FTC Issues State Action Guidance for State Regulatory Boards

Health Care and Life Sciences Client Alert

Epstein Becker Green Health Care and Life Sciences Client AlertOn October 14, 2015, the Federal Trade Commission (“FTC”) issued guidance on how state regulatory boards can regulate their professions without running afoul of the antitrust laws (“Guidance”).[1] The Guidance was issued in response to the U.S. Supreme Court’s 2015 decision in North Carolina State Board of Dental Examiners v. FTC, which we previously covered,[2] holding that a state dental board composed mostly of practicing dentists was subject to federal antitrust laws when it prohibited non-dentists from providing teeth whitening services. In that case, the Supreme Court held that if a controlling number of decision makers on a state licensing board are active participants in the occupation that the board regulates, the board must show that it is actively supervised by the state in order to invoke state action immunity from the antitrust laws.

Following the Supreme Court’s decision, the FTC received frequent requests to clarify how state boards responsible for regulating occupations can comply with the antitrust laws and the state action doctrine. The FTC issued the Guidance as a response to those requests, focusing on several questions:

  1. When is active state supervision of a state regulatory board required in order to invoke the state action defense?
  2. What constitutes active supervision?
  3. What factors are relevant to determining whether the active supervision requirement has been satisfied?

The State Action Doctrine

The Supreme Court has interpreted the antitrust laws to confer “state action” immunity to state actions and to actions by state entities (including instrumentalities of a state) if those entities are acting under legislation that clearly articulates or contemplates the action. In contrast, state action immunity applies to private parties only if the party is both acting pursuant to legislation and actively supervised by the state. Because the Supreme Court held that a dental board was not an instrumentality of the state, the test for determining whether state action antitrust immunity applies to entities such as medical boards and dental boards has two parts: (1) whether the state has a “clear articulation” of policy to allow anticompetitive conduct, and (2) whether the policy is “actively supervised” by the state. The Guidance focuses on the second element.

When Is Active State Supervision of a State Regulatory Board Required in Order to Invoke the State Action Defense?

The Guidance states that a regulatory board member is considered an active market participant if the member participates in any profession regulated by the board (members who suspend their participation in the regulated profession to serve on the board are still considered to be active market participants). Arguing that board members are not directly affected by a challenged restraint, therefore, is not a defense to antitrust scrutiny. As an example, the FTC notes that even though the members of the North Carolina Dental Board were orthodontists who did not perform teeth whitening procedures, being licensed and regulated by the North Carolina Dental Board is enough to trigger the state supervision requirement. The FTC also notes that the method in which a board member is selected to serve on the regulatory board is irrelevant to categorizing a member as an active market participant, and active market participants do not necessarily need to make up a numerical majority of the board’s members in order to trigger the state supervision requirement.

What Constitutes Active Supervision?

The FTC states that it will be guided by several “principles” in assessing whether a state is actively supervising a regulatory board, including whether the state played a substantial role in determining the specifics of the policy. The Supreme Court in North Carolina State Board of Dental Examiners also identified several characteristics of active state supervision that the FTC lists as guiding principles in the Guidance:

The supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it; the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy; and the “mere potential for state supervision is not an adequate substitute for a decision by the State.” Further, the state supervisor may not itself be an active market participant.[3]

Moreover, it is also important for the active supervision to precede the implementation of the alleged anticompetitive regulatory board action.

What Factors Are Relevant to Determining Whether the Active Supervision Requirement Has Been Satisfied?

The FTC, in determining whether the active supervision requirement has been satisfied, will look for the presence of the following three factors:

  1. The supervisor obtained the information necessary to perform a proper evaluation of the regulatory board’s proposed action (although, if the regulatory board has held public hearings and collected data, the supervisor need not repeat these tasks).
  2. The supervisor evaluated the merits of the proposed action and determined if the action is consistent with standards set by the state legislature.
  3. The supervisor issued a written decision approving, modifying, or disapproving the regulatory board’s proposed action, including the reasons and rationale supporting the decision.

The FTC also provided examples of when it will consider there to be an absence of active supervision, such as when the supervisor of the regulatory board is itself controlled by active market participants—which was the case in North Carolina State Board of Dental Examiners. Other examples of insufficient supervision include the following:

  • A state official monitors the board’s actions without the ability to disapprove of the anticompetitive acts proposed by the board.
  • A state agency has the authority to evaluate, veto, or modify recommendations of a board, but in practice, the agency performs only a cursory review of the board’s activities.
  • A state agency reviews the actions of the board and approves such actions, taking into consideration only procedural compliance rather than undertaking a substantive review of the recommendations or actions.
  • A state attorney general or other official merely provides advice, even if that advice occurs on an ongoing basis.

Practical Effect of the Guidance for Regulated Entities

In the wake of the Supreme Court’s decision in North Carolina State Board of Dental Examiners, state officials have sought advice and clarity from the FTC on antitrust compliance for state boards responsible for regulating occupations. As such, the Guidance is both timely and useful as a guidepost addressing a complex regulatory area—particularly as antitrust litigation against regulatory boards is increasing.

However, the FTC emphasized several times in the Guidance how state action is a fact-specific and context-dependent analysis and that simply following the Guidance will not guarantee state action antitrust immunity. Conversely, failing to follow the Guidance will also not guarantee that state action antitrust immunity is inapplicable. Indeed, a board assessing its oversight and regulatory activities may conclude that, because of the composition of the board, or the limited powers of the board, antitrust immunity is not necessary.

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This Client Alert was authored by Patricia M. Wagner, Daniel C. Fundakowski, and M. Brian Hall, IV. For additional information about the issues discussed in this Client Alert, please contact one of the authors or the Epstein Becker Green attorney who regularly handles your legal matters.


[1] FTC Staff Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants, Fed. Trade Comm’n (Oct. 14, 2015), available at https://www.ftc.gov/system/files/attachments/competition-policy-guidance/active_supervision_of_state_boards.pdf [hereinafter “FTC Staff Guidance”].

[2] See Epstein Becker Green Client Alert titled “No State Action Antitrust Immunity for North Carolina Dental Board: Implications for the Health Care Sector,” available at http://www.ebglaw.com/news/no-state-action-antitrust-immunity-for-north-carolina-dental-board-implications-for-the-health-care-sector/.

[3] FTC Staff Guidance, supra note 1, at 9 (quoting North Carolina State Board of Dental Examiners at 1116–17).