
A (massive) crack in the foundation: North Carolina Dental
Then came North Carolina Dental. In brief, the North Carolina Dental Board determined that teeth whitening products and services provided by non-dentists—which were much cheaper than teeth whitening by a dentist—constituted the practice of dentistry, and therefore required a dental license. The FTC sued, claiming that the teeth whitening rule restricted competition and violated the antitrust laws. Notably, practicing dentists occupied six of the eight seats on the Dental Board.
The Supreme Court held that the North Carolina Dental Board did not enjoy antitrust immunity, even though they were acting pursuant to state law and carrying out regulatory aims of the State. The Court first noted the two requirements to enjoy antitrust immunity: (1) the challenged restraint is affirmatively expressed as state policy; and (2) the policy is “actively supervised” by the state. This second element is only required when the challenged activity is conduct by private parties. The requirement is necessary because there is a “real danger” that private parties serving as regulators could engage in anticompetitive activity. The question presented was whether the Board’s conduct was the act of private parties or of affiliates of the State. In answering this question, the Court held that “a state board on which a controlling number of decision makers are active market participants in the occupation the board regulates must satisfy [the] active supervision requirement in order to invoke state-action antitrust immunity.” Since the North Carolina Dental Board did not even argue that it was actively supervised by the State, the Court affirmed the Fourth Circuit’s holding that the practice was anticompetitive and the Board had antitrust liability.
Future implications of North Carolina Dental
So, where does that leave us? The panel—which consisted of four experienced antitrust counsel from private and government practice—acknowledged that North Carolina Dental seemed to offer more questions than answers.
What does “control by active participants” mean? Clearly active participants controlled the North Carolina Dental Board, as three-quarters of the board were practicing dentists. But what if exactly half were active participants? What if less than half were active participants, but non-participants generally deferred to their expertise? We simply do not know.
What does “active supervision” entail? North Carolina Dental unequivocally said that active supervision entails substantive review of the proposed regulations—but what exactly constitutes “substantive review”? This will also have to be explored in future cases.
And finally, what antitrust standards should be applied to state boards? As one panelist noted, it seems unfair and myopic to focus exclusively on anticompetitive effects of a regulation, since regulation has numerous non-economic benefits. Another panelist observed that perhaps a previous Supreme Court case ( Goldfarb v. Virginia State Bar, 421 U.S. 773, 778 n.17 (1975)), provides a solution. Goldfarb acknowledged that professional regulation is different from business activities, and that the public service aspect be acknowledged and weighed. But the moderator questioned whether Goldfarb was still good law in light of subsequent cases, and in any event would be mere dicta.
What the panel believed was clear, however, is that North Carolina Dental will have far-reaching effects in state professional regulation. No fewer than eight challenges have already been brought against various professional regulatory boards, the two most well-known being LegalZoom’s (successful) challenge to North Carolina’s prohibition of it allegedly on the basis of unauthorized practice of law, and Teladoc’s (thus far successful) challenge to the Texas Medical Board’s regulations restricting the practice of telemedicine.
At minimum, North Carolina Dental will subject state occupation boards to significant antitrust scrutiny never before seen. And in that sense, it arguably earns the title “the most important case of the 2014-15 term that no one has ever heard of.”