Regulatory Capture Vitiates State Action Immunity

The Supreme Court has ruled that when an oversight mechanism created by a State—here a State Board—is under the control of those it was supposed to be regulating (sometimes referred to by economists as “regulatory capture”)1, anticompetitive actions taken by the State Board on its own without further official government review or approval enjoy no immunity under the state action doctrine. North Carolina State Board of Dental Examiners v. Federal Trade Commission, 574 U.S.___, 135 S.Ct. 1101 (Feb. 25, 2015) (“N.C. State Board“).

FACTS

North Carolina's Dental Practice Act (“Act”) created a State Board of Dental Examiners (“Board”) to regulate the practice of dentistry. The Act provided that six of the Board's members were dentists elected by dentists. A seventh member was a dental hygienist. The eighth member was the “consumer” member and appointed by the Governor. The Board's rules and regulations could be approved, when appropriate, by a Rules Review Commission appointed by the state legislature. Here, the Board's acts at issue were taken solely by its dentist members. Its hygienist and consumer members did not participate in the challenged conduct. Nor did the Rules Review Commission review or approve of the Board's actions.

Dentists in North Carolina began providing teeth whitening services in the 1990s. Eight of the Board's ten dentist members during the relevant period earned substantial fees for that service. In 2003, nondentists began to compete, selling teeth whitening services at lower prices than dentists.

Dentists complained to the Board about that competition. Few of the dentists' complaints concerned possible harm to consumers. Most complained about the low prices being charged by nondentists. The Board put one of its dentist members in charge of conducting an investigation.

The Board then took steps to put an end to nondentists providing teeth whitening services. It issued cease and desist letters on its official letterhead to nondentists and shopping malls telling them to stop teeth whitening because it constituted the illegal practice of dentistry, although the Act does not specify teeth whitening as a practice of dentistry. The Board also got another state board to issue the same type of letter to cosmetologists. As a result, nondentists ceased to provide teeth whitening services in North Carolina.

The FTC filed an administrative complaint alleging that the Board's actions constituted concerted, anticompetitive and unfair...