Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Ohlhausen discusses the implications of the North Carolina Dental decision, (Apr 2, 2015)

By Linda O’Brien, J.D., LL.M.

The federal antitrust laws play a crucial role in the economy and are a central safeguard for the nation’s free market structures, said FTC Commissioner Maureen Ohlhausen, addressing the Heritage Foundation in Washington, D.C. on March 31.

Ohlhausen began her remarks, entitled “Reflections on the Supreme Court’s North Carolina Dental Decision and the FTC’s Campaign to Rein in State Action Immunity,” by explaining that the FTC filed an administrative complaint against the North Carolina Board of Dental Examiners in June 2010. The Commission alleged that the Board activities to prevent non-dentists from competing with dentists in the provision of teeth whitening services constituted an unlawful restraint of trade and an unfair method competition.

In a summary opinion, the Commission held that a state regulatory body that was controlled by participants in the industry it purports to regulate must show a clearly articulated state policy in favor of regulation and active supervision by the state itself in order to be exempted from antitrust scrutiny under the state action doctrine. The FTC further found that the Board failed to demonstrate that its decision to classify teeth whitening as the practice of dentistry and to enforce the decision with cease and desist orders was subject to any state supervision.

The U.S. Supreme Court, in affirming a Fourth Circuit decision to deny the Board’s petition for review, rejected the idea that state agencies, such as the Board, were sovereign actors that automatically qualified for state action immunity. According to Ohlhausen, the Court recognized the importance of the federal system of government and that anticompetitive conduct was immune only when it legitimately represented the state acting in its sovereign capacity. In addressing how to meet the active supervision prong to benefit from state action immunity, the Court noted that state review mechanisms must provide “realistic assurance” that a nonsovereign actor’s anticompetitive conduct promoted state policy rather than the party’s individual interests.

The decision is only a few weeks old; thus, it is a bit early to predict with any certainty what its likely implications will be, Ohlhausen noted. There are open issues that may be litigated in the lower courts. Notwithstanding these open questions, the Court’s decision was a crucial victory for competition and consumers. However, there is no question that the Court’s decision has implications for state agencies throughout the country. Many licensing boards are controlled by active participants in the markets they regulate. Several states raised concerns that subjecting regulatory board members to the antitrust laws would deter qualified professionals from serving on state boards. The states also raised concerns that a decision in favor of the FTC could subject every decision made by regulatory boards staffed by active professionals to direct oversight and approval by full-time state employees.

In Ohlhausen’s view, state boards have several viable options for avoiding antitrust liability for, and excessive oversight of, their conduct. First, simply being more cognizant of the competitive effects of a board’s regulatory decisions would go a long way toward eliminating any antitrust exposure. Second, state boards need not be controlled by active market participants. Third, even if a state prefers a particular board to be controlled by market participants, there are many options for actively supervising the actions of that board.

Another potential implication of the North Carolina Dental decision is the re-evaluation of the excessive state licensing regimes that have developed over the years. As the states take a step back to reconsider the composition and oversight of their regulatory boards, Ohlhausen recommended that they also to take a very hard look at their occupational licensing regimes to see if they are on balance helping or harming consumers.

Putting the case into a broader context, the Court’s decision represents the culmination of the FTC’s efforts in the state action area, Ohlhausen stated. The FTC’s state action program began with the State Action Task Force in 2001. In September 2003, the Task Force produced a report which made several recommendations for the Commission to clarity and reaffirm the original purposes of the state action doctrine and thus better protect competition and consumers. The three central recommendations of the report were (1) re-affirm a clear articulation standard tailored to its original purposes and goals; (2) clarify and strengthen the standards for active supervision; and (3) clarify and rationalize the criteria for identifying the quasi-governmental entities that should be subject to active supervision. Given the results that the Commission has obtained in the courts since 2003, the agency reasonably can declare victory with respect to each of those three core goals, Ohlhausen explained.

Ohlhausen noted that, since 2003, the FTC looked for appropriate cases in which to pursue a more limited interpretation of the state action doctrine. The Commission also engaged in competition advocacy, one of its most effective non-enforcement tools, to move the courts toward an interpretation of the state action doctrine that was more hospitable to competition and consumer welfare.

The state action area is one of the best examples of the Commission leading the courts and others in the development of competition law toward better outcomes for competition and consumers, Ohlhausen continued. Given the extensive reach of state regulations and regulatory boards throughout the economy, North Carolina Dental ultimately could have the most significant impact on competition and consumer welfare of any of the Commission’s several court victories in the state action area. In conclusion, Ohlhausen expressed hope that, not only would this decision prevent the type of abuse that occurred in North Carolina, but it would also give states throughout the country the impetus and the opportunity to re-evaluate their occupational licensing regimes to ensure that they are truly serving consumers’ best interests.

News: Antitrust FederalTradeCommissionNews