S.J. Quinney College of Law

by Cullen Archer

The U.S. Court of Appeals for the Fourth Circuit recently determined that the North Carolina State Board of Dental Examiners (“Board”) was not exempt from antitrust violations under state action doctrine and found that the Board engaged in unfair competition in the market for teeth-whitening services in North Carolina.[1]  Other state and national professional associations took interest because of the practical implications of the decision.[2]

The Board is “an agency of the State [of North Carolina], with full power and authority to enact rules and regulations governing the practice of dentistry within the State . . . .”[3]  The eight-member Board is comprised of six licensed dentists and a dental hygienist, each of whom is elected to the Board by licensed members of their respective specialties, and a consumer member appointed by the Governor.[4]  North Carolina’s Dental Practice Act provides that it is unlawful for an individual to practice dentistry in North Carolina without a license[5] from the Board and defines dentistry to include, inter alia, “[r]emov[ing] stains, accretions or deposits from the human teeth.”[6]  If the Board suspects an individual of engaging in the unauthorized practice of dentistry, it may seek injunction in North Carolina Superior Court or may refer the matter to the District Attorney for criminal prosecution.[7]  North Carolina statute does not expressly address whether, or under what circumstances, a non-dentist may engage in teeth whitening.[8]  Beginning in the 1990s, dentists in North Carolina began providing teeth whitening services.[9]  In 2003, non-dentists began offering the same services, often at lower prices than dentists, who began complaining to the Board about the non-dentists’ provision of these services.[10]  On several occasions, the Board sent cease-and-desist letters to non-dentist teeth whitening providers for practicing dentistry without a license.^[11]  The Board also threatened and discouraged non-dentists who were considering opening teeth whitening businesses by communicating to them that teeth whitening services could be provided only under the direct supervision of a dentist.[12]  Furthermore, in an effort to block the expansion of teeth whitening kiosks in shopping malls, the Board issued letters to third parties, such as mall owners and property management companies, stating that teeth whitening services offered at mall kiosks were illegal.[13]

The Federal Trade Commission (“FTC”) issued an Administrative complaint against the Board for alleged violations of the FTC Act.[14]  The FTC alleged that dentists in North Carolina, acting through its Board, colluded to exclude non-dentists from competing with dentists for the provision of teeth whitening services.[15]  According to the FTC, the actions of the Board prevented and deterred non-dentists from providing or expanding teeth whitening services, increased prices, and reduced consumer choice without any legitimate justification or defense, including the “state action” defense.[16]  In a Motion to dismiss the complaint, the Board argued that it was exempt from federal antitrust liability under the state action doctrine.^[17]  As explained in the Commission Opinion, the FTC denied this motion concluding that the Board did not qualify for the state action exemption because it had not shown sufficient state supervision.[18]

The Board filed a complaint in U.S. District Court seeking, inter alia, a declaration that the Federal Trade Commission did not have antitrust jurisdiction over plaintiff’s conduct.[19]  The court granted the FTC’s motion to dismiss for lack of subject matter jurisdiction, finding that the Board’s action sought “to subvert the established administrative review process set forth in 15 U.S.C. § 45, which vests the circuit courts with exclusive jurisdiction” to hear the challenges made.[20]  Subsequently, the FTC determined that the Board violated Section 5 of the FTC Act, 15 U.S.C. § 45 and issued a Final Order to remedy the Board’s violations and prevent their recurrence.[21]  This Order directed the Board to cease and desist from (1) directing a Non-Dentist Provider to cease providing teeth whitening goods or teeth whitening services, (2) prohibiting, restricting, impeding, or discouraging the provision of teeth whitening goods or teeth whitening services by a Non-Dentist Provider, and (3) communicating to a Non-Dentist Provider that: (i) such Non-Dentist Provider is violating, or has violated the Dental Practice Act by providing teeth whitening goods or teeth whitening services; or (ii) the provision of teeth whitening goods or teeth whitening services by a Non-Dentist Provider is a violation of the Dental Practice Act.[22]

The Board petitioned the Fourth Circuit for review of the FTC’s final order, raising three arguments: (1) that it was exempt from antitrust laws under the state action doctrine; (2) that it did not engage in concerted action under § 1 of the Sherman Act; and (3) that its activities did not unreasonably restrain trade under § 1.[23]  The court delineated three situations in which a party may invoke the Parker doctrine.[24]  In Parker v. Brown, the Supreme Court concluded that

the State, by adopting and enforcing the prorate program, made no contract or agreement and entered into no conspiracy in restraint of trade or to establish monopoly but, as sovereign, imposed the restraint as an act of government which the Sherman Act did not undertake to prohibit.[25]

First, a State’s own action is “ipso facto” exempt.[26]  Second, a private party can claim the Parker exemption when (1) acting pursuant to a “clearly articulated and affirmatively expressed [] state policy” and (2) their behavior is “actively supervised by the State.”[27]  Third, municipalities and substate governmental entities are immune to antitrust violation when acting pursuant to a state policy of displacing competition through regulation or monopoly public service.[28]  The Board contended that as a state agency, it was only required to show clear articulation; in the alternative, the Board contested the FTC’s conclusion that its conduct was not actively supervised.[29]  The Court explained that when a state agency and its members have the attributes of a public body, such as a municipality, and are subject to public scrutiny such that “there is little or no danger that [they are] involved in a private price-fixing arrangement,” active supervision is not required.[30]  The court agreed with the FTC that “state agencies ‘in which a decisive coalition (usually a majority) is made up of participants in the regulated market,’ who are chosen by and accountable to their fellow market participants, are private actors and must meet both Midcal prongs.”[31]  In Midcal, the Supreme Court established two criteria for private actors to gain antitrust immunity as a state actor: first, the challenged restraint must be clearly articulated and affirmatively expressed as state policy; and second, the policy must be “actively supervised” by the State itself.[32]  Because the Board sent cease-and-desist letters without state oversight and without the required judicial authorization, the court concluded that North Carolina had done far less supervision than required under Midcal.[33]

Explaining that anticompetitive conduct under the Sherman Act is a species of “unfair competition” under the FTC Act, the court upheld the FTC’s finding that the Board (1) had the capacity to conspire under § 1 of the Sherman Act and (2) did engage in concerted action in violation of the Sherman Act.  Concerted action is satisfied when an agreement exists between “separate economic actors” such that any agreement “deprives the marketplace of independent centers of decision making.”[34]  Citing the statutory requirement that Board members, except for the consumer member and hygienist, be actually engaged in the practice of dentistry,[35] the court concluded that any agreement between the Board members deprives the market of an independent center of decision making.[36]  In determining if the Board actually engaged in concerted action, the court considered whether the Board must have had “a conscious commitment to a common scheme designed to achieve an unlawful objective.”[37]  Because (1) the Board discussed teeth whitening services provided by non-dentists and then voted to take action to restrict these services, (2) members “engaged in a consistent practice of discouraging non-dentist teeth whitening services” through their cease-and-desist letters and other efforts, and (3) the FTC found these communications had the “common objective” of closing the market, the court found that the Board engaged in a combination or conspiracy under § 1.[38]

Finally, the Board challenged the FTC’s conclusion that its actions amounted to an unreasonable restraint of trade under § 1.[39]  Under three forms of analysis for determining if conduct violates § 1 (per se, quick-look, and rule of reason),[40] the FTC determined the Board’s conduct violated § 1 under both a quick-look analysis and a full rule of reason.[41]  The court affirmed the FTC’s mode of analysis and found that the Board’s behavior was likely to cause significant anticompetitive harms.[42]  However, the court advised caution in quickly condemning the actions of professional organizations because “certain practices by members of a learned profession might survive scrutiny . . . even though they would be viewed as a violation of the Sherman Act in another context.”[43]  Nonetheless, the court also warned that anticompetitive acts are not immune from § 1 simply because they are performed by a professional organization.[44]

In conclusion, even when the State statute appears to expressly delineate the scope of professional practice, State professional regulatory boards may remain open to actions for antitrust violation under the FTC Act.  However, FTC adjudication might have been avoided in this case if the Board had sought injunction or referred the matter to the District Attorney as provided in N.C. Gen. Stat. § 90-40.1.  Alternatively, a court might be less likely to find a State professional regulatory board in violation of antitrust law if its members are appointed by a State Executive official, rather than directly accountable to market participants through election.  Additionally, noting that the Board was represented by private counsel and the State did not intervene in the proceedings, the Fourth Circuit suggested that legal representation by the State Attorney General would play a factor in determining state control.[45]

The factual matter underlying the issues in this case lies in the interpretation of teeth whitening, by non-dentists, and stain removal from the teeth, which the North Carolina legislature defined as constituting the practice of dentistry.[46]  What would be the interpretation when the difference is between tattoo removal and cosmetic surgery, or between a pedicure and podiatry?  It is entirely possible that disposition of an antitrust action against a State medical board would depend upon at least one of the statutory definition of the profession’s scope of practice, the composition of the state regulatory board, the Board’s representation by the State’s Attorney General, and active State supervision as required under Midcal.

For example, if the FTC issued an administrative complaint against the Utah physician licensing board for antitrust violations of the FTC Act, the board would likely have better grounds to invoke the Parker exception.  The board is created under the Division of Occupational and Professional Licensing (“DoPL”).[47]  Unlike North Carolina’s elected board of dentistry, Utah’s physician licensing board is appointed.[48]  Utah generally defines the practice of medicine as diagnosing, treating, correcting, administering anesthesia or prescribing for any human disease, ailment, injury, infirmity, deformity, pain or other condition, physical or mental, real or imaginary, including to perform cosmetic medical procedures, or to attempt to do so, by any means or instrumentality[49] and recognizes the unlicensed practice of medicine to be unlawful.[50]  The Utah statute authorizes a broad range of actions available to the board, including “administrative and judicial action against persons in violation of the laws and rules administered and enforced by the division, including the issuance of cease and desist orders.”[51]  Finally, the Commercial Enforcement Division of the Utah Attorney General’s office provides legal representation to DoPL.[52]  For these reasons the Utah physician licensing board would be able to show that it was (1) acting pursuant to a “clearly articulated and affirmatively expressed state policy” and (2) their behavior was “actively supervised by the State.”

Cullen Archer, Class of 2015 at the University of Utah S.J. Quinney College of Law, is a Fellow with the Center for Law and Biomedical Sciences.

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