North Carolina State Board of Dental Examiners v. Federal Trade Commission

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1172
THE NORTH CAROLINA STATE BOARD OF DENTAL EXAMINERS,
Petitioner,
v.
FEDERAL TRADE COMMISSION,
Respondent.
---------------------------------
AMERICAN DENTAL ASSOCIATION; AMERICAN OSTEOPATHIC
ASSOCIATION; AMERICAN VETERINARY MEDICAL ASSOCIATION;
AMERICAN ACADEMY OF PEDIATRIC DENTISTRY; AMERICAN ACADEMY OF
PERIODONTOLOGY; AMERICAN ASSOCIATION OF ORTHODONTISTS;
AMERICAN ASSOCIATION OF DENTAL BOARDS; FEDERATION OF STATE
MEDICAL BOARDS; AMERICAN MEDICAL ASSOCIATION; NORTH CAROLINA
MEDICAL SOCIETY; SOUTH CAROLINA MEDICAL ASSOCIATION; MEDICAL
SOCIETY OF VIRGINIA; WEST VIRGINIA STATE MEDICAL
ASSOCIATION; NATIONAL ASSOCIATION OF BOARDS OF PHARMACY;
NORTH CAROLINA BOARD OF PHARMACY; THE FEDERATION OF STATE
BOARDS OF PHYSICAL THERAPY; THE FEDERATION OF ASSOCIATIONS
OF REGULATORY BOARDS; THE ASSOCATION OF SOCIAL WORK BOARDS;
THE AMERICAN ASSOCIATION OF VETERINARY STATE BOARDS; THE
FEDERATION OF CHIROPRACTIC LICENSING BOARDS; THE FEDERATION
OF STATE MASSAGE THERAPY BOARDS; INTERNATIONAL CONFERENCE OF
FUNERAL SERVICE EXAMINING BOARDS, INCORPORATED; THE NATIONAL
ASSOCIATION OF LONG TERM CARE ADMINISTRATOR BOARDS; THE
NATIONAL BOARD FOR CERTIFICATION IN OCCUPATIONAL THERAPY,
Amici Supporting Petitioner,
AMERICAN ANTITRUST INSTITUTE,
Amicus Supporting Respondent.
On Petition for Review of an Order of the Federal Trade
Commission. (No. 9343)
Argued: December 5, 2012 Decided: May 31, 2013
Before SHEDD, KEENAN, and WYNN, Circuit Judges.
Petition denied by published opinion. Judge Shedd wrote the
opinion, in which Judge Wynn joined. Judge Keenan wrote a
separate concurring opinion.
ARGUED: Noel Lee Allen, ALLEN, PINNIX & NICHOLS, P.A., Raleigh,
North Carolina, for Petitioner. Imad Dean Abyad, FEDERAL TRADE
COMMISSION, Washington, D.C., for Respondent. ON BRIEF: M.
Jackson Nichols, Catherine E. Lee, Nathan E. Standley, Brenner
A. Allen, ALLEN, PINNIX & NICHOLS, P.A., Raleigh, North
Carolina, for Petitioner. Richard A. Feinstein, Director,
Richard B. Dagen, William L. Lanning, Willard K. Tom, General
Counsel, John F. Daly, Deputy General Counsel for Litigation,
FEDERAL TRADE COMMISSION, Washington, D.C., for Respondent.
Jack R. Bierig, Dale E. Thomas, SIDLEY AUSTIN LLP, Chicago,
Illinois, for American Dental Association, American Osteopathic
Association, American Veterinary Medical Association, American
Academy of Pediatric Dentistry, American Academy of
Periodontology, American Association of Orthodontists, American
Association of Dental Boards, and Federation of State Medical
Boards, Amici Supporting Petitioner. Leonard A. Nelson,
AMERICAN MEDICAL ASSOCIATION, Chicago, Illinois; Stephen W.
Keene, NORTH CAROLINA MEDICAL SOCIETY, Raleigh, North Carolina;
J. Mitchell Armbruster, SMITH, ANDERSON, BLOUNT, DORSETT,
MITCHELL & JERNIGAN, L.L.P., Raleigh, North Carolina, for The
American Medical Association and the Medical Associations for
the States of North Carolina, South Carolina, Virginia, and West
Virginia, Amici Supporting Petitioner. Matthew W. Sawchak,
Stephen D. Feldman, ELLIS & WINTERS LLP, Raleigh, North
Carolina, for The National Association of Boards of Pharmacy and
The North Carolina Board of Pharmacy, Amici Supporting
Petitioner. Lee K. Van Voorhis, Jennifer A. Semko, Jeremy W.
Cline, BAKER & MCKENZIE, LLP, Washington, D.C., for The
Federation of State Boards of Physical Therapy, The Federation
of Associations of Regulatory Boards, The Association of Social
Work Boards, The American Association of Veterinary State
Boards, The Federation of Chiropractic Licensing Boards, The
2
Federation of State Massage Therapy Boards, International
Conference of Funeral Service Examining Boards, Incorporated,
The National Association of Long Term Care Administrator Boards,
and The National Board for Certification in Occupational
Therapy, Amici Supporting Petitioner. Richard M. Brunell,
Director of Legal Advocacy, AMERICAN ANTITRUST INSTITUTE,
Washington, D.C.; Peter C. Carstensen, UNIVERSITY OF WISCONSIN
LAW SCHOOL, Madison, Wisconsin; K. Craig Wildfang, Ryan W.
Marth, Scott M. Kranz, ROBINS, KAPLAN, MILLER & CIRESI L.L.P.,
Minneapolis, Minnesota, for American Antitrust Institute, Amicus
Supporting Respondent.
3
SHEDD, Circuit Judge:
The North Carolina State Board of Dental Examiners (the
Board) petitions for review of the Federal Trade Commission
(FTC) order finding that the Board violated the FTC Act, 15
U.S.C. § 45, by engaging in unfair competition in the market for
teeth-whitening services in North Carolina. For the following
reasons, we deny the petition.
I.
The Board is a state agency, N.C. Gen. Stat. § 90-48,
created because the “practice of dentistry” in North Carolina
affects “the public health, safety and welfare,” N.C. Gen. Stat.
§ 90-22(1)(a). The eight-member Board is comprised of six
licensed dentists, one licensed dental hygienist, and one
consumer member. N.C. Gen. Stat. § 90-22(b). Dentists elect
the six dental members, and dental hygienists elect the
hygienist member. Id. § 90-22(c). If an election ends in a
tie, the candidates are allowed to describe their positions on
issues that will come before the Board before a revote is held.
The Governor appoints the consumer member. The Board is funded
by fees paid by licensed dentists and dental hygienists in North
Carolina. Board members—other than the consumer member—are
required to maintain an active dentistry practice while serving,
and during the relevant time frame, several Board members
provided teeth-whitening services.
4
North Carolina’s Dental Practice Act provides that it is
unlawful for an individual to practice dentistry in North
Carolina without a license from the Board. See N.C. Gen. Stat.
§ 90-29(a). Under the Dental Practice Act, a person “shall be
deemed to be practicing dentistry” if that person, inter alia,
“[r]emoves stains, accretions or deposits from the human teeth.”
N.C. Gen. Stat. § 90-29(b)(2). The Board has the “power” to (1)
refuse to issue a license to practice dentistry; (2) refuse to
renew a license; (3) revoke or suspend a license; or (4) take
other disciplinary measures “against a licensee as it deems fit
and proper.” N.C. Gen. Stat. § 90-41. If the Board suspects an
individual of engaging in the unlicensed practice of dentistry,
it may bring an action to enjoin the practice in North Carolina
Superior Court or may refer the matter to the District Attorney
for criminal prosecution. See N.C. Gen. Stat. § 90-40.1. This
power is hardly unique, however, because such actions may also
be maintained by the “Attorney General for the State of North
Carolina, the district attorney of any of the superior courts,”
or “any resident citizen.” Id. Moreover, the Board does not
have the authority to discipline unlicensed individuals or to
order non-dentists to stop violating the Dental Practice Act.
This case involves the market for teeth-whitening services
in North Carolina. Teeth-whitening is a popular cosmetic dental
procedure that is available in North Carolina, as in most
5
states, in several forms, including as an in-office dental
treatment, as dentist-provided take-home kits, as over-the-
counter products, and as services provided by non-dentists at
salons, mall kiosks, and other locations. Each of these teeth-
whitening services involves applying peroxide to the teeth by
means of a gel or strip, which triggers a chemical reaction that
results in whiter teeth. The services differ, however, in the
immediacy of the results, the ease of use, the necessity of
repeat applications, the need for technical support, and price.
Not surprisingly, in-office dentist whitening procedures are
fast, effective, and usually do not require repeated
applications, but they are also the “most costly” offering.
(J.A. 146). In contrast, over-the-counter whitening products
typically contain lower concentrations of peroxide and may
require multiple applications to achieve results, but they cost
far less.
Beginning in the 1990s, dentists started providing
whitening services throughout North Carolina. In about 2003,
non-dentists also started offering teeth-whitening services,
often at a significantly lower price than dentists. Shortly
thereafter, dentists began complaining to the Board about the
non-dentists’ provision of these services.
Relevant here, after receiving complaints from dentists,
the Board opened an investigation into teeth-whitening services
6
performed by non-dentists. A case officer (a dentist board
member) spearheaded the investigation, leading an investigatory
panel consisting of the Board’s Deputy Operations Officer, an
Investigator, and on occasion the Board’s legal counsel.
Although permitted to do so, neither the consumer member nor the
hygienist member participated in any of the teeth-whitening
investigations. During meetings, the Board discussed the
increasing number of complaints regarding non-dentist teeth-
whitening services and indicated to practicing dentists that the
Board was attempting to shut down these non-dentist providers.
As a result of the investigations, the Board issued at
least 47 cease-and-desist letters to 29 non-dentist teeth-
whitening providers. The letters were issued on official
letterhead and requested that the target cease and desist “all
activity constituting the practice of dentistry.” (J.A. 159).
Several letters indicated that the sale or use of teeth-
whitening products by a non-dentist is a misdemeanor. These
letters effectively caused non-dentists to stop providing teeth-
whitening services in North Carolina and also caused
manufacturers and distributors of teeth-whitening products used
by these non-dentist providers to exit or hold off entering
North Carolina. The Board also sent letters to mall operators
in an effort to stop malls from leasing kiosk space to non-
dentist teeth-whitening providers; additionally, the Board
7
contacted the North Carolina Board of Cosmetic Art Examiners to
request that the Cosmetic Board inform its members and licensees
to refrain from providing teeth-whitening services.
In sum, the Board successfully expelled non-dentist
providers from the North Carolina teeth-whitening market. On
June 17, 2010, the Federal Trade Commission issued an
administrative complaint against the Board, charging it with
violating 15 U.S.C. § 45, the FTC Act, by excluding non-dentist
teeth whiteners from the market. The Board moved to dismiss the
complaint, arguing that the FTC lacked jurisdiction over it and,
alternatively, that it was exempt from the federal antitrust
laws under the “state action” doctrine. An Administrative Law
Judge (ALJ) denied the motion, and the FTC affirmed.
Interlocutory Order In re North Carolina State Bd. of Dental
Exam’rs, 151 F.T.C. 607, 2011 WL 3568990 (FTC February 3, 2011)
(Interlocutory Order). In response, the Board filed a federal
declaratory action, raising the same grounds and requesting that
a federal court stop the administrative proceeding against it.
The district court dismissed that action as an improper attempt
to enjoin ongoing administrative procedure. 1 North Carolina
1
The Board has appealed that decision. See North Carolina
State Bd. of Dental Exam’rs v. FTC, No. 11-1679. In light of
our opinion in this petition for review, we have dismissed that
appeal as moot.
8
State Bd. of Dental Examiners v. FTC, 768 F. Supp.2d 818(E.D.N.C. 2011).
The ALJ then held a merits trial and issued an opinion
finding that the Board violated the FTC Act. On appeal, the
FTC—applying a de novo standard of review—affirmed and entered a
final order against the Board that included a cease-and-desist
order enjoining the Board from, inter alia, continuing to
unilaterally issue extra-judicial orders to teeth-whitening
providers in North Carolina. In re North Carolina State Bd. of
Dental Exam’rs, 2011-2 Trade Cases P 77705, 2011 WL 6229615, at
*2-5 (FTC December 7, 2011) (Final Order).
The Board petitions for review of the FTC’s final order,
raising three arguments: that it is exempt from the antitrust
laws under the state action doctrine; that it did not engage in
concerted action under § 1 of the Sherman Act; and that its
activities did not unreasonably restrain trade under § 1. We
address each in turn.
II.
A.
We begin with the Board’s contention that it is exempt from
the antitrust laws under the “state action” doctrine. 2 Under
2
The Board also argues that the FTC lacked jurisdiction
over it because it is not a “person” under the FTC Act, 15
U.S.C. § 45(a)(2). We find this argument to be without merit.
(Continued)
9
this doctrine, the antitrust laws do “not apply to
anticompetitive restraints imposed by the States ‘as an act of
government.’” City of Columbia v. Omni Outdoor Adver., Inc.,
499 U.S. 365, 370 (1991) (quoting Parker v. Brown, 317 U.S. 341,
352 (1943)). In Parker, the Supreme Court announced this
doctrine after recognizing that “nothing in the language of the
Sherman Act or in its history . . . suggests that its purpose
was to restrain a state or its officers or agents from
activities directed by its legislature.” 317 U.S. at 350-51.
The Parker Court cautioned, however, that a state cannot “give
immunity to those who violate the Sherman Act by authorizing
them to violate it, or by declaring that their action is
lawful.” 317 U.S. at 351.
There are “three situations in which a party may invoke the
Parker doctrine.” South Carolina State Bd. of Dentistry v. FTC,
455 F.3d 436, 442 (4th Cir. 2006). First, a state’s own actions
The Supreme Court has held that a state is a “person” under the
Sherman Act and the Clayton Act. Jefferson Cnty. Pharm. Ass’n
v. Abbott Labs., 460 U.S. 150, 155 (1983) (Clayton Act); City of
Lafayette v. La. Power & Light Co., 435 U.S. 389, 395 (1978)
(Sherman Act). In Jefferson County, the Court noted it did not
“perceive any reason to construe the word ‘person’ in [the
Sherman] Act any differently than we have in the Clayton Act.”
Jefferson Cnty., 460 U.S. at 156. Given the similarities
between the FTC Act and the Clayton and Sherman Acts, we
likewise find that the Board is a “person” under the FTC Act.
10
“ipso facto are exempt” from the antitrust laws. 3 Hoover v.
Ronwin, 466 U.S. 558, 568 (1984). Second, private parties can
claim the Parker exemption if acting pursuant to a “clearly
articulated and affirmatively expressed as state policy” and
their behavior is “actively supervised by the State itself.”
California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc.,
445 U.S. 97, 105 (1980) (internal quotation marks omitted).
Third, as the Supreme Court recently reaffirmed, municipalities
and “substate governmental entities do receive immunity from
antitrust scrutiny when they act pursuant to state policy to
displace competition with regulation or monopoly public
service.” FTC v. Phoebe Putney Health Sys., Inc., 133 S.Ct.
1003, 1010 (2013) (internal quotation marks omitted).
Municipalities are not required to show the active-supervision
prong of the Midcal test, because, “[w]here the actor is a
municipality, there is little or no danger that it is involved
3
The Board repeatedly asserted at oral argument that it is
“sovereign” within the meaning of Parker. The Supreme Court has
recognized two entities as “sovereign” under Parker—the state
legislature and the state supreme court when “acting
legislatively.” Hoover v. Ronwin, 466 U.S. 558, 567-68
(1984)(citing Parker, 317 U.S. at 351 (legislature); and Bates
v. State Bar of Arizona, 433 U.S. 350, 360 (1977) (state supreme
court)). The actions of these entities are “ipso facto” exempt
from the antitrust laws. Id. at 568. It is obvious that a
state agency comprised of privately employed dentists is not the
“sovereign” equivalent of the state legislature or state supreme
court.
11
in a private price-fixing arrangement.” Town of Hallie v. City
of Eau Claire, 471 U.S. 34, 47 (1985) (emphasis in original). 4
The Court’s rationale stemmed from the fact that a
municipality’s conduct is “likely to be exposed to public
scrutiny” and “checked to some degree through the electoral
process.” Id. at 45 n.9. Thus, “at the end of the day a
municipality shares the state’s ‘immunity’ when but only when it
4
The Hallie Court also included the following footnote
addressing state agencies:
In cases in which the actor is a state agency, it is
likely that active state supervision would also not be
required, although we do not here decide that issue.
Where state or municipal regulation by a private party
is involved, however, active state supervision must be
shown, even where a clearly articulated state policy
exists.
Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46 n.10
(1985). Relying on this footnote, the Board maintains that,
because it is categorized as a state agency by North Carolina,
it, too, is not required to show active supervision. This
footnote, however, does not bear quite the weight the Board
suggests. First, in Southern Motor Carriers Rate Conference,
Inc. v. United States, 471 U.S. 48, 57 (1985), issued the same
day as Hallie, the Court stated that Midcal continued to define
“most specifically” the situations in which “state agencies”
were entitled to the Parker exemption. Second, as the FTC
explained in rejecting the Board’s argument, “the dicta in
footnote 10 of Hallie must be reconciled with the Court’s other
language and reasoning in that same decision,” including its
discussion of Goldfarb v. Virginia State Bar, 421 U.S. 773(1975), which we discuss infra at 15-16. Interlocutory Order,
151 F.T.C. at 625. Although we find the dicta in Hallie
inapplicable in the instant case, where the “state agency” is
composed entirely of private market participants, our opinion
should not be read as precluding more quintessential state
agencies from arguing that they need not satisfy the active
supervision requirement.
12
is implementing anticompetitive policies authorized by the
state.” Kay Elec. Coop. v. City of Newkirk, 647 F.3d 1039, 1042
(10th Cir. 2011).
While Parker is available in these three circumstances, in
Phoebe Putney the Court cautioned that “given the fundamental
national values of free enterprise and economic competition that
are embodied in the federal antitrust laws, ‘state-action
immunity is disfavored, much as are repeals by implication.’”
Phoebe Putney, 133 S.Ct. at 1010 (quoting FTC v. Ticor Title
Ins. Co., 504 U.S. 621, 636 (1992)). Thus, “we recognize state-
action immunity only when it is clear that the challenged
anticompetitive conduct is undertaken pursuant to a regulatory
scheme that ‘is the State’s own.’” Id. (quoting Ticor, 504 U.S.
at 635).
B.
In this case, the FTC first held that the Board was a
private party required to meet both prongs of Midcal and then
concluded that the Board could not show it was actively
supervised by North Carolina. The FTC rejected the Board’s
argument that, as a state agency, it was a substate governmental
entity that only had to show its actions were authorized by a
clearly articulated state policy. While recognizing that state
agencies may, in some instances, fall within Hallie, the FTC
found that the “Court has been explicit in applying the
13
antitrust laws to public/private hybrid entities, such as
regulatory bodies consisting of market participants” like the
Board. Interlocutory Order, 151 F.T.C. at 619. The FTC
explained that the “operative factor is a tribunal’s degree of
confidence that the entity’s decision-making process is
sufficiently independent from the interests of those being
regulated,” and that, because a decisive majority of the Board
was elected by dentists, it was required to meet the active-
supervision requirement. Id. The FTC found this conclusion was
supported by the policies underlying the state action doctrine:
Decisions that are made by private parties who
participate in the market that they regulate are not
subject to these political constraints unless these
decisions are reviewed by disinterested state actors
to assure fealty to state policy. Without such
review, “there is no realistic assurance that a
private party’s anticompetitive conduct promotes state
policy, rather than merely the party’s individual
interests.” Patrick v. Burget, 486 U.S. 94, 101
(1988). Therefore, allowing the antitrust laws to
apply to the unsupervised decisions of self-interested
regulators acts as a check to prevent conduct that is
not in the public interest.
Id. at 622.
Having reached this conclusion, the FTC then easily
determined that the Board was not actively supervised because it
pointed only to “generic oversight” that did “not substitute for
the required review and approval of the ‘particular
anticompetitive acts’ that the complaint challenges.” Id. at
630 (quoting Patrick, 486 U.S. at 101).
14
C.
In its petition for review, the Board renews its contention
that, as a state agency, it is only required to show clear
articulation. Alternatively, the Board contests the FTC’s
conclusion that its conduct was not actively supervised. We
disagree with the Board on both counts.
First, we agree with the FTC that state agencies “in which
a decisive coalition (usually a majority) is made up of
participants in the regulated market,” who are chosen by and
accountable to their fellow market participants, are private
actors and must meet both Midcal prongs. Phillip E. Areeda &
Herbert Hovenkamp, 1A Antitrust Law: An Analysis of Antitrust
Principles and Their Application ¶ 227b, at 501 (3d ed. 2009).
See also Einer Richard Elhauge, The Scope of Antitrust Process,
104 Harv. L. Rev. 667, 689 (1991) (concluding that “financially
interested action is . . . ‘private action’ subject to antitrust
review”). This result accords with Supreme Court precedent as
well as our own.
For example, in Goldfarb v. Virginia State Bar, 421 U.S.
773 (1975), the Court addressed an ethical opinion enforced by
the Virginia State Bar Association that required attorneys to
abide by a minimum fee schedule. The Bar was a “state agency by
law,” id. at 790, with the “power to issue ethical opinions,”
15
id. at 791. The Court still denied the Parker exemption to the
Bar, concluding that:
The fact that the State Bar is a state agency for some
limited purposes does not create an antitrust shield
that allows it to foster anticompetitive practices for
the benefit of its members. Cf. Gibson v. Berryhill,
411 U.S. 564, 578-579 (1973). The State Bar, by
providing that deviation from County Bar minimum fees
may lead to disciplinary action, has voluntarily
joined in what is essentially a private
anticompetitive activity, and in that posture cannot
claim it is beyond the reach of the Sherman Act.
Id. at 791-92.
The key, according to the Goldfarb Court, was that the
Parker exemption did not permit the state agency to “foster
anticompetitive practices for the benefit of its members.” When
a state agency and its members have the attributes of a public
body—such as a municipality—and are subject to public scrutiny
such that “there is little or no danger that [they are] involved
in a private price-fixing arrangement,” active supervision is
not required. Hallie, 471 U.S. at 47. However, when a state
agency appears to have the attributes of a private actor and is
taking actions to benefit its own membership—as in Goldfarb—both
parts of Midcal must be satisfied. Requiring active supervision
over such entities ensures “the State has exercised sufficient
independent judgment and control so that the details of the
[challenged action] have been established as a product of
deliberate state intervention.” Ticor, 504 U.S. at 634.
16
We have indicated—prior to Midcal and Hallie—that a state
agency operated by market participants must show active state
involvement. See Asheville Tobacco Bd. of Trade, Inc. v. FTC,
263 F.2d 502, 509 (4th Cir. 1959). In Asheville Tobacco, we
addressed conduct by a local board of trade comprised of market
participants. The board was “an administrative agency of the
State of North Carolina,” id. at 508, that was granted the
authority under state law to “make reasonable rules and
regulations” for selling “leaf tobacco at auction,” id. at 505.
We found that the board was required to show that it was
adequately supervised by the state because, in function, the
board was a private actor “organized primarily for the benefit
of those engaged in the business.” Id. at 509. 5 Of particular
relevance was the fact that the officers were appointed from the
board’s membership and not by the State—a factor also present in
this case. Id. at 510. See also Washington State Elec.
Contractors Ass’n, Inc. v. Forrest, 930 F.2d 736, 737 (9th Cir.
1991) (noting state regulatory council “may not” qualify as
“state agency” because it “has both public and private members,
and the private members have their own agenda”); FTC v. Monahan,
832 F.2d 688, 689-90 (1st Cir. 1987) (Breyer, J.) (noting state
5
In reaching this conclusion, we specifically found that we
were “not bound by the State court’s characterization of the
boards.” Asheville Tobacco, 263 F.2d at 509.
17
pharmacy board’s status as public or private “depends upon how
the Board functions in practice, and perhaps upon the role
played by its members who are private pharmacists”). 6
In sum, we agree with the FTC that, as here, when a state
agency is operated by market participants who are elected by
other market participants, it is a “private” actor.
Accordingly, it is required to satisfy both Midcal prongs to
obtain the Parker exemption.
D.
Second, having concluded that the Board must satisfy both
Midcal prongs, we likewise agree with the FTC that the Board
cannot satisfy Midcal’s active-supervision prong. In Midcal,
the Court found that California did not actively supervise the
wine-selling scheme at issue because California law: (1) “simply
6
Although the Board points to several cases concluding that
a state agency did not have to demonstrate active supervision,
these cases do not create the bright-line rule that the Board
requests. See Earles v. State Bd. of Certified Public
Accountants of Louisiana, 139 F.3d 1033, 1041 (5th Cir. 1998);
Bankers Ins. Co. v. Florida Residential Prop. & Cas. Joint
Underwriting Ass’n, 137 F.3d 1293, 1296-97 (11th Cir. 1998);
Hass v. Oregon State Bar, 883 F.2d 1453, 1460 (9th Cir. 1989);
Gambrel v. Kentucky Bd. of Dentistry, 689 F.2d 612, 620-21 (6th
Cir. 1982). Instead, in each case, those courts merely
determined that the particular state agency at issue was more
akin to a municipality than a private actor. See, e.g., Earles,
139 F.3d at 1041 (noting the “Board is functionally similar to a
municipality”); Hass, 883 F.2d at 1460 (review of state
provisions left “no doubt that the Bar is a public body, akin to
a municipality for purposes of the state action exemption”).
18
authorizes price setting and enforces the prices established by
private parties”; (2) “neither establishes prices nor reviews
the reasonableness of the price schedules”; (3) does not
“regulate the terms of fair trade contracts”; (4) and does not
“monitor market conditions or engage in any ‘pointed
reexamination’ of the program.” Midcal, 445 U.S. at 105–06. The
Court reinforced that our national policy in favor of robust
competition “cannot be thwarted by casting such a gauzy cloak of
state involvement over what is essentially a private price-
fixing arrangement.” Id. at 106. As the Court later noted,
“[t]he mere presence of some state involvement or monitoring
does not suffice.” Patrick, 486 U.S. at 101.
North Carolina has done far less “supervision” in this case
than the Court found wanting in Midcal. Here, the cease-and-
desist letters were sent without state oversight and without the
required judicial authorization. The Board has pointed to
certain reporting provisions and “good government” provisions in
North Carolina law, but those fall far short of the type of
supervision in Midcal that was nonetheless considered deficient.
As the FTC explained, “[t]his sort of generic oversight,
however, does not substitute for the required review and
approval of the ‘particular anticompetitive acts’” challenged by
the FTC. Interlocutory Order, 151 F.T.C. at 630 (quoting
Patrick, 486 U.S. at 101).
19
III.
We next turn to the question of whether the FTC properly
found that the Board’s behavior violated the FTC Act. The FTC’s
factual findings are conclusive if supported by substantial
evidence, Telebrands Corp. v. FTC, 457 F.3d 354, 358 (4th Cir.
2006), and, while we review legal issues de novo, we “give some
deference to the Commission’s informed judgment that a
particular commercial practice is to be condemned as ‘unfair,’”
FTC v. Indiana Fed’n of Dentists, 476 U.S. 447, 454 (1986).
“The [FTC Act] forbids a court to ‘make its own appraisal of the
testimony, picking and choosing for itself among uncertain and
conflicting inferences.’” Id. (quoting FTC v. Algoma Lumber
Co., 291 U.S. 67, 73 (1934)).
The FTC Act makes unlawful “[u]nfair methods of
competition.” 15 U.S.C. § 45(a)(1). In this case, the FTC
determined that the Board’s conduct violated § 45(a)(1) because
it was a violation of § 1 of the Sherman Act, which we have
previously recognized is a “species” of “unfair competition.”
South Carolina Bd. of Dentistry, 455 F.3d at 443 n.7.
Accordingly, because the FTC limited its review to whether the
Board’s conduct violated § 1, we do the same. Section 1 of the
Sherman Antitrust Act prohibits “[e]very contract, combination .
. ., or conspiracy, in restraint of trade.” 15 U.S.C. § 1. To
establish a § 1 antitrust violation, a plaintiff must prove “(1)
20
a contract, combination, or conspiracy; (2) that imposed an
unreasonable restraint of trade.” Dickson v. Microsoft Corp.,
309 F.3d 193, 202 (4th Cir. 2002). Here, the Board challenges
both of these requirements, arguing that, under the
intracorporate immunity doctrine, see Copperweld Corp. v.
Independence Tube Corp., 467 U.S. 752, 771 (1984), it is
incapable of conspiring with itself, and that, to the extent
that doctrine does not apply, the FTC failed to prove a
combination or conspiracy that imposed an unreasonable restraint
of trade.
A.
Section 1 of the Sherman Act applies “only to concerted
action,” American Needle, Inc. v. National Football League, 130
S.Ct. 2201, 2208 (2010), and “unilateral conduct is excluded
from its purview,” Oksanen v. Page Memorial Hosp., 945 F.2d 696,
702 (4th Cir. 1991). In American Needle, the Court recognized
that “[a]greements made within a firm can constitute concerted
action . . . when the parties to the agreement act on interests
separate from those of the firm itself” such that “the intrafirm
agreements may simply be a formalistic shell for ongoing
concerted action.” American Needle, 130 S.Ct. at 2215. See
also Am. Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d
212, 224 (4th Cir. 2004) (recognizing “independent personal
stake exception” to Copperweld). As the American Needle Court
21
explained, “substance,” not “form” determines whether an “entity
is capable of conspiring under § 1,” and the key inquiry is
“whether there is a conspiracy between ‘separate economic actors
pursuing separate economic interests, such that the agreement
deprives the marketplace of independent centers of decision
making.’” Robertson v. Sea Pines Real Estate Co., 679 F.3d 278,
285 (4th Cir. 2012) (quoting American Needle, 130 S.Ct. at
2212).
Applying American Needle, the FTC concluded that “Board
members were capable of conspiring because they are actual or
potential competitors.” Final Order, 2011 WL 6229615, at *20.
Specifically, the FTC found that “Board members continued to
operate separate dental practices while serving on the Board,”
and that the “Board members had a personal financial interest in
excluding non-dentist teeth whitening services” because many of
them offered teeth-whitening services as part of their
practices. Id. The FTC continued by noting its conclusion was
“buttressed by the significant degree of control exercised by
dentist members of the Board with respect to the challenged
restraints.” Id. at *21.
We uphold the FTC’s finding that the Board has the capacity
to conspire under § 1. As American Needle made clear, concerted
action is satisfied when an agreement exists between “separate
economic actors” such that any agreement “deprives the
22
marketplace of independent centers of decision making.”
American Needle, 130 S.Ct. at 2212 (internal quotation marks
omitted). The Board members—apart from the consumer member—are
active dentists who are required, by the Dental Practice Act,
N.C. Gen. Stat § 90-22(b), to be actively engaged in dentistry
during their Board tenure. As even the Board’s own expert
recognized, 7 the Board members’ active-service requirement can
create a conflict of interest since they serve on the Board
while they remain “separate economic actors” with a separate
financial interest in the practice of teeth whitening. Cf.
Oksanen, 945 F.2d at 706 (noting “a medical staff can be
comprised of physicians with independent and at times competing
economic interests” and thus “have the capacity to conspire as a
matter of law”). 8 Any agreement between the Board members thus
deprives the market of an independent center of decision making.
7
The Board’s expert testified that the Board is concerned
about the financial interests of dentists, and that there “is a
financial aspect” to the decision to exclude the non-dentist
teeth whiteners. (J.A. 580).
8
The fact that the Board members may have a unity of
purpose in the particular restraint at issue—expelling non-
dentist teeth whiteners from the market—does not render them
incapable of conspiring under § 1, because some “commonality of
interest exists in every cartel.” Los Angeles Memorial Coliseum
Comm’n v. NFL, 726 F.2d 1381, 1389 (9th Cir. 1984). The salient
fact is that the Board members, in their private business,
remain “separately controlled, potential competitors.” American
Needle, 130 S.Ct. at 2215.
23
Moreover, the Board’s status as a single entity is not
dispositive because “[c]ompetitors ‘cannot simply get around’
antitrust liability by acting ‘through a third-party
intermediary or joint venture.’” American Needle, 130 S.Ct. at
2215-16 (quoting Major League Baseball Properties, Inc. v.
Salvino, Inc., 542 F.3d 290, 336 (2d Cir. 2008) (Sotomayor, J.,
concurring in judgment)). In Robertson, we rejected the
argument that the MLS listing service’s status as a “single
corporation” rendered it incapable of § 1 conspiracy because it
was “comprised of individual real estate brokerages that are
separately incorporated and that compete with each other in the
sale and purchase of real estate.” Robertson, 679 F.3d at 285.
Importantly, we found implausible the MLS’s contention that the
realtors could not violate § 1 because the “individual
brokerages acted only in their capacities as MLS board members.”
Id. at 284. Likewise, in this case the Board’s members are
separate economic actors who cannot escape liability under § 1
simply by organizing under a “single umbrella.” American
Needle, 130 S.Ct. at 2212.
B.
Having determined that the Board is capable of conspiring
under § 1, we next examine whether the FTC’s conclusion that the
Board engaged in concerted action is supported by substantial
evidence. Of course, concluding that the Board has the capacity
24
to conspire “does not mean, however, that every action taken” by
the Board “satisfies the contract, combination, or conspiracy
requirement of section one.” Oksanen, 945 F.2d at 706. Thus,
to be concerted action, the parties must have “a conscious
commitment to a common scheme designed to achieve an unlawful
objective.” Monsanto Co. v. Spray-Rite Service Corp., 465 U.S.
752, 768 (1984). We have indicated there must be “something
more” than independent action, such as “a unity of purpose or a
common design and understanding, or a meeting of the minds.”
Parkway Gallery Furniture, Inc. v. Kittinger/Pennsylvania House
Group, Inc., 878 F.2d 801, 805-06 (4th Cir. 1989). Concerted
action may be proven by “direct or circumstantial evidence.”
Monsanto, 465 U.S. at 768.
The FTC found both direct and circumstantial evidence to
support a finding of concerted action. First, the FTC concluded
that “[o]n several occasions, the Board discussed teeth
whitening services provided by non-dentists and then voted to
take action to restrict these services.” Final Order, 2011 WL
6229615, at *23. Second, the FTC found a “wealth” of
circumstantial evidence to the same effect—members “engaged in a
consistent practice of discouraging non-dentist teeth whitening
services” through their cease-and-desist letters and other
efforts. Id. The FTC found these communications were “similar”
and had the “common objective” of closing the market. Id. It
25
was this “consistency” and “frequency” that pointed to concerted
action. Id. Substantial evidence supports this conclusion. As
the FTC found, several of these letters were sent after votes by
the Board, and the lengthy consistent campaign of sending
letters and cease-and-desist orders is suggestive of coordinated
action. 9 Accordingly, we agree with the FTC that the Board
engaged in a combination or conspiracy under § 1.
IV.
Finally, the Board challenges the FTC’s conclusion that its
actions amounted to an unreasonable restraint of trade under
§ 1. As noted above, we review the FTC’s legal conclusion de
novo—while giving some deference to its expertise—and we uphold
its factual findings if supported by substantial evidence.
Indiana Fed’n of Dentists, 476 U.S. at 454. We have recognized
three forms of analysis for determining if conduct violates § 1:
(1) per se; (2) quick-look; and (3) rule of reason. Continental
Airlines, Inc. v. United Airlines, Inc., 277 F.3d 499, 508-09
(4th Cir. 2002). 10 “The boundaries between these levels of
9
The Board renews its argument—made with regard to the
state action doctrine—that enforcement of state law can never be
an antitrust conspiracy. As previously discussed, the Board was
acting to regulate third parties in a manner not authorized by
state law.
10
The per se analysis, which “permits courts to make
‘categorical judgments’ that certain practices, including price
fixing, horizontal output restraints, and market-allocation
(Continued)
26
analysis are fluid,” and they are “best viewed as a continuum.”
Id. at 509. “In all cases, however, ‘the criterion to be used
in judging the validity of a restraint on trade is its impact on
competition.’” Id. (quoting National Collegiate Athletic Ass’n
v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 104 (1984)).
The rule of reason applies “if the reasonableness of a
restraint cannot be determined without a thorough analysis of
its net effects on competition in the relevant market.” Id. In
some instances, an examination short of the rule of reason can
be substituted, that is, when a “quick look” indicates the
anticompetitive effect of the conduct “but procompetitive
justifications . . . also exist.” Id. “Rather than focusing
upon the category to which a particular restraint should be
assigned,” Polygram Holding, Inc. v. FTC, 416 F.3d 29, 35 (D.C.
Cir. 2005), the “‘essential inquiry remains the same—whether or
not the challenged restraint enhances competition,’” California
Dental Ass’n. v. FTC, 526 U.S. 756, 780 (1999) (quoting Bd. of
Regents of University of Oklahoma, 468 U.S. at 104).
Application of a quick look is appropriate when “the experience
agreements,” are per se violative of § 1, is not at issue in
this case because the FTC utilized the “quick look” and full
rule of reason analysis. Continental Airlines, 277 F.3d at 509(quoting Nw. Wholesale Stationers, Inc. v. Pac. Stationery &
Printing Co., 472 U.S. 284, 289 (1985)).
27
of the market has been so clear, or necessarily will be, that a
confident conclusion about the principal tendency of a
restriction will follow from a quick (or at least a quicker)
look, in place of a more sedulous one.” Id. at 781. In
applying this abbreviated analysis, however, a court “must
carefully consider a challenged restriction’s possible
procompetitive justifications.” Continental Airlines, 277 F.3d
at 510.
In this case, the FTC determined that the Board’s conduct
violated § 1 under both a quick-look analysis 11 and a full rule
of reason. Final Order, 2011 WL 6229615, at *18 (noting the FTC
analyzed the Board’s behavior under “the . . . modes of analysis
endorsed in Indiana Federation of Dentists,” including the quick
look approach and the rule of reason). Applying the quick look
approach, the FTC first concluded that the conduct was
“inherently suspect” because “[t]he challenged conduct is, at
its core, concerted action excluding a lower-cost and popular
group of competitors,” id. at *25, and “[n]o advanced degree in
economics is needed to recognize” that the behavior “is likely
11
The FTC referred to the quick look analysis as the
“inherently suspect” approach, consistent with its earlier
ruling in In re Polygram Holding, Inc., 136 F.T.C. 310 (2003),
aff’d Polygram Holding, Inc. v. FTC, 416 F.3d 29 (D.C. Cir.
2005).
28
to harm competition and consumers, absent a compelling
justification,” id. at *26.
We affirm the FTC’s mode of analysis and find that its
conclusion that the Board’s behavior was likely to cause
significant anticompetitive harms is supported by substantial
evidence. See Fashion Originators’ Guild of Am., Inc. v. FTC,
312 U.S. 457, 465 (1941) (holding that manufacturer’s boycott of
certain retailers “has both as its necessary tendency and as its
purpose and effect the direct suppression of competition”); Nw.
Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co.,
472 U.S. 284, 294 (1985) (internal quotation marks omitted)
(noting “likelihood of anticompetitive effects is clear” in
group boycotts involving “joint efforts . . . to disadvantage
competitors by either directly denying or persuading or coercing
suppliers or customers to deny relations the competitors need in
the competitive struggle”). The Court has made clear that
practices like group boycotts are amenable to the quick look
approach—cases in which “an observer with even a rudimentary
understanding of economics could conclude that the arrangements
in question would have an anticompetitive effect on customers
and markets.” California Dental, 526 U.S. at 770. It is not
difficult to understand that forcing low-cost teeth-whitening
29
providers from the market has a tendency to increase a
consumer’s price for that service. 12
Of note here, the Supreme Court has cautioned that we
should be hesitant to quickly condemn the actions of
professional organizations because “certain practices by members
of a learned profession might survive scrutiny . . . even though
they would be viewed as a violation of the Sherman Act in
another context.” Nat’l Soc’y of Prof’l Eng’rs v. United
States, 435 U.S. 679, 686 (1978). See also Goldfarb, 421 U.S.
at 788 n.17 (“The fact that a restraint operates upon a
profession as distinguished from a business is, of course,
relevant in determining whether that particular restraint
violates the Sherman Act.”). That is, “[t]he public service
12
The Board argues that FTC failed to consider its
justification, that it “acted pursuant to state law,” and was
“motivated by public protection concerns.” (Appellant’s Br. at
57). The FTC found that, even assuming these were appropriate
justifications for anticompetitive behavior, the Board failed to
adduce factual support. The FTC recounted that the Board
members pointed to “theoretical” risks of teeth-whitening
services without “any clinical or empirical evidence validating”
the risks and that the Board could only point to four anecdotal
cases of consumer injury “over a multi-year period based on
products considered safe by the FDA and used over a million
times over the last twenty years.” Final Order, 2011 WL
6229615, at *33. The FTC likewise noted the “lack of
contemporaneous evidence that the challenged conduct was
motivated by health or safety concerns.” Id. We find this
conclusion supported by substantial evidence.
30
aspect” of a profession “may require that a particular practice
. . . be treated differently.” Goldfarb, 421 U.S. at 788 n.17.
The Supreme Court has likewise made pellucid, however, that
anticompetitive acts are not immune from § 1 because they are
performed by a professional organization. See, e.g., Arizona v.
Maricopa Cnty. Med. Soc’y, 457 U.S. 332, 347-51 (1982)
(condemning as a per se § 1 violation maximum fee setting
agreement by physicians); Indiana Fed’n of Dentists, 476 U.S. at
459-60 (finding horizontal agreement among dentists to be a § 1
violation under quick look analysis). We have also noted, “we
are not inclined to condone anticompetitive conduct upon an
incantation of ‘good medical practice.’” Virginia Acad. of
Clinical Psychologists v. Blue Shield of Virginia, 624 F.2d 476,
485 (4th Cir. 1980). In this case, the Board’s status as a
group of professionals does not condone its anticompetitive
practices. Accordingly, we conclude that substantial evidence
supports the FTC’s factual findings regarding the economic
effects of the Board’s actions and that those findings support
the conclusion that the Board’s behavior violates § 1. Indiana
Fed’n of Dentists, 476 U.S. at 465-66.
V.
In conclusion, we note that our decision today hardly
sounds the death knell for federal/state balance the Board
posits. For one, given our conclusion that the Board is a
31
private actor under the antitrust laws, there is no federalism
issue. To that end, we note that Board is represented by
private counsel and the State has never intervened in the
proceedings on the Board’s behalf. Cf. Maryland Stadium Auth.
v. Ellerbe Beckett, Inc., 407 F.3d 255, 264-65 (4th Cir. 2005)
(noting representation by state Attorney General was factor in
determining state control). At the end of the day, this case is
about a state board run by private actors in the marketplace
taking action outside of the procedures mandated by state law to
expel a competitor from the market. Despite these actions, if
the Board was actively supervised by the State, it would be
entitled to the Parker exemption. Today’s opinion simply
reinforces the Court’s admonition that federalism “serves to
assign political responsibility, not to obscure it.” Ticor, 504
U.S. at 636. As the FTC summarized:
allowing the antitrust laws to apply to the
unsupervised decisions of self-interested regulators
acts as a check to prevent conduct that is not in the
public interest; absent antitrust to police their
actions, unsupervised self-interested boards would be
subject to neither political nor market discipline to
serve consumers’ best interests.
Interlocutory Order, 151 F.T.C. at 622-23.
For the foregoing reasons, the Board’s petition for review
is denied.
PETITION DENIED
32
BARBARA MILANO KEENAN, Circuit Judge, concurring:
I am pleased to concur in the majority’s opinion. I write
separately to emphasize the narrow scope of our holding that the
North Carolina State Board of Dental Examiners (the Board) is a
private actor for purposes of the state action doctrine, and to
discuss the practical implications of our decision.
Under the Supreme Court’s precedent, private parties are
immune from the antitrust laws under the state action doctrine
when two criteria are met. See Cal. Retail Liquor Dealers Ass’n
v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980) (Midcal).
First, the challenged restraint must be “clearly articulated and
affirmatively expressed as state policy,” and, second, that
policy must be “actively supervised” by the state itself. Id.In this context, it is useful to state what our opinion
does not hold. We do not hold that a state agency must always
satisfy the active supervision prong of the standard set forth
in Midcal to qualify for antitrust immunity under the state
action doctrine. Nor do we hold that a state agency comprised,
in whole or in part, of members participating in the market
regulated by that state agency is a private actor subject to
Midcal’s active supervision prong. Instead, our holding that
the Board is a private actor for purposes of the state action
doctrine turns on the fact that the members of the Board, who
are market participants, are elected by other private
participants in the market. See slip op. at 18 (“[W]hen a state
agency is operated by market participants who are elected by
other market participants, it is a ‘private’ actor.”).
If the Board members here had been appointed or elected by
state government officials pursuant to state statute, a much
stronger case would have existed to remove the Board from the
reach of Midcal’s active supervision prong. * See FTC v. Phoebe
Putney Health System, Inc., 133 S. Ct. 1003, 1010 (2013)
(holding that municipal and certain “substate” entities of
government receive immunity from antitrust scrutiny when they
act pursuant to clearly articulated and affirmatively expressed
state policy to displace competition, without regard to whether
their activities are actively supervised by the state).
*
The separate features supporting the Board’s position
included: (1) the North Carolina legislature’s designation of
the Board “as the agency of the State for the regulation of the
practice of dentistry in this State,” N.C.G.S. § 90-22(b); (2)
the designation of Board members as “State employees,” N.C.G.S.
§ 93B-16(b); (3) the Board members’ entitlement to sovereign
immunity and legal defense by the state attorney general,
N.C.G.S. §§ 93B-16(c), 143-300.3; (4) the oath Board members are
required to take promising to uphold North Carolina’s laws and
protect the health, safety, and welfare of the public, N.C.
CONST. art. VI, § 7; (5) the potential that Board members may be
punished by the North Carolina Ethics Commission if the members
act in a manner that presents a conflict of interest, N.C.G.S.
§§ 138A-10, 12(o); and (6) the review powers over the Board
enjoyed by the North Carolina Joint Legislative Commission on
Governmental Operations, which has the power to study state
agency activities regarding “conformity with legislative
intent,” N.C.G.S. § 120-76(1)(d).
34
I further observe that subjecting the Board to Midcal’s
active supervision prong does not impose an onerous burden on
either the Board or the state. The Supreme Court explained that
“the requirement of active state supervision serves essentially
an evidentiary function: it is one way of ensuring that the
actor is engaging in the challenged conduct pursuant to state
policy.” Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46
(1985) (emphasis added). Accordingly, if a state creates an
agency and directs that the members of that agency be selected
in a manner similar to the process employed here, the agency may
still enjoy antitrust immunity if, for example, the state
“monitor[s] market conditions or engage[s] in [a] ‘pointed
reexamination’” of the agency’s actions, Midcal, 445 U.S. at
106, or if the agency’s actions have been authorized by the
state’s judiciary or are subject to judicial enforcement
proceedings, Bates v. State Bar of Arizona, 433 U.S. 350, 361-62
(1977).
In this case, I do not doubt that the Board was motivated
substantially by a desire to eliminate an unsafe medical
practice, namely, the performance of teeth whitening services by
unqualified individuals under unsanitary conditions. The Board
was aware that several consumers had suffered from adverse side
effects, including bleeding or “chemically burned” gums, after
receiving teeth-whitening services from persons not licensed to
35
practice dentistry. Additionally, the Board was aware that many
of the “mall kiosks” where such teeth-whitening services are
performed lack access to running water. The Board also received
reports that non-licensed persons performed teeth-whitening
services without using gloves or masks, thereby increasing the
risk of adverse side effects. Accordingly, in my view, the
record supports the Board’s argument that there is a safety risk
inherent in allowing certain individuals who are not licensed
dentists, particularly mall-kiosk employees, to perform teeth-
whitening services.
North Carolina is entitled to make the legislative judgment
that the benefits of prohibiting non-dentists from performing
dental services related to stain removal outweigh the harm to
competition that results from excluding non-dentists from that
market. That kind of legislative judgment exemplifies the very
basis of the state action immunity doctrine. However, because
“state-action immunity is disfavored,” Phoebe Putney, 133 S. Ct.
at 1010, when the state makes such a judgment, the state must
act as the state itself rather than through private actors only
loosely affiliated with the state.
Here, the fact that the Board is comprised of private
dentists elected by other private dentists, along with North
Carolina’s lack of active supervision of the Board’s activities,
leaves us with little confidence that the state itself, rather
36
than a private consortium of dentists, chose to regulate dental
health in this manner at the expense of robust competition for
teeth whitening services. Accordingly, the Board’s actions are
those of a private actor and are not immune from the antitrust
laws under the state action doctrine. With these observations,
I am pleased to join the majority opinion.
37