N.C. State Board of Dental Examiners v. Federal Trade Comm’n (Lawyers Weekly No, 13-01-0557, 37 pp.) (Shedd) No. 12-1172, May 31, 2013; On Petition for Review; 4th Cir.
Holding: A state agency that regulates the practice of dentistry cannot overturn a Federal Trade Commission decision that the agency’s efforts to shut down teeth-whitening services performed by non-dentists constituted unfair competition that violated federal antitrust law; the 4th Circuit rejects the state dentistry board’s petition for review of the FTC order.
The eight-member North Carolina State Board of Dental Examiners’ membership includes six licensed dentists and one licensed dental hygienist, who are elected by their respective professional groups, and one consumer member appointed by the governor.
Beginning in the 1990’s, dentists started providing teeth-whitening services throughout North Carolina. In about 2003, non-dentists started offering such services, often at a much lower rate and through venues such as spas or mall kiosks. Dentists began complaining to the board, which investigated and began sending cease-and-desist letters to non-dentist teeth-whitening providers. The letters effectively caused non-dentists to stop providing teeth-whitening services and product distributors to exit or hold off entering the state. In sum, the board successfully expelled non-dentist providers from the market in North Carolina.
On June 17, 2010, the FTC issued an administrative complaint against the board, and the federal agency ultimately found the board had violated 15 U.S.C. § 45, the FTC Act, by excluding non-dentist teeth whiteners from the market. In its petition for review of the FTC final order, the board argues that it is exempt from antitrust laws under the state action doctrine; it did not engage in concerted action under § 1 of the Sherman Act; and its activities did not unreasonably restrain trade under § 1.
Under the “state action doctrine” of Parker v. Brown, 317 U.S. 341 (1943), antitrust laws do not apply to anticompetitive restraints imposed by states as an act of government. There are three situations in which a state may invoke the Parker doctrine: a state’s own actions are ipso factor exempt from the antitrust laws; private parties can claim the Parker exemption if acting pursuant to a clearly articulated state policy and their behavior is actively supervised by the state; and municipalities and sub-state governmental entities are immune from antitrust scrutiny when they act pursuant to state policy to displace competition with regulation or monopoly public service. Municipalities are not required to show the active-supervision prong of the test under Calif. Retail Liquor Dealers Ass’n v. Midcal Alum. Inc., 445 U.S. 97 (1980), because where the actor is a municipality, there is little or no danger that it is involved in a private price-fixing arrangement.
We agree with the FTC that, as here, when a state agency is operated by market participants who are elected by other market participants, it is a “private” actor and is required to satisfy both Midcal prongs to obtain the Parker exemption. We likewise agree with the FTC that the board cannot satisfy Midcal’s active-supervision prong. North Carolina has done far less “supervision” in this case than the court found wanting in Midcal.
The FTC determined that the board’s conduct violated § 1 under both a quick-look analysis and a full rule of reason. The FTC said the conduct was “inherently suspect” because it was concerted action to exclude a lower-cost and popular group of competitors and the behavior was likely to harm competition and consumers, absent a compelling justification. The FTC’s decision is supported by substantial evidence. It is not difficult to understand that forcing low-cost teeth-whitening providers from the market has a tendency to increase a consumer’s price for that service.
Keenan, J.: I am pleased to concur in the majority opinion and write separately to emphasize the narrow scope of our holding that the board is a private actor for purposes of the state action doctrine, and to discuss the practical implications of our decision. Here, the fact that the board is comprised of private dentists elected by other private dentists, along with the state’s lack of active supervision of the board’s activities, leaves us with little confidence that the state itself, rather than a private consortium of dentists, chose to regulate dental health in this manner at the expense of robust competition for teeth whitening services. The board’s actions are those of a private actor and are not immune from the antitrust laws under the state action doctrine.