In 2003, bright blue-and-white kiosks offering $99 teeth-whitening treatments began popping up in shopping malls, spas and other locations across North Carolina. The growing number of outlets, and the brisk business they were doing, soon attracted the attention of dentists--who typically charge upwards of $500 for teeth whitening--and eventually the North Carolina Board of Dental Examiners, eight of whose 10 members were practicing dentists themselves.
Citing a state law it interpreted as prohibiting anyone but licensed dentists from bleaching teeth, the board issued cease and desist letters in 2006 to more than 50 kiosk operators and their landlords. Within a year, all of the cut-rate teeth-whitening businesses in North Carolina had shut down.
But far from settling the matter, the board's actions generated a legal battle fought all the way up to the U.S. Supreme Court, culminating in 2015 in a landmark decision with complex ramifications for states' traditional approaches to regulating a wide variety of occupations.
The battle began when the cease and desist letters were brought to the attention of the Federal Trade Commission, which, after investigation, filed a complaint against the board, accusing it of anticompetitive behavior. "Without any legitimate justification or defense," the complaint charged, the board had prevented non-dentists from offering a service that reduced prices and expanded consumer choice.
The dental board argued that its conduct was shielded by what is called the "state-action doctrine"--a New Deal-era legal principle that renders federal antitrust laws inapplicable to economic regulations adopted by a state in its sovereign capacity.
But the Fourth Circuit, and ultimately the Supreme Court, sided with the FTC's contention that an entity like the dental board--controlled by market participants who are elected by other market participants--is a non-sovereign "private actor," not automatically exempt from antitrust challenges.
In North Carolina Board of Dental Examiners v. FTC, handed down in February 2015, the high court established a new standard: When a state delegates control over a market to a non-sovereign actor, the state-action immunity doctrine applies only if the state itself "actively supervises" and accepts political responsibility for the private actor's decisions. The need for supervision, the court ruled, "turns on the risk that active market participants will pursue private interests in restraining trade."
What It Means for States
For governors, legislators and other policymakers, the ruling has raised the specter of a tide of lawsuits against licensing boards, which...