Court Case Sets Federal Regulators against State Licensing Boards

Published November 3, 2014

The Supreme Court of the United States (SCOTUS) has begun hearing arguments in a case setting federal regulators against a North Carolina trade organization empowered with state authority. The case, North Carolina Board of Dental Examiners v. Federal Trade Commission, would decide whether state regulatory boards are exempt from federal anti-monopoly regulations.

In the U.S. Court of Appeals for the Fourth Circuit, the state-sponsored regulatory board initially challenged a 2010 administrative order from the FTC, claiming that preventing unlicensed entrepreneurs from performing teeth-whitening services was a proper use of its power.

Years-Long Dispute
Beginning in 2003, the North Carolina Board of Dental Examiners began cracking down on the perceived threat of unlicensed individuals performing teeth-whitening services. In 2011, the board was instructed to cease its hunt for unlicensed hygienists within the Tarheel State, but it has been appealing that order for years.

Federal regulators argued that the state regulatory board’s actions were tantamount to “colluding to exclude non-dentists from competing with dentists in the provision of teeth whitening services,” actions which served only to “prevent and deter non-dentists from providing or expanding teeth whitening services, increase prices and reduce consumer choice without any legitimate justification or defense.”

Unsuccessfully arguing that preventing prospective entrants from competing against their colleagues was an appropriate use of state power, the North Carolina Board of Dental Examiners appealed the decision, claiming the FTC was unfairly “questioning the defendants’ actual motives versus their potential motives” by suggesting a board of dentists might wish to enact regulations that benefit their colleagues.

The board also argued, “it does not matter that a state agency’s officials are market participants” benefitting from their regulatory power, adding, “it also does not matter that those officials are elected to office by other market participants” who would likewise benefit from keeping entrepreneurs from competing against them.

Economic Self-Interest
Before the Supreme Court, the board continued this line of argument, claiming state law actually requires the dentists’ board to issue cease-and-desist orders against their upstart competitors.

Federal regulators, however, argued a “body dominated by market participants can be expected to ‘foster anticompetitive practices for the benefit of its members,'” as such a board “consists chiefly of active market participants who are economically affected by competitive threats from new entrants into the markets they serve.”

State regulatory boards such as the North Carolina Board of Dental Examiners, the FTC argued in its brief, are more akin to private trade associations than “to a municipality or traditional state regulatory agency,” as members are not appointed by the government but elected by fellow members of the trade.

The board’s “members are economically self-interested private actors — dentists competing in the same market they regulate,” the federal government’s brief argues. “And, like the board members of a private trade association that may govern its members’ conduct to some extent, petitioner’s members are largely accountable to their fellow market participants rather than to the State.”

“To me, that’s of some significance, because it indicates that—clearly—they have the economic interest of the dentists at heart,” Heritage Foundation Senior Legal Fellow Alden Abbott said. “There are lots of health and safety regulations that they have every reason to promulgate, but—to my knowledge of this case—there was no absolutely no evidence and no complaints of any consumer harm from these sort of storefront dental whitening clinics.”

Guild Law
In oral arguments before the Supreme Court, Deputy Solicitor General Malcolm Stewart also pointed out “the board members, the majority of them at least, are required to be practicing dentists, they have an evident self­interest in the manner in which the dental profession is regulated and in regulations that might keep other people from competing with dentists.

“That natural self­interest is reinforced by the method of selection,” Stewart added, during his October 14 testimony. “North Carolina law provides that the members of this dental board will be selected not by the governor or by the public, but by the community of dentists.”

In February 2014, University of Minnesota public policy professor Morris M. Kleiner analyzed the economic consequences of occupational licensing laws, such as those in North Carolina.

Noting such “capturing” of regulatory power “could reduce access to health services among some segments of the population,” Kleiner’s study found “more restrictive state licensing practices increase the costs of medical care, change wages and employment patterns, and do not appear to influence health care quality.”

According to Walter Olson, senior fellow at the Cato Institute’s Center for Constitutional Studies, “the not-so-hidden secret about occupational licensure laws is that they enable incumbent providers to protect their own incomes by locking newcomers and competitors out of markets by artificial government force.”

Abbott agreed with Kleiner and Olson’s respective analyses, noting licensing requirements like those in North Carolina tend to hurt “poor consumers, who have to pay higher prices,” as well as small businesses.

“There’s a lot of evidence that these regulations have been enacted at the behest of existing firms, to prevent new competitors from entering. This hurts small businesses; it prevents them—for no good reason—from getting started.”

William Todd ([email protected]) writes from Columbus, Ohio.

Internet Info:
“Relaxing Occupational Licensing Requirements: Analyzing Wages and Prices for a Medical Service,” Morris M. Kleiner, National Bureau of Economic Research: