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A Short Step on a Long Road

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My colleague Jon Sanders has already commented on last week’s Supreme Court decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission. As Jon suggests, this is a good result in many ways — the bad guys lost, and the good guys will eventually benefit.  It is important to recognize, however, that the Court’s holding is very narrow. It may be a step in the right direction, but it’s a short step, and it does not take us very far towards a legal system that fully protects economic rights.

The case

A brief history of the case should make it clear who "the good guys" and "the bad guys" are. In the 1990s, North Carolina dentists began offering a new service: teeth whitening. This proved to be highly profitable, and they were not happy when, in the early 2000s, beauty salons, mall kiosks and other small businesses began to offer teeth whitening services at more convenient locations and much lower prices. The State Board of Dental Examiners responded to this unwanted competition by issuing cease-and-desist letters and taking other steps, which proved highly successful. Within a few years the Board had driven out all the competition, and the dentists had recovered their monopoly on the teeth whitening business.

The legal controversy began in 2010 when the FTC took exception to what the Board had done and charged it with anticompetitive and unfair competition under the Federal Trade Commission Act. From the start, it was not so much a conflict between the good guys (the non-dentists who wanted to provide low cost, convenient teeth whitening services) and the bad guys (the dentists who wanted to put them out of business); it was a turf war between two government agencies: the State Board of Dental Examiners and the Federal Trade Commission.   

The Board claimed at one point that it had simply been trying to protect public safety, but this assertion was firmly rejected owing to a "wealth of evidence" showing that teeth whitening by non-dentists is safe. Instead, the Board’s primary line of defense was that it was immune to the requirements of federal antitrust law because it was a "state actor."

The Supreme Court established the doctrine of state actor immunity to federal antitrust law in 1943. It did so on the theory that, in a federal system, states should be free to regulate business activity within their borders in any manner they choose unless Congress has explicitly said they can’t. For its part, the FTC acknowledged the doctrine of state actor immunity, but argued that, given the facts of this case, the Board should be regarded, not as a state actor, but as a private one.

What all this means is that, by the time the case reached the Supreme Court, the issue was not whether the Board had used its power to enrich North Carolina dentists at the expense of non-dentist teeth whiteners and their customers. All the parties accepted that this is what it had done. The question before the Court was: should the Board of Dental Examiners be regarded as a state actor under federal antitrust law?

The ruling

The Court decided that it should not. It held that, despite being established by the state, the Board did not qualify because it was controlled by active market participants (i.e., by dentists, many of whom have actually practiced teeth whitening), and because it had engaged in anti-competitive actions that had neither been "clearly articulated and affirmatively expressed as state policy" nor "actively supervised by the State."

The Court’s decision had the effect of upholding the FTC’s original charge against the Board, so it will no longer be able to maintain a monopoly on tooth whitening in North Carolina. That makes it clearly a good result for non-dentist teeth whiteners and their customers. Whether is it also a good result for economic liberty more generally, however, is less clear.

The Court’s decision makes it easier for federal law enforcement agencies to pursue antitrust actions against state licensing boards, which could be a good thing. Such boards engage in a lot of unfair and inefficient monopolistic practices, and they ought to be stopped. However, state licensing boards will still be eligible for state actor immunity if they can show that their activities implement "clearly articulated and affirmatively expressed…state policy" or are "actively supervised by the State." Creative bureaucrats and lawyers shouldn’t have too much difficulty with that.

Moreover, as the dissent rightly points out, to reach its decision the Court had to run roughshod over principles of federalism and states’ rights. In this particular instance, empowering the FTC at the expense of the State Board has lead to a good outcome, but whether such a shift in power will enhance economic liberty in the long run is uncertain. The agencies that enforce federal antitrust policy don’t have a particularly good track record on that score. In fact, as Dominick Armentano and others have shown, far from promoting free enterprise, federal antitrust enforcement has generally had the effect of fostering and protecting industry cartels.

Economic rights

If we can’t rely on federal antitrust law to protect our economic rights, on what can we rely? Clint Bolick and others have suggested that we ought to be able to rely on the first section of the Fourteenth Amendment of the U.S. Constitution:

No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Unfortunately, the Supreme Court has not agreed. Instead it has followed a precedent set just five years after the 14th Amendment was passed.

In 1873, the Court resolved what became known as the "Slaughter-House" Cases in which hundreds of Louisiana butchers challenged a slaughterhouse monopoly established under state law. In language that would no doubt resonate with non-dentists teeth whiteners in the 21st century, those 19th century butchers denounced the law "not only as creating a monopoly and conferring odious and exclusive privileges upon a small number of persons at the expense of the great body of the community" but also for depriving "a large and meritorious class of citizens…of the right to exercise their trade." Relying on the 14th Amendment, the butchers claimed that the monopoly abridged their privileges and immunities and violated their rights to due process and equal protection. The Court was not persuaded. It ruled against them, and, ever since, the Slaughter-House cases have stood for the principle that the Constitution does not protect economic rights.

Still, there are reasons to hope the Slaughter-House precedent may eventually be overturned. Much has changed since 1873 in the way the Court interprets the 14th Amendment, and the Court now holds that it protects a great many rights, including reproductive rights and the right to privacy. There is no obvious reason why it should not be held to protect economic rights as well, including the right to earn an honest living, and public interest lawyers at places like the Institute for Justice, the Cato Institute, and the Pacific Legal Foundation have been working hard for years to make that happen. When N.C. Board of Dental Examiners v. FTC reached the Supreme Court, these and other free-market supporters filed amicus briefs, and there is some reason to think these briefs had an effect. As Jon Sanders notes, all nine justices — the six who made up the majority and the three who joined the dissent — took judicial notice of the fact that state licensing laws are often used, not to protect the public, but to promote the interests of licensed professionals. This is very encouraging and suggests that at least some of those justices may eventually come around to the idea that economic rights deserve the same kind of Constitutional protection that has already extended to reproductive and privacy rights.

The Supreme Court’s decision in N.C. Board of Dental Examiners v. FTC is at best a short step on the long road towards a legal system that fully protects our economic rights. For the time being, we must continue to defend economic freedom at the grass-roots level. And, as Jon suggests, one way of doing that is to encourage our political leaders to rethink North Carolina’s professional licensure laws.

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Jon Guze is Senior Fellow in Legal Studies at the John Locke Foundation. Before joining the John Locke Foundation, Jon practiced law in Durham, North Carolina for over 20 years. He received a J.D., with honors, from Duke Law School… ...

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