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FTC Staff Issues Guidelines on State Regulatory Board Supervision
Practical Law Legal Update w-000-6784 (Approx. 5 pages)
FTC Staff Issues Guidelines on State Regulatory Board Supervision
by Practical Law Antitrust
| Published on 14 Oct 2015 • USA (National/Federal) |
The Bureau of Competition of the Federal Trade Commission (FTC) issued guidance on how antitrust laws apply to state boards regulating occupations. The guidance specifically addresses the active-supervision requirement of the state-action defense to antitrust liability. The FTC staff issued the guidance in response to state officials' requests following the US Supreme Court's decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission.
On October 14, 2015, the Bureau of Competition of the Federal Trade Commission (FTC) announced that it issued guidance on how antitrust laws apply to state boards regulating occupations. The FTC staff issued the guidance in response to state officials' requests for clarification following the US Supreme Court's decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission, 135 S.Ct. 1101 (2015) (N.C. Dental). The guidance specifically addresses the factors that the FTC staff considers to determine if a state meets the active-supervision prong of the state-action exemption from the antitrust laws.
Background
In N.C. Dental, the US Supreme Court held that the State Board of Dental Examiners (Board) was not protected by state-action immunity when it allegedly violated the FTC Act by prohibiting non-dentists from providing teeth-whitening services in North Carolina in an unreasonable restraint of trade. In its decision, the Court noted that state-action immunity is only granted when the action in question arises out of the state's sovereign power. In the case of a non-sovereign actor, like the Board, anticompetitive actions are only subject to state-action immunity if two requirements are met:
- The actor was carrying out affirmatively expressed state policy.
- The policy was actively supervised by the state.
For more information on the Court's decision in North Carolina, see Legal Update, Supreme Court Rules that State Board of Dental Examiners Not Protected by State-action Antitrust Immunity.
Guidance
The FTC guidance is broken down into two parts:
- When is active supervision necessary for a state board to invoke state-action immunity?
- What factors determine whether the active-supervision requirement is satisfied?
The FTC staff explains that even if the actions of a regulatory board are not protected by state-action immunity, they do not necessarily violate antitrust laws. The FTC notes that lawful regulatory board actions may include:
- Reasonable restraints on competition.
- Ministerial acts taken in good faith implementation of an anticompetitive statutory regime.
- Initiation and prosecution of a lawsuit, unless it is sham litigation.
The FTC staff also notes that though their guidance is limited to what constitutes active supervision, parties must also satisfy the clear articulation prong (the Supreme Court's first prong, above) to invoke state-action immunity.
When Active Supervision is Necessary for State-Action Immunity
The FTC guidance states that under the standard set forth in N.C. Dental, active supervision of a regulatory board is required to invoke the state-action defense when a controlling number of board members are active participants in the market that the board regulates.
Active Participant
A member is considered an active participant of the market if either:
- The member is licensed by the board.
- The member provides any service subject to regulation by the board, including any professional or occupational subspecialty. Members are considered active members even if their subspecialty is not affected by the challenged restraint (for instance, an orthodontist board member is still considered an active member of a regulatory board setting a restraint on dentists).
The FTC staff notes that:
- A member that suspends his or her active participation in the occupation to serve on the regulatory board is still considered an active market participant.
- The method of selection for the regulatory board is inconsequential. A board member may be considered an active market participant whether they were appointed or elected to a regulatory board.
Controlling Number
The FTC staff explains that a controlling number of active participants does not require a majority. Active market participants may constitute a controlling number of board members if they are able to control a decision by veto power, tradition, practice or otherwise. The FTC notes that the controlling number determination will be made on a case-by-case basis depending on many factors, including:
- The organizational structure of the regulatory board at issue.
- Participation of non-market participant members.
- Whether active market participant members have different board authority than non-market participant members.
What Constitutes Active Supervision
The FTC guidance notes the Supreme Court specified in N.C. Dental that to show active supervision, the Board was required to show that its state supervisor:
- Reviewed the substance of the anticompetitive decision and not just the procedures followed to produce it.
- Had the authority to veto or modify aspects of the decision to make sure they agree with state policy.
The guidance also states that the active supervision requirement will be evaluated on a case-by-case basis.
Factors Used to Evaluate Active Supervision Sufficiency
The FTC guidance lists several factors it will consider in evaluating the adequacy of active supervision over a regulatory board, including whether the state supervisor:
- Has, to the extent not already performed by the regulatory board:
- collected relevant facts and data;
- conducted public hearings and studies;
- invited public comments; and
- reviewed market conditions and documentary evidence.
- Evaluated the substance of the recommended action and whether the action complies with state standards.
- Issued a written decision approving, modifying or rejecting the proposed action, including a rationale for the decision.
What is not Considered Sufficient Active Supervision
The FTC guidance includes a list of scenarios in which the supervision is not considered sufficient, including when:
- The supervisor is controlled by the regulatory board comprised of active market participants.
- A state official acts as supervisor but has no authority to prevent anticompetitive actions by the board.
- A state official serves on the regulatory board and has no authority to prevent anticompetitive actions by the board.
- A state official provides advice to the board on an ongoing basis, but does not supervise its actions.
- An independent state agency oversees the regulatory board but perfunctorily approves all board decisions.
- An independent state agency oversees the regulatory board and checks for board actions' compliance with state administrative procedure requirements, but does not substantively review the actions.
Caveats
The FTC staff explains that competition is an important aspect of an open marketplace and urged states to avoid unnecessary regulation of occupations. The FTC staff also notes that:
- Federal antitrust law does not require active supervision of regulatory boards.
- If states determine that regulatory boards are subject to federal antitrust law, they are not required to prove active supervision or state action immunity, but can instead rely on other antitrust defenses.