Antitrust Actions Against State Regulatory Boards Are Becoming More Common

• November 01, 2022

• Megan Wilson , Horvitz & Levy LLP
• H. Thomas Watson , Horvitz & Levy LLP
• Peder K. Batalden , Horvitz & Levy LLP

Recently, in SmileDirectClub, LLC v. Tippins,¹ the Ninth Circuit held that individual members of the California Dental Board who are market participants can be personally liable for antitrust violations, even when their actions are consistent with the board’s regulatory authority. SmileDirectClub sued the individual board members for monetary damages, alleging they conspired to prevent it from competing against them in the orthodontics market by harassing SmileDirectClub with unfounded investigations and subjecting it to an intimidation campaign designed to drive it from the market.² Like many occupational regulatory boards across the United States, the California Dental Board must include members who are licensed in the profession they regulate. The potential conflict of interest is obvious. Acknowledging this concern, the Ninth Circuit confirmed that market participant board members receive immunity from antitrust liability only if they meet stringent requirements for state action immunity.³

SmileDirectClub is not an outlier; it is part of a pattern of increased antitrust litigation against state occupational regulatory boards following the Supreme Court’s decision in North Carolina State Board of Dental Examiners v. FTC (Dental Board II).⁴ There, the Supreme Court clarified that certain nonsovereign actors, such as state occupational regulatory boards whose members are active market participants, must satisfy a two-prong state action test to receive immunity from antitrust claims under Parker v. Brown, 317 U.S. 342 (1943).⁵ Namely, they must show (1) the allegedly anticompetitive conduct is clearly articulated as state policy, and (2) the board is actively supervised by the state.⁶ The Court based its rationale on the inherent conflict of interest between the active market participant members’ own economic interests and those of the state and consumers,⁷ rejecting the board’s argument that it was exempt from the “active supervision” requirement merely because it had been designated as a state agency.⁸

ARTICLE TAGS

• Antitrust