When Dentists Policed Teeth Whitening, the Supreme Court Said No

A free people is entitled to ask one plain question of any government body that tells a citizen he may not earn a living: who is on the board?

In North Carolina, the answer in this case was dentists. The body that decided who could whiten teeth in the state was controlled by people who whitened teeth for a living, and who therefore had a very direct interest in making sure no one else did. They did not pass a law. They sent letters. And a case about letters, a gel and a mall kiosk ended with the Supreme Court of the United States telling a state board that it was not above the law of competition.

I want to walk through North Carolina State Board of Dental Examiners v. Federal Trade Commission, decided February 25, 2015. It is a case about antitrust, federalism and the right to work, and it belongs in the arsenal of anyone who believes that government power, even at the state level, must be accountable to the people.

The facts

North Carolina's Dental Practice Act creates the State Board of Dental Examiners. The law provides that the board has eight members. Six must be licensed dentists who are actively practicing, and they are elected by other licensed dentists in the state; the other two seats are a dental hygienist and a consumer member appointed by the Governor. The board's job is to regulate the practice of dentistry, which the Act defines in broad terms and does not clearly say includes teeth whitening.

Teeth whitening is the removal of stains from teeth, and in the early 2000s non-dentists began offering it. Salons, spas and kiosks in shopping malls offered whitening services at prices well below those charged by dentists. Dentists in the state had been offering whitening for years as a profitable service, and they noticed the competition. Several complained to the board, and the complaints came from dentists who were losing business.

The board's reaction was swift, and it was informal. Beginning in 2006, it sent cease-and-desist letters to the non-dentist whiteners. The letters, written on the board's letterhead, told the recipients that their activities constituted the unlicensed practice of dentistry, which was a crime, and urged them to stop. The board also sent letters to mall owners, in 2007, telling them that the businesses in their malls were violating the law. It did all this without going to court, without a hearing for the businesses, without a rule, and without any ruling from a judge that whitening counted as dentistry. By the time the Federal Trade Commission got involved, the board had sent dozens of letters.

The FTC brought a complaint, found after a hearing that the board had unreasonably restrained trade, and issued an order barring the board from such conduct. The Fourth Circuit Court of Appeals agreed. The board took the case to the Supreme Court, arguing that, as an agency of the state, it was immune from the federal antitrust laws.

The question

Did the Sherman Act and the Federal Trade Commission Act apply to a state licensing board controlled by active members of the profession it regulated? Or was the board immune because it was a part of the state?

Background: Parker v. Brown and state-action immunity

To follow the argument you need an older case. In Parker v. Brown (1943), the Court considered a California program that restricted the sale of raisins to keep prices up. The program was a plain restraint of trade. If a private cartel had done it, the Sherman Act would have condemned it. But the Court held that the Sherman Act was not meant to reach the acts of a state acting as a sovereign. The Act, the Court said, was not meant to prohibit a state from imposing a restraint as an act of government. That is called state-action immunity, and it rests on federalism: Congress, in passing the antitrust laws, did not intend to override the sovereign choices of the states.

The principle is sound. A state legislature that decides, for good or bad reasons, to restrict competition is making a political choice, and the remedy lies at the ballot box, not in a federal antitrust suit. The Tenth Amendment reserves to the states the powers not delegated to the United States, and the regulation of professions is one of the oldest.

But the Court recognized the danger. If any entity could claim the state's immunity merely because the state had empowered it, private parties could use the name of the state to organize cartels. So in California Retail Liquor Dealers Association v. Midcal Aluminum (1980), the Court set a two-part test for when a private party, acting under a state's authority, could claim immunity. First, the restraint must be "clearly articulated and affirmatively expressed as state policy." Second, the policy must be "actively supervised" by the state itself. The first requirement asks whether the state meant to displace competition. The second asks whether the state is truly responsible for the result, rather than leaving it to private hands.

Later cases refined the rule. In Town of Hallie v. City of Eau Claire (1985), the Court held that a municipality needs only to show a clearly articulated policy, not active supervision, since a city is a public body with a governmental incentive to act in the public interest. The question left open was where a state board, staffed by private market participants, fell on that line.

The holding

In a 6 to 3 decision, the Court affirmed the FTC and the Fourth Circuit. Justice Kennedy wrote the opinion for the Court, joined by Chief Justice Roberts and Justices Ginsburg, Breyer, Sotomayor and Kagan.

The holding is narrow and clear: a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates cannot invoke state-action immunity unless the State supervises it actively. The board in this case was controlled by practicing dentists, and the state had not actively supervised the cease-and-desist campaign. Therefore the board was subject to antitrust law.

The reasoning

Justice Kennedy's opinion proceeded in steps.

First, it noted the central problem. The antitrust laws exist because competitors have an incentive to combine against competition. The Sherman Act is built on the premise that a market works best when rivals cannot agree to exclude one another. A board of practicing dentists deciding who may compete with dentists is a board of competitors, and its members face an obvious conflict of interest. The danger, the Court said, is that the board will act to serve its members' private interests, and not the public's.

Second, the opinion explained that the doctrine of state-action immunity exists to protect real acts of state sovereignty, not to give private cartels a free pass. A state that delegates power to a board of market participants has not by that act made the board's decisions its own. The state must take responsibility, and the way to show it is by active supervision. Hence the second prong of Midcal is not a technicality. It is the guarantee that the choice to restrain competition belongs to the state and not to the people it benefits.

Third, the Court explained what active supervision means. The standard is flexible and fact-specific, but it has some requirements. The supervisor must review the substance of the decision, not just the procedure. The supervisor must have the power to veto or modify the board's decisions to ensure they accord with state policy. And the supervisor may not be an active market participant in the field. A mere promise by the state that it is watching is not enough, and a state that wants its boards to enjoy immunity must put a real check in place.

Fourth, the Court applied that standard to the facts. North Carolina had not supervised the board's cease-and-desist letters in any way. No state official had reviewed them. The state's courts, the only place a court could have ruled that whitening was dentistry, had never been asked. The board had acted on its own, and the dentists had done what their interests suggested.

The dissent

Justice Alito dissented, joined by Justices Scalia and Thomas. The dissent deserves a fair reading because it makes a federalism argument, and I think it was a serious one.

The dissent argued that the board was, in every respect that matters, a state agency. It was created by statute, its members were appointed or elected under state law, and they exercised powers granted by the state. If the state set up the board, the dissent reasoned, then it was the state acting, and the Court had no business subjecting a state agency to federal antitrust law because of who sat on it. The majority's test, the dissent said, raised troubling questions about the many state boards that rely on practitioners, and left them uncertain about whether their members could be sued. And it threatened to second-guess the way states choose to organize their own governments, which the Tenth Amendment reserves to them.

I do not think the dissent wins. But its warning is not frivolous: the majority's rule does put federal courts in the position of deciding how states must structure their boards if they want immunity, and a conservative who prizes federalism should feel the discomfort. The answer, I'd argue, is that the case does not tell the states what boards they may have. It tells them what to do if they want the boards' decisions to be treated as the state's own: supervise them. A state that wants immunity can have it by actually standing behind its regulators. What it cannot do is hand a trade association the keys and call it sovereignty.

What followed

The decision set off a wave of attention to occupational licensing. A state with boards dominated by practitioners now had a reason to examine its supervision structures. Several states reviewed their boards and passed laws to create review mechanisms, and some added supervisory roles for an executive official or an independent body. The FTC issued guidance on how states might provide active supervision. The case also supplied ammunition for lawsuits and legislative reform against licensing rules that critics saw as anticompetitive.

The broader debate is about what licensing does to people who want to work. A license can protect the public from real harm, such as an unqualified surgeon. It can also shield incumbents from competition, raise prices and block entry to people with little money and a willingness to work. The question every legislature should ask is whether the license protects customers or insiders. Here are some reforms that conservatives and libertarians have pushed.

• Active state supervision. A review by an official who is not a market participant, with power to reject a board's decision.
• Fewer practitioners on the board. A board with a majority of public members is less likely to put its own trade first.
• Sunset reviews. Boards should have to justify their existence on a schedule. See Every Agency Should Have to Justify Its Existence Again, the Texas Sunset Way.
• Universal recognition. A person who holds a license in good standing in another state should be allowed to work, a policy Arizona was the first to adopt. See arizona's universal license recognition and the case for copying it.
• Right to appeal to a court. A person told to stop working should have a quick path to a judge, rather than relying on a board's letter.

The economics and the story from the North Carolina side are in North Carolina's dental board, teeth whitening and the Supreme Court, and the question of who is really in control of a body that wields state power is the theme of Departments, Commissions, Corporations and Who Really Controls Each One.

The Founders and the right to work

Why does a conservative care? The Declaration of Independence says that governments are instituted to secure the rights to "Life, Liberty and the pursuit of Happiness." Pursuit of happiness, in the eighteenth-century sense, included the freedom to earn a living by one's own labor. The Fourteenth Amendment says no state shall "make or enforce any law which shall abridge the privileges or immunities of citizens of the United States" nor "deprive any person of life, liberty, or property, without due process of law." A person's livelihood is a form of liberty and, often, property.

That is not to say the Constitution forbids licensing. States have long had the power to regulate professions for the protection of public health and safety. But a free society should treat each restriction on who may work as a restriction on liberty that needs a justification, and the justification should be the public's interest, not the profession's. Madison Called It the Very Definition of Tyranny, and Agencies Hold All Three explains why the Framers worried about gathering rulemaking, enforcement and adjudication in the same hands. A board of dentists that writes the rule, accuses the violator and enforces the result is a miniature version of the problem.

I would also point out a feature that every reader should notice. The board never needed a statute that said whitening was dentistry. It acted by letter, and the letters worked because the recipients feared the board's power. That is the same dynamic as Guidance Documents Are Rules That Skipped the Line, and Families Pay for It: power exercised by informal command, which the target cannot afford to test. The Court did not solve that in general. It did put one clear marker in the ground.

The strongest objection, answered

The defender of the board would say: dentists know dentistry. Who else would decide what counts as the practice of dentistry? A regulator with no training would not know the risks of a procedure. We want experts on these boards. And the legislature gave them the job.

That is true, and the Court did not say otherwise. Expertise is valuable, and practitioners may sit on boards. The holding does not forbid it. What it demands is that when practitioners control the board and the board restricts competition, the state must stand behind the decision by actively supervising it. If the state will not stand behind it, no one can say the decision belongs to the state. Expertise is a reason to consult dentists. It is not a reason to let them decide, unreviewed, who may compete with them.

The case in brief

1. The North Carolina Board of Dental Examiners, controlled by practicing dentists, sent cease-and-desist letters to non-dentist teeth whiteners without a court ruling or a rule, and the FTC found the conduct anticompetitive.
2. Parker v. Brown (1943) created state-action immunity, and Midcal (1980) required a clearly articulated state policy and active state supervision for private actors to claim it.
3. In North Carolina State Board of Dental Examiners v. FTC (2015), the Court held 6 to 3, in an opinion by Justice Kennedy, that a board controlled by active market participants must be actively supervised by the state to claim immunity.
4. Justice Alito's dissent, joined by Justices Scalia and Thomas, argued that a state-created board is the state, and the majority's rule intrudes on how states organize themselves, a federalism concern worth taking seriously.
5. The case supports occupational licensing reform: active supervision, boards with public members, sunset reviews, universal license recognition and quick access to a court.

What you can do: look up the licensing board for one occupation in your state, find out how many of its members work in that occupation and who reviews its decisions, and tell your state legislator what you found.