The State Action Doctrine: An Issue Ripe for Supreme Court Review


Bill Roach, Jr. is a litigation associate in Winston & Strawn’s Washington, D.C. office whose practice focuses on antitrust and competition issues.  Mr. Roach has represented clients in the healthcare industry in antitrust matters, including clients in U.S. Department of Justice, Federal Trade Commission, and state antitrust enforcement agency investigations, mergers and other collaborative activity, and class action litigation.

The state action exemption doctrine applies to the anticompetitive activities of private parties.  But where a private party is engaged in anticompetitive activity, courts recognize the potential danger that private parties will act to further their own financial interests, rather than to promote state policy.  Therefore, private parties must show—in addition to a clearly articulated and affirmatively expressed state policy—that their challenged conduct is “‘actively supervised by the State itself.’”[1]

In its Town of Hallie decision, the Supreme Court held explicitly that the active state supervision requirement does not apply to the actions of local political subdivisions of states such as municipalities.[2]  The Court reasoned that no such requirement was necessary because those entities could be expected to act in the public interest and, if they failed to, they were subject to voter reaction.  An open question at present, however, is whether the actions of hybrid state entities (e.g., state agencies comprised of private actors who compete in the market they regulate, such as state boards regulating professionals) must meet the active state supervision requirement in addition to the “clearly articulated and affirmatively expressed state policy” requirement (i.e., both Midcal requirements).[3]  The Court in Town of Hallie stated in dicta that the active supervision requirement “likely” would not apply to the actions of “state agencies.”[4] 

North Carolina Board of Dental Examiners:  The FTC’s Position

The Federal Trade Commission (“FTC”), however, disagrees—at least in the case of state agencies controlled by board members who compete in the market of a profession that they regulate.  In North Carolina Board of Dental Examiners,[5] the FTC sued the Board of North Carolina Dental Examiners (“Board”) for conspiring to restrain competition between those it regulates, dentists, and non-dentists providing teeth-whitening services in competition with dentists.  The Board was comprised of eight persons, six of whom were practicing dentists and some of whom provided teeth-whitening services themselves.  Based on complaints from dentists in the state about non-dentists providing teeth-whitening services, the Board issued cease-and-desist letters to the non-dentists, which had the intended effect of stopping them from providing the service, thus restraining competition.  The Board’s first line of defense was a motion for summary judgment, arguing that the state action exemption protected its issuance of the letters, even if they had an anticompetitive effect.  It was relatively clear that the Board’s action was not actively supervised by the state (although the Board argued otherwise), but the Board argued that, as a state agency, no active state supervision was required for the exemption to apply.

The FTC disagreed.  It explained that “when determining whether the state’s active supervision is required, 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.  As the [Supreme] Court emphasized repeatedly, the ‘real danger’ in not insisting on the state’s active supervision is that the entity engaged in the challenged restraint turns out to be ‘acting to further [its] own interests, rather than the governmental interests of the State.’”[6]  The FTC believed that because the six dentist members of the Board had private economic interests in preventing competition from non-dentists, the Board’s conduct required active state supervision for the exemption to apply.  The FTC suggested, for example, that had the Board sued the non-dentists in state court to enjoin their provision of teeth-whitening services, the exemption would have applied because an independent state actor would review the Board’s determination that teeth-whitening services constituted the practice of dentistry.

The Board recently has appealed the FTC’s decision to Fourth Circuit Court of Appeals.[7]  In its appeal, the Board rehashed its argument that the state action exemption shields its actions from antitrust scrutiny regardless of whether it can show active state supervision of its activities.  In addition, the Board points out that every court since Parker v. Brown has held that state agencies acting pursuant to a clearly articulated state law are not subject to antitrust scrutiny.[8]  Whether a state agency controlled by participants in the industry it regulates must show active state supervision to cloak their activities from antitrust scrutiny is of supreme importance to the medical community as a whole, as evidenced by the amicus filings of the American Medical Association and American Dental Associations, both of which support the Board’s position.  


No federal court decision provides a clear answer to the question whether the activities of state boards require active state supervision for the exemption to apply.  The Fourth Circuit likely will be the first, and both the Board and the FTC have cited colorable legal and policy arguments supporting their positions.  But the open question will remain unless and until the Supreme Court affirmatively decides the issue. Until the open question is resolved, individuals serving on a state board, and practitioners representing them, should be keenly aware of the doctrine and the FTC’s position on the doctrine as it applies to state agencies controlled by board members who compete in the market of a profession that they regulate.


[1] Cal. Retail Liquor Dealers Assoc. v. Midcal Aluminum, Inc., 445 U.S. 97 (1980).

[2] Town of Hallie v. City of Eau Claire, 471 U.S. 34 (1985).

[3] The Midcal requirements came from the Supreme Court’s opinion in Midcal Aluminum, Inc., 445 U.S. 97.

[4] 471 U.S. at 46 n.10 (“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.”).

[5] The N.C. Bd. of Dental Examiners, Dkt. No. 9343 (Op. of the Comm’n, Feb. 8, 2012) (quoting Hallie, 471 U.S. at 47). 

[6] Id. at 9.

[7] N.C. State Bd. of Dental Examiners v. F.T.C., Appeal No. 12-1172 (2012).

[8] 317 U.S. 341 (1943).

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