By Rebecca Haw Allensworth and Aaron Edlin, The Wall Street Journal
A little-noticed dental cartel in the U.S. received a long-deserved
legal root canal on Feb. 25. In North Carolina State Board of Dental
Examiners v. Federal Trade Commission, the Supreme Court affirmed the
FTC’s position that state licensing boards controlled by “active market
participants”—those who practice the profession—are exempt from
antitrust lawsuits only if they are also supervised by the state
The case arose in 2006 when the North Carolina State
Board of Dental Examiners banned salons, spas and other businesses from
offering teeth-whitening services, essentially outlawing competition.
The FTC sued, arguing that the move constituted unfair competition in
violation of the 1914 Federal Trade Commission Act.
behind the decision is complicated, involving “state action immunity.”
But the upshot is simple: Many professional boards in the U.S. will be
vulnerable to antitrust suits for anticompetitive regulations.
is a good thing. Last year in the University of Pennsylvania Law Review
we detailed the excesses of professional licensing. Boards run by
people who practice the profession have become the norm. In Florida, 38
of the state’s 41 boards are required by statute to be staffed by a
majority of active market participants. These boards set the terms of
competition within the profession and control who is allowed to compete
in the first place.
This self-regulation has led to self-dealing: Cosmetologists,
for example, are required on average to have 10 times as many days of
training as emergency medical technicians. In Alabama, the unlicensed
practice of interior design was a criminal offense until 2007. As the
dentist case illustrates, even the boards of licensed “learned
professions”—dentists, physicians and lawyers—create arbitrary
stakes are high, as roughly 30% of the U.S. workforce needs an
occupational license. The question now is: What next? Will there be a
flood of antitrust lawsuits against cosmetology boards, optometry boards
and boxing commissions? And how will states react now that licensing
boards are vulnerable?
A number of suits against boards will
likely follow. In Louisiana, florists might sue for the right to arrange
roses without having to pass an expensive test created and scored by
their would-be competitors. In several states, African-style hair
braiders might sue cosmetology boards that make new entrants pay about
$16,000 to attend two years of school.
States may react to the
new ruling quickly, perhaps by trying to place occupational licensing
outside the reach of the Sherman Act. Fortunately, the changes that
states must enact to immunize boards from litigation will make
regulation more transparent—and potentially foster more competition
For instance, states could change the
composition requirements of licensing boards to avoid antitrust
liability. Boards comprised of some licensed professionals—not a
majority—and rounded out with members representing other interests such
as consumers or safety experts are more likely to be immune from
lawsuits. This would increase the likelihood that the board’s actions
would be aimed at solving real problems, not at keeping prices for
States could also avoid antitrust lawsuits by
actively supervising board activities. Since the Supreme Court’s
decision requires “active supervision,” the state would have to review
the substance of what the board did, not simply the procedure. The
supervisor—which could be a legislative committee or a state court—would
need to be empowered to modify the board’s actions. This would also be
an improvement, because it would make state government more politically
The states have another option: Do nothing.
Professional regulations addressing legitimate health and safety risks
in a reasonable manner will pass muster under the Sherman Act. So if
board regulations are designed to address real problems, as the
professionals often argue, they have little to worry about. But there is
much to gain: Antitrust suits and the legal discovery they involve can
separate legitimate regulation from self-dealing, and discourage
anticompetitive regulation that has raised consumer prices and shut
potential professionals out of the market.
Though it is
uncertain how states will react, one thing is clear. The Supreme Court
is intolerant of cartel activity, whatever its form, and it has taken an
important step toward restoring competition in these licensed
Ms. Allensworth is an associate professor of
law at Vanderbilt University. Mr. Edlin is a professor of law and
economics at the University of California, Berkeley.