Antitrust Law Daily Wrap Up, ANTITRUST NEWS: FTC staff issues guidance on active supervision of state regulatory boards, (Oct 15, 2015)

By Greg Hammond, J.D.

Staff of the FTC Bureau of Competition published “Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants” on October 14, 2015. The guidance answers state officials’ requests for advice on antitrust compliance for state boards responsible for regulation occupations in light of the Supreme Court’s February 2015 decision in North Carolina State Board of Dental Examiners v. FTC (135 S. Ct. 1101, 2015-1 Trade Cases ¶79,072).

In N.C. State Board, the Supreme Court limited the state action immunity as it applies to state professional boards “controlled by active market participants.” The Court ruled that the North Carolina State Board of Dental Examiners was not immune under the state action doctrine for excluding non-dentist providers from the market for teeth whitening services in violation of Sec. 5 of the FTC Act, because the Board’s conduct was not actively supervised by the state. In particular, the Court held that “a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates must satisfy Midcal’s [Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 1980-1 Trade Cases ¶63,201] active supervision requirement in order to invoke state-action antitrust immunity.”

According to the FTC staff, the guidance was designed to clarify two questions: (1) When does a state regulatory board require active supervision in order to invoke the state action defense? (2) What factors are relevant to determining whether the active supervision requirement is satisfied?

The general standard, according to the FTC staff and the N.C. Dental Court, is that “a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates must satisfy Midcal’s active supervision requirement in order to invoke state-action antitrust immunity.” A state regulatory board member would be considered an “active market participant” in the regulated occupation if the individual (1) is licensed by the board or (2) provides any service that is subject to the regulatory authority of the board.

FTC staff further commented that, “The method by which a person is selected to serve on a state regulatory board is not determinative of whether that person is an active market participant in the occupation that the board regulates.” In addition, “Active market participants need not constitute a numerical majority of the members of a state regulatory board in order to trigger the requirement of active supervision.” Rather, a decision that is controlled by active participants in the regulated market must be actively supervised to be eligible for the state action defense, the guidance noted.

In determining whether the active supervision prong of the state action defense is satisfied, FTC staff will consider the presence or absence of the following factors, including that the supervisor has: (1) obtained the information necessary—through relevant facts, collected data, public hearings, public comments, market conditions, studies, and documentary evidence—to properly evaluate the action recommended by the regulatory board; (2) evaluated the substantive merits of the recommended action and determined whether the action fits with the standard created by the state’s legislature; and (3) issued a written decision that explains the reasons and rational of why the supervisor approved, modified, or disapproved the recommended action.

News: Antitrust FederalTradeCommissionNews