Dental boards or regulators in at least twenty-five states have ordered teeth whitening businesses to shut down. Additionally, at least fourteen states have changed their laws or regulations to exclude non-dentists from offering teeth whitening services. Some states, including Georgia, Alabama, and Connecticut, have pending litigation concerning this issue.
Eck closed her business to avoid any legal consequences, but was adamant she did nothing wrong.
Larry Salzman, lead attorney for the Institute for Justice, says the state dental boards or regulators are “using government power to outlaw their competition [and] keep prices high. That’s just not only bad policy, it’s unconstitutional.”
Trisha Eck, owner of Tooth Fairies Teeth Whitening in Georgia, started her own business to offer a place where customers could purchase her products as either take home kits, or apply the products themselves while visiting the spa. She never performed the treatments on customers; she simply offered a place to purchase the products, and if the customers desired, a clean place to apply them. However, state regulators sent Eck a cease and desist order from the Georgia Board of Dentistry after an investigator decided that her business was an unlicensed dental practice. Eck closed her business to avoid any legal consequences, but was adamant she did nothing wrong.
Many business owners across the nation, owners of teeth whitening kiosks in malls, spas, and salons, have faced similar problems as Eck.
The issue is further complicated when these boards are composed of private actors, like in the case of the North Carolina State Board of Dental Examiners.
The Supreme Court of the United States granted certiorari on March 3, 2014, to a U.S. Court of Appeals for the Fourth Circuit case titled The North Carolina State Board of Dental Examiners v. Federal Trade Commission (pdf). This case has raised critical questions concerning antitrust law and, in particular, state action immunity to antitrust law. One of the main issues is whether the government may prohibit entrepreneurs from selling over-the-counter products that people use at home in order to protect a group of regulators from competition.
Usually, when a state legislature regulates its economy in a way that frustrates competition, it is exempt from antitrust law. However, there is a gray area when the anticompetitive conduct comes from a state agency or board as opposed to the state legislature itself. Many times, this is further complicated when these boards are composed of private actors, like in the case of the North Carolina State Board of Dental Examiners (“the Board”).
The Board is defined by North Carolina statute as “the agency of the State for the regulation of the practice of dentistry” in North Carolina. Essentially, the Board has the power to license dentists. The statute goes on to define what dentistry means in a list of thirteen items. The most relevant one is listed as the second item, where the Board has specifically defined one of the acts of dentistry as “[r]emov[ing] stains, accretions, or deposits from the human teeth.” Therefore, whitening teeth is defined by statute in North Carolina as a form of dentistry, and it thus requires a license from the board.
To benefit from state action immunity, the Board had to satisfy the two prongs of the Midcal test.
When faced with people violating North Carolina Law by practicing dentistry without a license, the Board sends letters to the non-dentist providers saying that their activities constitute the illegal practice of dentistry. They ask these non-dentist providers to cease and desist. This practice has resulted in the exclusion of non-dentist teeth whiteners in North Carolina.
As a result, the Federal Trade Commission (“FTC”) brought an antitrust action against the Board. In Parker v. Brown, it was established that acts of the state legislature itself are absolutely immune from antitrust law. For lower-level actors, California Liquor Dealers Assn v. Midcal Aluminum, Inc. provided a two-prong test. To benefit from state action immunity, the Board had to satisfy the two prongs of the Midcal test. First, the “policy has to be clearly articulated by the state for immunity to apply.” This first prong is satisfied because the statute clearly says that a license from the Board is required in order to practice dentistry. Second, the Board also has to show that there is active supervision by the state in order to benefit from state-action immunity.
The FTC argues the second prong requiring active supervision is not met. It argues that the Board, which is controlled by North Carolina licensed dentists, could be self-interested. The FTC urges that “the need for active supervision is especially acute when the agency is ‘not accountable to the public but rather to the very industry it purports to regulate.’” Since the Board could not show it was actively supervised, it was not immune from federal antitrust law.
Sasha Volokh, writing for The Washington Post, argues that the Fourth Circuit approach is best.
The Supreme Court has likely granted certiorari in this case to resolve the current three-way split in the United States Circuit Courts of Appeals in order to make the federal law more uniform. The Second, Fifth, and Tenth Circuits take an approach that is more likely to treat the Board as a public entity. This test essentially looks at how the state labels the state agency. In the First, Ninth, and Eleventh Circuits, there is an intermediate approach, which requires a balancing of factors, such as how the Board functions in practice and the role played by its members. The Fourth Circuit approach is significantly different from the other two approaches; this approach gives weight to one or two factors, such as market participation and political accountability.
Sasha Volokh, writing for The Washington Post, argues that the Fourth Circuit approach is best. To fall under antitrust immunity, under the second prong, a board has to show that the anticompetitive conduct was actively supervised by the state. The Board here is not claiming that all state anticompetitive policy decisions have immunity. Volokh says “it’s so important that the Board is an official agency of the state and part of the state government, and that the Board members are public officials and agents of the state. So the federalism value at stake, according to the cert petition, is not the state’s ability to regulate its economy generally, but rather its ability to structure its official agencies.”
One reason to protect official state agencies is possibly that the state agencies are actually following legislative policy instead of just their members’ self-interest. Based on this view, the first prong of clear articulation is still required, but the second prong of active supervision is more of an evidentiary prong.
Kennedy said, state-action antitrust immunity cannot be invoked unless two requirements are met: 1) the challenged restraint of trade is clearly articulated and affirmatively expressed as state policy, and 2) The policy is actively supervised by the state.
Ultimately, the Supreme Court allowed an antitrust action against the Board. The Court ruled that a North Carolina dental regulatory board does not have state-action immunity in an antitrust action. The 6-3 decision allows the FTC challenge to the board’s cease and desist orders on teeth whitening by non-dentists.
In the majority opinion (pdf) Justice Kennedy wrote that the Board does not have state-action immunity because North Carolina is silent on whether the ban on the unauthorized practice of dentistry includes teeth whitening. “When a state board has a controlling number of active market participants in the occupation it regulates,” Kennedy said, “state-action antitrust immunity cannot be invoked unless two requirements are met: 1) the challenged restraint of trade is clearly articulated and affirmatively expressed as state policy, and 2) The policy is actively supervised by the state.”
Dissenting Justices Alito, Scalia, and Thomas contend the dental board was a state agency. They insisted that the argument should end there.
An amicus brief filed by the North Carolina State Bar argued that a ruling for the FTC could affect state bars’ power to regulate lawyer ethics and the unlicensed practice of law. However, this is another issue for another day. For now, small business owners in kiosks, spas, and salons can enjoy their freedom to compete with dentists with their lower prices.