Does this violate antitrust law? The Federal Trade Commission, which is one of the agencies that enforces federal antitrust law, said yes. The Board said no: we’re a state agency and are therefore immune from antitrust law. (This is so-called “state-action immunity”.) The Fourth Circuit sided with the FTC and said that boards run by active market participants (at least when they don’t have political accountability) are subject to antitrust law just like private parties are. (A private party that would otherwise be subject to antitrust liability can’t escape that liability unless he shows that his behavior was (1) clearly authorized by the state, and (2) actively supervised by the state. Municipalities have a more lenient regime — they only have to satisfy (1) — and state legislatures are automatically exempt from antitrust law and don’t have to satisfy anything.)
The Supreme Court has just agreed with the Fourth Circuit: “Because a controlling number of the Board’s decisionmakers are active market participants in the occupation the Board regulates, the Board can invoke state-action antitrust immunity only if it was subject to active supervision by the State, and here that requirement is not met.” The decision was 6–3, with Justice Kennedy writing for the Court. Justice Alito (my former boss) wrote the dissent, joined by Justices Scalia and Thomas.
This decision vindicates my position, which I’ve expressed in a few articles: The New Private-Regulation Skepticism: Due Process, Non-Delegation, and Antitrust Challenges, in the Harvard Journal of Law and Public Policy, and Are the Worst Kinds of Monopolies Immune from Antitrust Law?: FTC v. North Carolina Board of Dental Examiners and the State-Action Exemption, in the NYU Journal of Law and Liberty. I also signed on to an amicus brief of antitrust scholars written by Rebecca Haw Allensworth, Aaron Edlin, and Einer Elhauge. My blogging on the subject can be found here.
What, specifically, did the Supreme Court hold? Here it is in a nutshell:
- To get antitrust state-action immunity, you need to be exercising the state’s sovereign power. But these guys, who are active market participants regulating their own profession, are non-sovereign actors. Their actions don’t become the state’s actions unless more procedures are followed — in this case, active supervision by someone working for the state.
- Sometimes, active supervision isn’t required, for instance for municipalities. But municipalities are “electorally accountable, have general regulatory powers, and have no private price-fixing agenda”. So all you need there is to show that their conduct is clearly authorized by the state.
- That the state labels the Board as a state agency is irrelevant: we care not about the formal designation but about “the risk that active market participants will pursue private interests in restraining trade”. And “[s]tate agencies controlled by active market participants” pose exactly this sort of structural risk.
- This doesn’t mean the Board members might not have some sort of immunity from damages; also, the state could indemnify them, or it could subject the Board to active supervision.
- How much active supervision is required? It all depends; this is “flexible and context-dependent”. But someone of the state (who isn’t an active market participant) has to review the substance and have the power to veto or modify decisions; the “mere potential for state supervision” isn’t enough.
What’s left after this?
- This seems at least moderately important. The Court could have said that the problem was that the dentists were only elected by other dentists (which the Fourth Circuit thought was important). If it had said that, the impact of this decision would have been limited: there aren’t that many agencies like that, states could easily have made the members gubernatorial appointees but still had them be active market participants. Instead, the Court mainly focused on the fact that they were active market participants. This means that at least some moderately fundamental changes are required.
- Figuring out the risk that agencies will be captured by private interests is in general a difficult matter. It seems clear that active market participants present this problem in particularly stark form, but Justice Alito is surely right to point out, in his dissent, that this will lead to a lot of vagueness and future litigation. Justice Alito would focus instead on whether the agency is “really a state agency”, which requires looking at how the agency is labeled and also whether it’s “created by the state legislature to serve a prescribed regulatory purpose and to do so using the State’s power in cooperation with other arms of state government”. (Apparently, Justice Alito would treat this agency as wielding actual sovereign powers and therefore not even having show the first prong of clear articulation.)
- Justice Alito is probably also right to point out that figuring out whether private actors are “a controlling number” of the decisionmakers can lead to ambiguity. Does it have to be a minority? “[A] voting bloc that is generally able to get its way”? “[A]n obstructionist minority or an agency chair empowered to set the agenda or veto regulations”? Also, what exactly is an “active market participant”? It’s clear here, but might not be clear in other cases: what if the dentists just take a break from practice during their short term on the Board? What’s the scope of the market?
- This does involve the federal government regulating the states in their traditional regulatory activities. People who take very strong positions in favor of federalism and states’ rights might find that somewhat unsavory. The Sherman Act, when passed in 1890, surely didn’t mean to cover these activities (because they weren’t even considered interstate commerce at the time). The Parker decision in 1943, which got this state-action immunity going, likewise involved an agency with active market participants. So justifying this decision by statutory intent is difficult, and justifying it by precedent is non-obvious. On the other hand, at least under modern Commerce Clause doctrine, Congress could subject state regulatory activities to antitrust law if it wanted to, and the plain text of the statute doesn’t prevent such a reading. Sometimes, Supremacy has its advantages.
- This stricter reading of state-action immunity does involve an expansion of antitrust law, and I wouldn’t blame anyone for being very skeptical of antitrust law generally. But this limitation of state-action immunity only affects those who would otherwise want to claim the immunity — that is, people who somehow wield governmental-like powers. So, for those who are skeptical of antitrust law, this is a positive use of antitrust law: to control private actors with coercive powers and put them on the same legal footing as full-on private actors.