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In Teeth-Whitening Case, SCOTUS Extends Antitrust Immunity Exception

Teeth whitening may not be "the practice of dentistry." Who knew? On Wednesday, the U.S. Supreme Court declared, 6-3, that the determinations of a state regulatory board can be actionable as antitrust if the board is composed of market participants who are using the power of the state to shut out competition.

The Court's opinion extended the doctrine of state-action antitrust immunity to include state regulatory agencies composed of private market participants. Before this case, it applied only to private bodies granted state regulatory authority, or other private entities effectively engaging in state action.

The Fight Against Regulatory Capture

Once non-dentists started performing teeth whitening, the dentists of North Carolina became outraged. They, too, wanted in on the teeth-whitening action, but lay teeth-whiteners could charge much less than the dentists could.

The free-market solution, of course, was to have the state's Board of Dentistry declare that "teeth whitening" was "the practice of dentistry" in North Carolina, meaning only dentists could do it. This decision absolutely wasn't about public safety; it was about economic protectionism. Justice Kennedy, author of the majority opinion, craftily editorialized: "Dentists soon began to complain to the Board about their new competitors. Few complaints warned of possible harm to consumers. Most expressed a principal concern with the low prices charged by nondentists."

And that sort of lets you know where this opinion is going.

Normally, state action is immune from the Sherman Antitrust Act, and this includes regulatory boards granted regulatory authority by the state. North Carolina Board of Dental Examiners v. FTC, however, realizes (correctly) that when state regulatory boards are composed of "active market participants," it begins to look a lot like private individuals with a stake in the market are using the power of the state to preserve their economic interests.

When a state is engaging in what appears on its face to be anticompetitive behavior, the Court uses a two-part test to determine whether Parker immunity applies. First, the state must have a "clear policy to allow the anticompetitive conduct" and second, the state has to provide "active supervision of [the] anticompetitive conduct." If both prongs are satisfied, then the state action isn't immune from antitrust claims.

The Board of Dental Examiners quibbled that the second prong shouldn't apply because the Court's prior cases dealt with private actors given state power, while this case is about a state regulatory agency that happens to be staffed by private individuals. Kennedy said there was no difference: "[T]he need for supervision turns not on the formal designation given by States to regulators but on the risk that active market participants will pursue private interests in restraining trade."

In this case, Kennedy said, the Board failed the second prong, as there was no state supervision over the Board's determination that teeth whitening was dental practice (the act granting the Board regulatory authority doesn't say that teeth whitening is dental practice). The Board -- staffed by market participants with a vested interest in ensuring limited access to dental services -- got to make that decision all on its own, raising the specter of antitrust.

'State' Means 'State'

Justice Alito, joined by Justices Scalia and Thomas, dissented, saying the majority's opinion was "based on a serious misunderstanding of the doctrine of state-action antitrust immunity." The dissent took issue with Kennedy's extension of antitrust liability to state agencies staffed by private individuals: "Under Parker, the Sherman Act (and the Federal Trade Commission Act [...]) do not apply to state agencies; the North Carolina Board of Dental Examiners is a state agency; and that is the end of the matter."

Alito also made a pragmatic argument: Many state medical and dental boards are staffed by practitioners, which only makes sense, because they're the experts. Kennedy's opinion, he said, threatens to upend the composition of state medical boards, and it does so without any guidance at all as to how those boards should be composed so that they don't run afoul of this new requirement.

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