North Carolina State Board of Dental Examiners v. FTC

NOTICE: This opinion is subject to formal revision before
publication in the preliminary print of the United States
Reports. Readers are requested to notify the Reporter of Decisions,
Supreme Court of the United States, Washington, D. C. 20543,
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															SUPREME COURT OF THE UNITED STATES

															_________________

															No. 13–534

															_________________

															NORTH CAROLINA STATE BOARD OF DENTAL EXAMINERS, PETITIONER v. FEDERAL TRADE COMMISSION

															on writ of certiorari to the united states court of appeals for
the fourth circuit

															[February 25, 2015]

															Justice Kennedy delivered the opinion of the Court.

															This case arises from an antitrust challenge to the actions of a
state regulatory board. A majority of the board’s members are
engaged in the active practice of the profession it regulates. The
question is whether the board’s actions are protected from Sherman
Act regulation under the doctrine of state-action antitrust
immunity, as defined and applied in this Court’s decisions
beginning with Parker v. Brown ,317 U. S. 341
(1943).

															I

															A

															In its Dental Practice Act (Act), North Carolina has declared
the practice of dentistry to be a matter of public concern
requiring regulation. N. C. Gen. Stat. Ann. §90–22(a) (2013).
Under the Act, the North Carolina State Board of Dental Examiners
(Board) is “the agency of the State for the regulation of the
practice of dentistry.” §90–22(b).

															The Board’s principal duty is to create, administer, and enforce
a licensing system for dentists. See §§90–29 to 90–41. To perform
that function it has broad authority over licensees. See §90–41.
The Board’s authority with respect to unlicensed persons, however,
is more restricted: like “any resident citizen,” the Board may file
suit to “perpetually enjoin any person from . . .
unlawfully practicing dentistry.” §90–40.1.

															The Act provides that six of the Board’s eight members must be
licensed dentists engaged in the active practice of dentistry.
§90–22. They are elected by other licensed dentists in North
Carolina, who cast their ballots in elections conducted by the
Board. Ibid. The seventh member must be a licensed and
practicing dental hygienist, and he or she is elected by other
licensed hygienists. Ibid. The final member is referred to
by the Act as a “consumer” and is appointed by the Governor. Ibid. All members serve 3-year terms, and no person may
serve more than two consecutive terms. Ibid. The Act does
not create any mechanism for the removal of an elected member of
the Board by a public official. See ibid. Board members swear an oath of office, §138A–22(a), and the
Board must comply with the State’s Administrative Procedure Act,
§150B–1 et seq. , Public Records Act, §132–1 et seq. , and open-meetings law, §143–318.9 et seq. The Board may promulgate rules and regulations
governing the practice of dentistry within the State, provided
those mandates are not inconsistent with the Act and are approved
by the North Carolina Rules Review Commission, whose members are
appointed by the state legislature. See §§90–48, 143B–30.1,
150B–21.9(a).

															B

															In the 1990’s, dentists in North Carolina started whitening
teeth. Many of those who did so, including 8 of the Board’s 10
members during the period at issue in this case, earned substantial
fees for that service. By 2003, nondentists arrived on the scene.
They charged lower prices for their services than the dentists did.
Dentists soon began to complain to the Board about their new
competitors. Few complaints warned of possible harm to consumers.
Most expressed a principal concern with the low prices charged by
nondentists.

															Responding to these filings, the Board opened an investigation
into nondentist teeth whitening. A dentist member was placed in
charge of the inquiry. Neither the Board’s hygienist member nor its
consumer member participated in this undertaking. The Board’s chief
operations officer remarked that the Board was “going forth to do
battle” with nondentists. App. to Pet. for Cert. 103a. The Board’s
concern did not result in a formal rule or regulation reviewable by
the independent Rules Review Commission, even though the Act does
not, by its terms, specify that teeth whitening is “the practice of
dentistry.”

															Starting in 2006, the Board issued at least 47 cease-and-desist
letters on its official letterhead to nondentist teeth whitening
service providers and product manufacturers. Many of those letters
directed the recipient to cease “all activity constituting the
practice of dentistry”; warned that the unlicensed practice of
dentistry is a crime; and strongly implied (or expressly stated)
that teeth whitening constitutes “the practice of dentistry.” App.
13, 15. In early 2007, the Board persuaded the North Carolina Board
of Cosmetic Art Examiners to warn cosmetologists against providing
teeth whitening services. Later that year, the Board sent letters
to mall operators, stating that kiosk teeth whiteners were
violating the Dental Practice Act and advising that the malls
consider expelling violators from their premises.

															These actions had the intended result. Nondentists ceased
offering teeth whitening services in North Carolina.

															C

															In 2010, the Federal Trade Commission (FTC) filed an
administrative complaint charging the Board with violating §5 of
the Federal Trade Commission Act,38Stat.719, as amended,15
U. S. C. §45. The FTC alleged that the Board’s concerted
action to exclude nondentists from the market for teeth whitening
services in North Carolina constituted an anticompetitive and
unfair method of competition. The Board moved to dismiss, alleging
state-action immunity. An Administrative Law Judge (ALJ) denied the
motion. On appeal, the FTC sustained the ALJ’s ruling. It reasoned
that, even assuming the Board had acted pursuant to a clearly
articulated state policy to displace competition, the Board is a
“public/private hybrid” that must be actively supervised by the
State to claim immunity. App. to Pet. for Cert. 49a. The FTC
further concluded the Board could not make that showing.

															Following other proceedings not relevant here, the ALJ conducted
a hearing on the merits and determined the Board had unreasonably
restrained trade in violation of antitrust law. On appeal, the FTC
again sustained the ALJ. The FTC rejected the Board’s public safety
justification, noting, inter alia , “a wealth of evidence
. . . suggesting that non-dentist provided teeth
whitening is a safe cosmetic procedure.” Id., at 123a.

															The FTC ordered the Board to stop sending the cease-and-desist
letters or other communications that stated nondentists may not
offer teeth whitening services and products. It further ordered the
Board to issue notices to all earlier recipients of the Board’s
cease-and-desist orders advising them of the Board’s proper sphere
of authority and saying, among other options, that the notice
recipients had a right to seek declaratory rulings in state
court.

															On petition for review, the Court of Appeals for the Fourth
Circuit affirmed the FTC in all respects. 717 F. 3d 359, 370
(2013). This Court granted certiorari. 571 U. S. ___
(2014).

															II

															Federal antitrust law is a central safeguard for the Nation’s
free market structures. In this regard it is “as important to the
preservation of economic freedom and our free-enterprise system as
the Bill of Rights is to the protection of our fundamental personal
freedoms.” United States v. Topco Associates,
Inc. ,405 U. S. 596,610 (1972). The antitrust laws declare
a considered and decisive prohibition by the Federal Government of
cartels, price fixing, and other combinations or practices that
undermine the free market.

															The Sherman Act,26Stat.209, as amended,15 U. S. C. §1 et seq. , serves to promote robust competition, which in
turn empowers the States and provides their citizens with
opportunities to pursue their own and the public’s welfare. See FTC v. Ticor Title Ins. Co. ,504 U. S. 621,632
(1992). The States, however, when acting in their respective realm,
need not adhere in all contexts to a model of unfettered
competition. While “the States regulate their economies in many
ways not inconsistent with the antitrust laws,” id., at
635–636, in some spheres they impose restrictions on occupations,
confer exclusive or shared rights to dominate a market, or
otherwise limit competition to achieve public objectives. If every
duly enacted state law or policy were required to conform to the
mandates of the Sherman Act, thus promoting competition at the
expense of other values a State may deem fundamental, federal
antitrust law would impose an impermissible burden on the States’
power to regulate. See Exxon Corp. v. Governor of
Maryland ,437 U. S. 117,133 (1978); see also Easterbrook,
Antitrust and the Economics of Federalism, 26 J. Law &
Econ. 23, 24 (1983).

															For these reasons, the Court in Parker v. Brown interpreted the antitrust laws to confer immunity on
anticompetitive conduct by the States when acting in their
sovereign capacity. See 317 U. S., at 350–351. That ruling
recognized Congress’ purpose to respect the federal balance and to
“embody in the Sherman Act the federalism principle that the States
possess a significant measure of sovereignty under our
Constitution.” Community Communications Co. v. Boulder ,455 U. S. 40,53 (1982). Since 1943, the Court
has reaffirmed the importance of Parker ’s central holding.
See, e.g., Ticor , supra , at 632–637; Hoover v. Ronwin ,466 U. S. 558,568 (1984); Lafayette v. Louisiana Power & Light Co. ,435 U. S. 389–400
(1978).

															III

															In this case the Board argues its members were invested by North
Carolina with the power of the State and that, as a result, the
Board’s actions are cloaked with Parker immunity. This
argument fails, however. A nonsovereign actor controlled by active
market participants—such as the Board—enjoys Parker immunity
only if it satisfies two requirements: “first that ‘the challenged
restraint . . . be one clearly articulated and
affirmatively expressed as state policy,’ and second that ‘the
policy . . . be actively supervised by the State.’ ” FTC v. Phoebe Putney Health System, Inc. , 568
U. S. ___, ___ (2013) (slip op., at 7) (quoting California
Retail Liquor Dealers Assn. v . Midcal Aluminum, Inc., 445 U. S. 97,105 (1980)). The parties have assumed that the
clear articulation requirement is satisfied, and we do the same.
While North Carolina prohibits the unauthorized practice of
dentistry, however, its Act is silent on whether that broad
prohibition covers teeth whitening. Here, the Board did not receive
active super-vision by the State when it interpreted the Act as
ad-dressing teeth whitening and when it enforced that policy by
issuing cease-and-desist letters to nondentist teeth whiteners.

															A

															Although state-action immunity exists to avoid conflicts between
state sovereignty and the Nation’s commitment to a policy of robust
competition, Parker immunity is not unbounded. “[G]iven 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 , supra , at ___
(slip op., at 7) (quoting Ticor , supra, at 636).

															An entity may not invoke Parker immunity unless the
actions in question are an exercise of the State’s sovereign power.
See Columbia v. Omni Outdoor Advertising, Inc. ,499
U. S. 365,374 (1991). State legislation and “decision[s] of a
state supreme court, acting legislatively rather than judicially,”
will satisfy this standard, and “ ipso facto are exempt from
the operation of the antitrust laws” because they are an undoubted
exercise of state sovereign authority. Hoover , supra ,
at 567–568.

															But while the Sherman Act confers immunity on the States’ own
anticompetitive policies out of respect for federalism, it does not
always confer immunity where, as here, a State delegates control
over a market to a non-sovereign actor. See Parker , supra, at 351 (“[A] state does not give immunity to those
who violate the Sherman Act by authorizing them to violate it, or
by declaring that their action is lawful”). For purposes of Parker , a nonsovereign actor is one whose conduct does not
automatically qualify as that of the sovereign State itself. See Hoover , supra , at 567–568. State agencies are not
simply by their governmental character sovereign actors for
purposes of state-action immunity. See Goldfarb v. Virginia State Bar ,421 U. S. 773,791 (1975) (“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”).
Immunity for state agencies, therefore, requires more than a mere
facade of state involvement, for it is necessary in light of Parker ’s rationale to ensure the States accept political
accountability for anticompetitive conduct they permit and control.
See Ticor , 504 U. S., at 636.

															Limits on state-action immunity are most essential when the
State seeks to delegate its regulatory power to active market
participants, for established ethical standards may blend with
private anticompetitive motives in a way difficult even for market
participants to discern. Dual allegiances are not always apparent
to an actor. In consequence, active market participants cannot be
allowed to regulate their own markets free from antitrust
account-ability. See Midcal , supra , at 106 (“The
national policy in favor of competition cannot be thwarted by
casting [a] gauzy cloak of state involvement over what is
essentially a private price-fixing arrangement”). Indeed,
prohibitions against anticompetitive self-regulation by active
market participants are an axiom of federal antitrust policy. See, e.g., Allied Tube & Conduit Corp. v. Indian
Head, Inc. ,486 U. S. 492,501 (1988); Hoover , supra , at 584 (Stevens, J., dissenting) (“The risk that
private regulation of market entry, prices, or output may be
designed to confer monop-oly profits on members of an industry at
the expense of the consuming public has been the central concern of
. . . our antitrust jurisprudence”); see also Elhauge,
The Scope of Antitrust Process, 104 Harv. L. Rev. 667, 672
(1991). So it follows that, under Parker and the Supremacy
Clause, the States’ greater power to attain an end does not include
the lesser power to negate the congressional judgment embodied in
the Sherman Act through unsupervised delegations to active market
participants. See Garland, Antitrust and State Action: Economic
Efficiency and the Political Process, 96 Yale L. J. 486, 500
(1986). Parker immunity requires that the anticompetitive conduct
of nonsovereign actors, especially those authorized by the State to
regulate their own profession, result from procedures that suffice
to make it the State’s own. See Goldfarb, supra , at 790; see
also 1A P. Areeda & H. Hovencamp, Antitrust Law ¶226, p. 180
(4th ed. 2013) (Areeda & Hovencamp). The question is not
whether the challenged conduct is efficient, well-functioning, or
wise. See Ticor , supra , at 634–635. Rather, it is
“whether anticompetitive conduct engaged in by [nonsovereign
actors] should be deemed state action and thus shielded from the
antitrust laws.” Patrick v. Burget ,486 U. S.
94,100 (1988).

															To answer this question, the Court applies the two-part test set
forth in California Retail Liquor Dealers Assn. v. Midcal
Aluminum, Inc. ,445 U. S. 97, a case arising from
California’s delegation of price-fixing authority to wine
merchants. Under Midcal , “[a] state law or regulatory scheme
cannot be the basis for antitrust immunity unless, first, the State
has articulated a clear policy to allow the anticompetitive
conduct, and second, the State provides active supervision of [the]
anticompetitive conduct.” Ticor , supra , at 631
(citing Midcal , supra , at 105). Midcal ’s clear articulation requirement is satisfied
“where the displacement of competition [is] the inherent, logical,
or ordinary result of the exercise of authority delegated by the
state legislature. In that scenario, the State must have foreseen
and implicitly endorsed the anticompetitive effects as consistent
with its policy goals.” Phoebe Putney , 568 U. S., at
___ (slip op., at 11). The active supervision requirement demands, inter alia , “that state officials have and exercise power to
review particular anticompetitive acts of private parties and
disapprove those that fail to accord with state policy.” Patrick , supra , U. S., at 101.

															The two requirements set forth in Midcal provide a proper
analytical framework to resolve the ultimate question whether an
anticompetitive policy is indeed the policy of a State. The first
requirement—clear articulation—rarely will achieve that goal by
itself, for a policy may satisfy this test yet still be defined at
so high a level of generality as to leave open critical questions
about how and to what extent the market should be regulated. See Ticor , supra , at 636–637. Entities purporting to act
under state authority might diverge from the State’s considered
definition of the public good. The resulting asymmetry between a
state policy and its implementation can invite private
self-dealing. The second Midcal requirement—active
supervision—seeks to avoid this harm by requiring the State to
review and approve interstitial policies made by the entity
claiming immunity. Midcal ’s supervision rule “stems from the recognition
that ‘[w]here a private party is engaging in anticompetitive
activity, there is a real danger that he is acting to further his
own interests, rather than the governmental interests of the
State.’ ” Patrick , supra , at 100. Concern about
the private incentives of active market participants animates Midcal ’s supervision mandate, which demands “realistic
assurance that a private party’s anticompetitive conduct promotes
state policy, rather than merely the party’s individual interests.” Patrick , supra , at 101.

															B

															In determining whether anticompetitive policies and conduct are
indeed the action of a State in its sovereign capacity, there are
instances in which an actor can be excused from Midcal ’s
active supervision requirement. In Hallie v. Eau
Claire , 471 U. S. 34 , 45 (1985), the Court held
municipalities are subject exclusively to Midcal ’s
“ ‘clear articulation’ ” requirement. That rule, the
Court observed, is consistent with the objective of ensuring that
the policy at issue be one enacted by the State itself. Hallie explained that “[w]here the actor is a municipality,
there is little or no danger that it is involved in a private
price-fixing arrangement. The only real danger is that it will seek
to further purely parochial public interests at the expense of more
overriding state goals.” 471 U. S., at 47. Hallie further observed that municipalities are electorally accountable
and lack the kind of private incentives characteristic of active
participants in the market. See id., at 45, n. 9.
Critically, the municipality in Hallie exercised a wide
range of governmental powers across different economic spheres,
substantially reducing the risk that it would pursue private
interests while regulating any single field. See ibid. That Hallie excused municipalities from Midcal ’s
supervision rule for these reasons all but confirms the rule’s
applicability to actors controlled by active market participants,
who ordinarily have none of the features justifying the narrow
exception Hallie identified. See 471 U. S., at 45.

															Following Goldfarb , Midcal , and Hallie ,
which clarified the conditions under which Parker immunity
attaches to the conduct of a nonsovereign actor, the Court in Columbia v. Omni Outdoor Advertising, Inc. ,499
U. S. 365, addressed whether an otherwise immune entity could
lose immunity for conspiring with private parties. In Omni ,
an aspiring billboard merchant argued that the city of Columbia,
South Carolina, had violated the Sherman Act—and forfeited its Parker immunity—by anticompetitively conspiring with an
established local company in passing an ordinance restricting new
billboard construction. 499 U. S., at 367–368. The Court
disagreed, holding there is no “conspiracy exception” to Parker . Omni, supra , at 374. Omni , like the cases before it, recognized the importance
of drawing a line “relevant to the purposes of the Sherman Act and
of Parker : prohibiting the restriction of competition for
private gain but permitting the restriction of competition in the
public interest.” 499 U. S., at 378. In the context of a
municipal actor which, as in Hallie , exercised substantial
governmental powers, Omni rejected a conspiracy exception
for “corruption” as vague and unworkable, since “virtually all
regulation benefits some segments of the society and harms others”
and may in that sense be seen as “ ‘corrupt.’ ” 499
U. S., at 377. Omni also rejected subjective tests for
corruption that would force a “deconstruction of the governmental
process and probing of the official ‘intent’ that we have
consistently sought to avoid.” Ibid. Thus, whereas the cases
preceding it addressed the preconditions of Parker immunity
and engaged in an objective, ex ante inquiry into
nonsovereign actors’ structure and incentives, Omni made
clear that recipients of immunity will not lose it on the basis of
ad hoc and ex post questioning of their motives
for making particular decisions. Omni ’s holding makes it all the more necessary to ensure
the conditions for granting immunity are met in the first place.
The Court’s two state-action immunity cases decided after Omni reinforce this point. In Ticor the Court
affirmed that Midcal ’s limits on delegation must ensure that
“[a]ctual state involvement, not deference to private price-fixing
arrangements under the general auspices of state law, is the
precondition for immunity from federal law.” 504 U. S., at
633. And in Phoebe Putney the Court observed that Midcal ’s active supervision requirement, in particular, is
an essential condition of state-action immunity when a nonsovereign
actor has “an incentive to pursue [its] own self-interest under the
guise of implementing state policies.” 568 U. S., at ___ (slip
op., at 8) (quoting Hallie , supra , at 46–47). The
lesson is clear: Midcal ’s active supervision test is an
essential prerequisite of Parker immunity for any
nonsovereign entity—public or private—controlled by active market
participants.

															C

															The Board argues entities designated by the States as agencies
are exempt from Midcal ’s second requirement. That premise,
however, cannot be reconciled with the Court’s repeated conclusion
that the need for supervision turns not on the formal designation
given by States to regulators but on the risk that active market
participants will pursue private interests in restraining
trade.

															State agencies controlled by active market participants, who
possess singularly strong private interests, pose the very risk of
self-dealing Midcal ’s supervision requirement was created to
address. See Areeda & Hovencamp ¶227, at 226. This conclusion
does not question the good faith of state officers but rather is an
assessment of the structural risk of market participants’ confusing
their own interests with the State’s policy goals. See Patrick , 486 U. S., at 100–101.

															The Court applied this reasoning to a state agency in Goldfarb . There the Court denied immunity to a state agency
(the Virginia State Bar) controlled by market participants
(lawyers) because the agency had “joined in what is essentially a
private anticompetitive activity” for “the benefit of its members.”
421 U. S., at 791, 792. This emphasis on the Bar’s private
interests explains why Goldfarb , though it predates Midcal , considered the lack of supervision by the Virginia
Supreme Court to be a principal reason for denying immunity. See
421 U. S., at 791; see also Hoover , 466 U. S., at
569 (emphasizing lack of active supervision in Goldfarb ); Bates v. State Bar of Ariz. ,433 U. S. 350–362
(1977) (granting the Arizona Bar state-action immunity partly
because its “rules are subject to pointed re-examination by the
policymaker”).

															While Hallie stated “it is likely that active state
supervision would also not be required” for agencies, 471
U. S., at 46, n. 10, the entity there, as was later the
case in Omni , was an electorally accountable municipality
with general regulatory powers and no private price-fixing agenda.
In that and other respects the municipality was more like
prototypical state agencies, not specialized boards dominated by
active market participants. In important regards, agencies
controlled by market participants are more similar to private trade
associations vested by States with regulatory authority than to the
agencies Hallie considered. And as the Court observed three
years after Hallie , “[t]here is no doubt that the members of
such associations often have economic incentives to restrain
competition and that the product standards set by such associations
have a serious potential for anticompetitive harm.” Allied
Tube , 486 U. S., at 500. For that reason, those
associations must satisfy Midcal ’s active supervision
standard. See Midcal , 445 U. S., at 105–106.

															The similarities between agencies controlled by active market
participants and private trade associations are not eliminated
simply because the former are given a formal designation by the
State, vested with a measure of government power, and required to
follow some procedural rules. See Hallie , supra , at
39 (rejecting “purely formalistic” analysis). Parker immunity does not derive from nomenclature alone. When a State
empowers a group of active market participants to decide who can
participate in its market, and on what terms, the need for
supervision is manifest. See Areeda & Hovencamp ¶227, at 226.
The Court holds today that a state board on which a controlling
number of decisionmakers are active market participants in the
occupation the board regulates must satisfy Midcal ’s active
supervision requirement in order to invoke state-action antitrust
immunity.

															D

															The State argues that allowing this FTC order to stand will
discourage dedicated citizens from serving on state agencies that
regulate their own occupation. If this were so—and, for reasons to
be noted, it need not be so—there would be some cause for concern.
The States have a sovereign interest in structuring their
governments, see Gregory v. Ashcroft ,501 U. S.
452,460 (1991), and may conclude there are substantial benefits to
staffing their agencies with experts in complex and technical
subjects, see Southern Motor Carriers Rate Conference, Inc. v. United States ,471 U. S. 48,64 (1985). There is,
moreover, a long tradition of citizens esteemed by their
professional colleagues devoting time, energy, and talent to
enhancing the dignity of their calling.

															Adherence to the idea that those who pursue a calling must
embrace ethical standards that derive from a duty separate from the
dictates of the State reaches back at least to the Hippocratic
Oath. See generally S. Miles, The Hippocratic Oath and the Ethics
of Medicine (2004). In the United States, there is a strong
tradition of professional self-regulation, particularly with
respect to the development of ethical rules. See generally R.
Rotunda & J. Dzienkowski, Legal Ethics: The Lawyer’s Deskbook
on Professional Responsibility (2014); R. Baker, Before Bioethics:
A History of American Medical Ethics From the Colonial Period to
the Bioethics Revolution (2013). Dentists are no exception. The
American Dental Association, for example, in an exercise of “the
privilege and obligation of self-government,” has “call[ed] upon
dentists to follow high ethical standards,” including “honesty,
compassion, kindness, integrity, fairness and charity.” American
Dental Association, Principles of Ethics and Code of Professional
Conduct 3–4 (2012). State laws and institutions are sustained by
this tradition when they draw upon the expertise and commitment of
professionals.

															Today’s holding is not inconsistent with that idea. The Board
argues, however, that the potential for money damages will
discourage members of regulated occupations from participating in
state government. Cf. Filarsky v. Delia , 566
U. S. ___, ___ (2012) (slip op., at 12) (warning in the
context of civil rights suits that the “the most talented
candidates will decline public engagements if they do not receive
the same immunity enjoyed by their public employee counterparts”).
But this case, which does not present a claim for money damages,
does not offer occasion to address the question whether agency
officials, including board members, may, under some circumstances,
enjoy immunity from damages liability. See Goldfarb , 421
U. S., at 792, n. 22; see also Brief for Respondent 56. And,
of course, the States may provide for the defense and
indemnification of agency members in the event of litigation.

															States, furthermore, can ensure Parker immunity is
available to agencies by adopting clear policies to displace
competition; and, if agencies controlled by active market
participants interpret or enforce those policies, the States may
provide active supervision. Precedent confirms this principle. The
Court has rejected the argument that it would be unwise to apply
the antitrust laws to professional regulation absent compliance
with the prerequisites for invoking Parker immunity:

															“[Respondents] contend that effective peer review is essential
to the provision of quality medical care and that any threat of
antitrust liability will prevent physicians from participating
openly and actively in peer-review proceedings. This argument,
however, essentially challenges the wisdom of applying the
antitrust laws to the sphere of medical care, and as such is
properly directed to the legislative branch. To the extent that
Congress has declined to exempt medical peer review from the reach
of the antitrust laws, peer review is immune from antitrust
scrutiny only if the State effectively has made this conduct its
own.” Patrick , 486 U. S. at 105–106 (footnote
omitted).

															The reasoning of Patrick v. Burget applies to this
case with full force, particularly in light of the risks licensing
boards dominated by market participants may pose to the free
market. See generally Edlin & Haw, Cartels by Another Name:
Should Licensed Occupations Face Antitrust Scrutiny? 162
U. Pa. L. Rev. 1093 (2014).

															E

															The Board does not contend in this Court that its
anticompetitive conduct was actively supervised by the State or
that it should receive Parker immunity on that basis.

															By statute, North Carolina delegates control over the practice
of dentistry to the Board. The Act, however, says nothing about
teeth whitening, a practice that did not exist when it was passed.
After receiving complaints from other dentists about the
nondentists’ cheaper services, the Board’s dentist members—some of
whom offered whitening services—acted to expel the dentists’
competitors from the market. In so doing the Board relied upon
cease-and-desist letters threatening criminal liability, rather
than any of the powers at its disposal that would invoke oversight
by a politically accountable official. With no active supervision
by the State, North Carolina officials may well have been unaware
that the Board had decided teeth whitening constitutes “the
practice of dentistry” and sought to prohibit those who competed
against dentists from participating in the teeth whitening market.
Whether or not the Board exceeded its powers under North Carolina
law, cf. Omni , 499 U. S., at 371–372, there is no
evidence here of any decision by the State to initiate or concur
with the Board’s actions against the nondentists.

															IV

															The Board does not claim that the State exercised active, or
indeed any, supervision over its conduct regarding nondentist teeth
whiteners; and, as a result, no specific supervisory systems can be
reviewed here. It suffices to note that the inquiry regarding
active supervision is flexible and context-dependent. Active
supervision need not entail day-to-day involvement in an agency’s
operations or micromanagement of its every decision. Rather, the
question is whether the State’s review mechanisms provide
“realistic assurance” that a nonsovereign actor’s anticompetitive
conduct “promotes state policy, rather than merely the party’s
individual interests.” Patrick , supra, at 100–101;
see also Ticor , 504 U. S., at 639–640.

															The Court has identified only a few constant requirements of
active supervision: The supervisor must review the substance of the
anticompetitive decision, not merely the procedures followed to
produce it, see Patrick , 486 U. S., at 102–103; the
supervisor must have the power to veto or modify particular
decisions to ensure they accord with state policy, see ibid. ; and the “mere potential for state supervision is not
an adequate substitute for a decision by the State,” Ticor , supra , at 638. Further, the state supervisor may not itself
be an active market participant. In general, however, the adequacy
of supervision otherwise will depend on all the circumstances of a
case.

															*  *  *

															The Sherman Act protects competition while also respecting
federalism. It does not authorize the States to abandon markets to
the unsupervised control of active market participants, whether
trade associations or hybrid agencies. If a State wants to rely on
active market participants as regulators, it must provide active
supervision if state-action immunity under Parker is to be
invoked.

															The judgment of the Court of Appeals for the Fourth Circuit is
affirmed.

															It is so ordered. SUPREME COURT OF THE UNITED STATES

															_________________

															No. 13–534

															_________________

															NORTH CAROLINA STATE BOARD OF DENTAL EXAMINERS, PETITIONER v. FEDERAL TRADE COMMISSION

															on writ of certiorari to the united states court of appeals for
the fourth circuit

															[February 25, 2015]

															Justice Alito, with whom Justice Scalia and Justice Thomas join,
dissenting.

															The Court’s decision in this case is based on a serious
misunderstanding of the doctrine of state-action antitrust immunity
that this Court recognized more than 60 years ago in Parker v. Brown , 317 U. S. 341 (1943) . In Parker , the
Court held that the Sherman Act does not prevent the States from
continuing their age-old practice of enacting measures, such as
licensing requirements, that are designed to protect the public
health and welfare. Id ., at 352. The case now before us
involves precisely this type of state regulation North Carolina’s
laws governing the practice of dentistry, which are administered by
the North Carolina Board of Dental Examiners (Board).

															Today, however, the Court takes the unprecedented step of
holding that Parker does not apply to the North Caro-lina
Board because the Board is not structured in a way that merits a
good-government seal of approval; that is, it is made up of
practicing dentists who have a financial incentive to use the
licensing laws to further the financial interests of the State’s
dentists. There is nothing new about the structure of the North
Carolina Board. When the States first created medical and dental
boards, well before the Sherman Act was enacted, they began to
staffthem in this way.[ 1 ] Nor is there anything
new about the suspicion that the North Carolina Board—in attempting
to prevent persons other than dentists from performing
teeth-whitening procedures—was serving the interests of dentists
and not the public. Professional and occupational licensing
requirements have often been used in such a way.[ 2 ] But that is not what Parker immunity is about.
Indeed, the very state program involved in that case was
unquestionably designed to benefit the regulated entities,
California raisin growers.

															The question before us is not whether such programs serve the
public interest. The question, instead, is whether this case is
controlled by Parker , and the answer to that question is
clear. Under Parker , the Sherman Act (and the Federal Trade
Commission Act, see FTC v. Ticor Title Ins. Co. ,504
U. S. 621,635 (1992)) do not apply to state agencies; the
North Carolina Board of Dental Examiners is a state agency; and
that is the end of the matter. By straying from this simple path,
the Court has not only distorted Parker ; it has headed into
a morass. Determining whether a state agency is structured in a way
that militates against regulatory capture is no easy task, and
there is reason to fear that today’s decision will spawn confusion.
The Court has veered off course, and therefore I cannot go
along.

															I

															In order to understand the nature of Parker state-action
immunity, it is helpful to recall the constitutional landscape in
1890 when the Sherman Act was enacted. At that time, this Court and
Congress had an understanding of the scope of federal and state
power that is very different from our understanding today. The
States were understood to possess the exclusive authority to
regulate “their purely internal affairs.” Leisy v. Hardin ,135 U. S. 100,122 (1890). In exercising their
police power in this area, the States had long enacted measures,
such as price controls and licensing requirements, that had the
effect of restraining trade.[ 3 ]

															The Sherman Act was enacted pursuant to Congress’ power to
regulate interstate commerce, and in passing the Act, Congress
wanted to exercise that power “to the utmost extent.” United
States v. South-Eastern Underwriters Assn. ,322
U. S. 533,558 (1944). But in 1890, the understanding of the
commerce power was far more limited than it is today. See, e.g., Kidd v. Pearson ,128 U. S. 1–18
(1888). As a result, the Act did not pose a threat to traditional
state regulatory activity.

															By 1943, when Parker was decided, however, the situation
had changed dramatically. This Court had held that the commerce
power permitted Congress to regulate even local activity if it
“exerts a substantial economic effect on interstate commerce.” Wickard v. Filburn ,317 U. S. 111,125 (1942).
This meant that Congress could regulate many of the matters that
had once been thought to fall exclusively within the jurisdiction
of the States. The new interpretation of the commerce power brought
about an expansion of the reach of the Sherman Act. See HospitalBuilding Co. v. Trustees of Rex Hospital ,425
U. S. 738,743, n.2 (1976) (“[D]ecisions by this Court have
permitted the reach of the Sherman Act to expand along with
expanding notions of congressional power”). And the expanded reach
of the Sherman Act raised an important question. The Sherman Act
does not expressly exempt States from its scope. Does that mean
that the Act applies to the States and that it potentially outlaws
many traditional state regulatory measures? The Court confronted
that question in Parker. In Parker , a raisin producer challenged the California
Agricultural Prorate Act, an agricultural price support program.
The California Act authorized the creation of an Agricultural
Prorate Advisory Commission (Commission) to establish marketing
plans for certain agricultural commodities within the State. 317
U. S., at 346–347. Raisins were among the regulated
commodities, and so the Commission established a marketing program
that governed many aspects of raisin sales, including the quality
and quantity of raisins sold, the timing of sales, and the price at
which raisins were sold. Id ., at 347–348. The Parker Court assumed that this program would have violated “the Sherman
Act if it were organized and made effective solely by virtue of a
contract, combination or conspiracy of private persons,” and the
Court also assumed that Congress could have prohibited a State from
creating a program like California’s if it had chosen to do so. Id ., at 350. Nevertheless, the Court concluded that the
California program did not violate the Sherman Act because the Act
did not circumscribe state regulatory power. Id ., at
351.

															The Court’s holding in Parker was not based on either the
language of the Sherman Act or anything in the legislative history
affirmatively showing that the Act was not meant to apply to the
States. Instead, the Court reasoned that “[i]n a dual system of
government in which, under the Constitution, the states are
sovereign, save only as Con-gress may constitutionally subtract
from their authority, an unexpressed purpose to nullify a state’s
control over its officers and agents is not lightly to be
attributed to Congress.” 317 U. S., at 351. For the Congress
that enacted the Sherman Act in 1890, it would have been a truly
radical and almost certainly futile step to attempt to prevent the
States from exercising their traditional regulatory authority, and
the Parker Court refused to assume that the Act was meant to
have such an effect.

															When the basis for the Parker state-action doctrine is
understood, the Court’s error in this case is plain. In 1890, the
regulation of the practice of medicine and dentistry was regarded
as falling squarely within the States’ sovereign police power. By
that time, many States had established medical and dental boards,
often staffed by doctors or dentists,[ 4 ] and had
given those boards the authority to confer and revoke
licenses.[ 5 ] This was quintessential police power
legislation, and although state laws were often challenged during
that era under the doctrine of substantive due process, the
licensing of medical professionals easily survived such assaults.
Just one year before the enactment of the Sherman Act, in Dent v. West Vir-ginia ,129 U. S. 114,128 (1889),
this Court rejected such a challenge to a state law requiring all
physicians to obtain a certificate from the state board of health
attesting to their qualifications. And in Hawker v. New
York ,170 U. S. 189,192 (1898), the Court reiterated that a
lawspecifying the qualifications to practice medicine was clearly a
proper exercise of the police power. Thus, the North Carolina
statutes establishing and specifying the powers of the State Board
of Dental Examiners represent precisely the kind of state
regulation that the Parker exemption was meant to
immunize.

															II

															As noted above, the only question in this case is whether the
North Carolina Board of Dental Examiners is really a state agency,
and the answer to that question is clearly yes.

															The North Carolina Legislature determined that the practice of
dentistry “affect[s] the public health, safety and welfare” of
North Carolina’s citizens and that therefore the profession should
be “subject to regulation and control in the public interest” in
order to ensure “that only qualified persons be permitted to
practice dentistry in the State.” N. C. Gen. Stat. Ann.
§90–22(a) (2013).

															To further that end, the legislature created the North Carolina
State Board of Dental Examiners “as the agency of the State for the
regulation of the practice of dentistry in th[e] State.”
§90–22(b).

															The legislature specified the membership of the Board.
§90–22(c). It defined the “practice of dentistry,” §90–29(b), and
it set out standards for licensing practitioners, §90–30. The
legislature also set out standards under which the Board can
initiate disciplinary proceedings against licensees who engage in
certain improper acts. §90–41(a).

															The legislature empowered the Board to “maintain an action in
the name of the State of North Carolina to perpetually enjoin any
person from . . . unlawfully practicing dentistry.”
§90–40.1(a). It authorized the Board to conduct investigations and
to hire legalcounsel, and the legislature made any “notice or
statement of charges against any licensee” a public record under
state law. §§ 90–41(d)–(g).

															The legislature empowered the Board “to enact rules and
regulations governing the practice of dentistry within the State,”
consistent with relevant statutes. §90–48. It has required that any
such rules be included in the Board’s annual report, which the
Board must file with the North Carolina secretary of state, the
state attorney general, and the legislature’s Joint Regulatory
Reform Committee. §93B–2. And if the Board fails to file the
required report, state law demands that it be automatically
suspended until it does so. Ibid .

															As this regulatory regime demonstrates, North Caro-lina’s Board
of Dental Examiners is unmistakably a state agency created by the
state legislature to serve a prescribed regulatory purpose and to
do so using the State’s power in cooperation with other arms of
state government.

															The Board is not a private or “nonsovereign” entity that the
State of North Carolina has attempted to immunize from federal
antitrust scrutiny. Parker made it clear that a State may
not “ ‘give immunity to those who violate the Sherman Act by
authorizing them to violate it, or by declaring that their action
is lawful.’ ” Ante, at 7 (quoting Parker , 317
U. S., at 351). When the Parker Court disapproved of
any such attempt, it cited Northern Securities Co. v. United States ,193 U. S. 197 (1904), to show what it had
in mind. In that case, the Court held that a State’s act of
chartering a corporation did not shield the corporation’s
monopolizing activities from federal antitrust law. Id ., at
344–345. Nothing similar is involved here. North Carolina did not
authorize a private entity to enter into an anticompetitive
arrangement; rather, North Carolina created a state agency and gave that agency the power to regulate a particular subject
affecting public health andsafety.

															Nothing in Parker supports the type of inquiry that the
Court now prescribes. The Court crafts a test under which state
agencies that are “controlled by active market participants,” ante , at 12, must demonstrate active state supervision in
order to be immune from federal antitrust law. The Court thus
treats these state agencies like private entities. But in Parker , the Court did not examine the structure of the
California program to determine if it had been captured by private
interests. If the Court had done so, the case would certainly have
come out differently, because California conditioned its regulatory
measures on the participation and approval of market actors in the
relevant industry.

															Establishing a prorate marketing plan under California’s law
first required the petition of at least 10 producers of the
particular commodity. Parker , 317 U. S., at 346. If the
Commission then agreed that a marketing plan was warranted, the
Commission would “select a program committee from among nominees
chosen by the qualified producers .” Ibid. (emphasis
added). That committee would then formulate the proration marketing
program, which the Commission could modify or approve. But even
after Commission approval, the program became law (and then,
automatically) only if it gained the approval of 65 percent of the
relevant producers, representing at least 51 percent of the acreage
of the regulated crop. Id ., at 347. This scheme gave
decisive power to market participants. But despite these aspects of
the California program, Parker held that California was
acting as a “sovereign” when it “adopt[ed] and enforc[ed] the
prorate program.” Id ., at 352. This reasoning is
irreconcilable with the Court’s today.

															III

															The Court goes astray because it forgets the origin of
the Parker doctrine and is misdirected by subsequent cases
that extended that doctrine (in certain circumstances) to private
entities. The Court requires the North Carolina Board to satisfy
the two-part test set out in California Retail Liquor Dealers
Assn. v. Midcal Aluminum, Inc. ,445 U. S. 97 (1980),
but the party claiming Parker immunity in that case was not
a state agency but a private trade association. Such an entity is
entitled to Parker immunity, Midcal held, only if the
anticompetitive conduct at issue was both “ ‘clearly
articulated’ ” and “ ‘actively supervised by the State
itself.’ ” 445 U. S., at 105. Those requirements are
needed where a State authorizes private parties to engage in
anticompetitive conduct. They serve to identify those situations in
which conduct by private parties can be regarded as the
conduct of a State. But when the conduct in question is the conduct
of a state agency, no such inquiry is required.

															This case falls into the latter category, and therefore Midcal is inapposite. The North Carolina Board is not a
private trade association. It is a state agency, created and
empowered by the State to regulate an industry affecting public
health. It would not exist if the State had not created it. And for
purposes of Parker , its membership is irrelevant; what
matters is that it is part of the government of the sovereign State
of North Carolina.

															Our decision in Hallie v. Eau Claire ,471
U. S. 34 (1985), which involved Sherman Act claims against a
municipal-ity, not a State agency, is similarly inapplicable. In Hallie, the plaintiff argued that the two-pronged Midcal test should be applied, but the Court disagreed. The
Court acknowledged that municipalities “are not themselves
sovereign.” 471 U. S., at 38. But recognizing that a
municipality is “an arm of the State,” id ., at 45, the Court
held that a municipality should be required to satisfy only the
first prong of the Midcal test (requiring a clearly
articulated state policy), 471 U. S., at 46. That
municipalitiesare not sovereign was critical to our analysis in Hallie , and thus that decision has no application in a case,
like this one, involving a state agency.

															Here, however, the Court not only disregards the North Carolina
Board’s status as a full-fledged state agency; it treats the Board
less favorably than a municipality. This is puzzling. States are
sovereign, Northern Ins. Co. of N. Y. v. Chatham
County ,547 U. S. 189,193 (2006), and California’s
sovereignty provided the foundation for the decision in Parker , supra, at 352. Municipalities are not
sovereign. Jinks v. Richland County ,538 U. S.
456,466 (2003). And for this reason, federal law often treats
municipalities differently from States. Compare Will v. Michigan Dept. of State Police ,491 U. S. 58,71 (1989)
(“[N]either a State nor its officials acting it their official
capacities are ‘persons’ under [42 U. S. C.] §1983”),
with Monell v. City Dept. of Social Servs., New
York ,436 U. S. 658,694 (1978) (municipalities liable under
§1983 where “execution of a government’s policy or custom
. . . inflicts the injury”).

															The Court recognizes that municipalities, although not
sovereign, nevertheless benefit from a more lenient standard for
state-action immunity than private entities. Yet under the Court’s
approach, the North Carolina Board of Dental Examiners, a
full-fledged state agency, is treated like a private actor and must
demonstrate that the State actively supervises its actions.

															The Court’s analysis seems to be predicated on an assessment of
the varying degrees to which a municipality and a state agency like
the North Carolina Board are likely to be captured by private
interests. But until today, Parker immunity was never
conditioned on the proper use of state regulatory authority. On the
contrary, in Columbia v. Omni Outdoor Advertising , Inc., 499 U. S. 365 (1991), we refused to recognize an
exception to Parker for cases in which it was shown that the
defendants hadengaged in a conspiracy or corruption or had acted in
a way that was not in the public interest. Id., at 374. The
Sherman Act, we said, is not an anticorruption or good-government
statute. 499 U. S., at 398. We were unwilling in Omni to rewrite Parker in order to reach the allegedly abusive
behavior of city officials. 499 U. S., at 374–379. But that is
essentially what the Court has done here.

															III

															Not only is the Court’s decision inconsistent with the
underlying theory of Parker ; it will create practical
problems and is likely to have far-reaching effects on the States’
regulation of professions. As previously noted, state medical and
dental boards have been staffed by practitioners since they were
first created, and there are obvious advantages to this approach.
It is reasonable for States to decide that the individuals best
able to regulate technical professions are practitioners with
expertise in those very professions. Staffing the State Board of
Dental Examiners with certified public accountants would certainly
lessen the risk of actions that place the well-being of dentists
over those of the public, but this would also compromise the
State’s interest in sensibly regulating a technical profession in
which lay people have little expertise.

															As a result of today’s decision, States may find it necessary to
change the composition of medical, dental, and other boards, but it
is not clear what sort of changes are needed to satisfy the test
that the Court now adopts. The Court faults the structure of the
North Carolina Board because “active market participants”
constitute “a controlling number of [the] decisionmakers,” ante, at 14, but this test raises many questions.

															What is a “controlling number”? Is it a majority? And if so, why
does the Court eschew that term? Or does the Court mean to leave
open the possibility that something less than a majority might
suffice in particular circum-stances? Suppose that active market
participants constitute a voting bloc that is generally able to get
its way? How about an obstructionist minority or an agency chair
empowered to set the agenda or veto regulations?

															Who is an “active market participant”? If Board members withdraw
from practice during a short term of service but typically return
to practice when their terms end, does that mean that they are not
active market participants during their period of service?

															What is the scope of the market in which a member may not
participate while serving on the board? Must the market be relevant
to the particular regulation being challenged or merely to the
jurisdiction of the entire agency? Would the result in the present
case be different if amajority of the Board members, though
practicing dentists, did not provide teeth whitening services? What
if they were orthodontists, periodontists, and the like? And how
much participation makes a person “active” in the market?

															The answers to these questions are not obvious, but the States
must predict the answers in order to make informed choices about
how to constitute their agencies.

															I suppose that all this will be worked out by the lower courts
and the Federal Trade Commission (FTC), but the Court’s approach
raises a more fundamental question, and that is why the Court’s
inquiry should stop with an examination of the structure of a state
licensing board. When the Court asks whether market participants
control the North Carolina Board, the Court in essence is asking
whether this regulatory body has been captured by the entities that
it is supposed to regulate. Regulatory capture can occur in many
ways.[ 6 ] So why ask only whetherthe members of a
board are active market participants? The answer may be that
determining when regulatory capture has occurred is no simple task.
That answer provides a reason for relieving courts from the
obligation to make such determinations at all. It does not explain
why it is appropriate for the Court to adopt the rather crude test
for capture that constitutes the holding of today’s decision.

															IV

															The Court has created a new standard for distinguishing between
private and state actors for purposes of fed-eral antitrust
immunity. This new standard is not true to the Parker doctrine; it diminishes our traditional respect for federalism and
state sovereignty; and it will be difficult to apply. I therefore
respectfully dissent. Notes 1 S. White, History of Oral and Dental
Science in America 197–214 (1876) (detailing earliest American
regulations of the practice ofdentistry). 2 See, e.g ., R. Shrylock,
Medical Licensing in America 29 (1967) (Shrylock) (detailing the
deterioration of licensing regimes in the mid-19th century, in part
out of concerns about restraints on trade); Gellhorn, The Abuse of
Occupational Licensing, 44 U. Chi. L. Rev. 6 (1976); Shepard,
Licensing Restrictions and the Cost of Dental Care, 21 J. Law &
Econ. 187 (1978). 3 See Handler, The Current Attack on
the Parker v. Brown State Action Doctrine, 76 Colum.
L. Rev. 1, 4–6 (1976) (collecting cases). 4 Shrylock 54–55; D. Johnson and H.
Chaudry, Medical Licensing and Discipline in America 23–24
(2012). 5 In Hawker v . New York, 170 U. S. 189 (1898), the Court cited state laws authorizing
such boards to refuse or revoke medical licenses. Id. , at
191–193, n. 1. See also Douglas v. Noble ,261
U. S. 165,166 (1923) (“In 1893 the legislature of Washington
provided that only licensed persons should practice dentistry” and
“vested the authority to license in a board of examiners,
consisting of five practicing dentists”). 6 See, e.g., R. Noll, Reforming
Regulation 40–43, 46 (1971); J. Wilson, The Politics of Regulation
357–394 (1980). Indeed, it has even been charged that the FTC,
which brought this case, has been captured by entities over which
it has jurisdiction. See E. Cox, “The Nader Report” on the Federal
Trade Commission vii–xiv (1969); Posner, Federal Trade Commission,
Chi. L. Rev. 47, 82–84 (1969).

Summary: The North Carolina State Board of Dental Examiners, composed mostly of practicing dentists, filed suit to prevent non-dentists from providing teeth-whitening services. The Supreme Court ruled that the Board's actions were not protected from antitrust regulation under state-action immunity, as the Board was controlled by market participants (active dentists) who could be biased in their decision-making. This ruling sets a precedent for evaluating regulatory capture and ensuring fair competition.