The Antitrust State Action Doctrine and State Licensing Boards

Since I’ve been spending time recently, in the wake of FTC v. Phoebe Putney, posting on the antitrust state action doctrine (see, e.g., here and here), here’s a student comment from a recent issue of the University of Chicago Law Review, called The Antitrust State Action Doctrine and State Licensing Boards, by Ingram Weber. Here’s part of the introduction:

Imagine that a state board of dentistry claims that consumers could be harmed when a popular procedure such as teeth whitening is performed incorrectly. The board issues a rule prohibiting anyone other than a state-licensed dentist from offering teeth-whitening services in the state. This rule ensures that only those with the most training and experience treating teeth in the state– dentists–may perform the service.

But whatever increased safety is generated by this rule comes at two costs. First, dental hygienists, nondentist doctors, and other groups can no longer earn money from teeth whitening. Second, because the rule shrinks the number of suppliers, consumers may have to pay more for the service.

When such a rule is promulgated by a state legislature and enforced by bureaucrats, consumers and nondentist competitors often accept the state’s judgment that the benefits to public safety justify the anticompetitive effects. But because the hypothetical board of dentistry is composed of practicing dentists, there is a greater fear that the professed threat to public safety is an excuse to allow dentists to enrich themselves by monopolizing the market for teeth whitening.

To continue this hypothetical, based on In the Matter of the North Carolina State Board of Dental Examiners, imagine further that the Federal Trade Commission (FTC) and aggrieved competitors seek to defeat the board’s rule by alleging that it represents a conspiracy in restraint of trade in violation of the Sherman Antitrust Act. In response, the board claims that its actions are immune from antitrust liability under what is known as the state action doctrine. This doctrine, announced in Parker v Brown, immunizes anticompetitive acts authorized by the states from federal antitrust liability.

The Supreme Court has yet to determine how the state action doctrine applies to state licensing boards, but it has settled the doctrine’s application to other bodies. State legislatures and state supreme courts receive automatic state action immunity for the anticompetitive actions they authorize. Municipalities receive state action immunity only if the anticompetitive conduct they authorize is pursuant to a clearly articulated state policy to displace competition. Private parties receive state action immunity only if their anticompetitive actions are pursuant to a clearly articulated state policy and are actively supervised by the state.

The combination of public function and private composition in state licensing boards frustrates any easy application of the state action doctrine to their commands. . . .

Though the introduction sounds quite hostile to these boards, the comment actually advocates a more permissive approach than that advocated by the FTC and a lot of antitrust scholars. The author argues that licensing boards shouldn’t be subject to the active supervision requirement; that when the boards are given broad rule-making authority, they should automatically pass the clear articulation test; but that when the legislature or state supreme court has allowed the board to implement specific rules, the board should be subject to a strict version of the clear articulation test.

Not that the author denies that these boards are often inefficient; but, the author argues, the state action doctrine is about federalism more than efficiency; moreover, putting these boards under close state supervision would reduce the flexibility advantages of private boards and might make states regulate through public employees instead. It’s an interesting read on this particular sub-issue (and on the recent FTC case) of private licensing boards, which is of substantial interest to me in my privatization research.