Under a 1943 Supreme Court decision called Parker v. Brown, state governments and private parties who act on state orders are typically immune from prosecution under federal antitrust laws. Thus, while private parties who create cartels face severe penalties, state governments can authorize the same anti-competitive behavior with impunity.
Still, the Supreme Court has held that this kind of immunity only applies if the private parties who engage in cartel behavior are "actively supervised" by state officials. A case now before the Supreme Court, N.C. State Board of Dental Examiners v.FTC, presents an opportunity to expand on that directive.
Beginning in about 2003, the North Carolina Board of Dental Examiners issued cease-and-desist orders to beauticians and others who were offering "teeth whitening" services (in which a plastic strip treated with peroxide is applied to the teeth in order to make them brighter). Although teeth-whitening is perfectly safe—and can even be done at home with an over-the-counter kit—the state's licensed dentists want to limit competition in this lucrative area.
The Board is made up entirely of practicing dentists and hygienists and is elected by other licensed dentists and hygienists—with no input from the general public—and evidence later revealed that the Board issued orders on this subject in response to complaints from dentists, not consumers. The Federal Trade Commission charged the Board with engaging in anticompetitive conduct. Although the Board argued that it should enjoy Parker immunity, the FTC, and later the U.S. Court of Appeals for the Fourth Circuit, rejected that argument, holding that the Board was not "actively supervised" by the state, but was instead a group of private business owners exploiting government power.
Whatever one's opinion of antitrust law—Cato’s isn’t too favorable—existing immunity doctrines are irrational and dangerous, and allow private entities to use government power to raise prices and restrict consumer choice. Worse, state-established cartels can frequently harm constitutional rights, such as the right to earn a living, by barring new businesses from opening. The North Carolina case is a prime example of private entities arbitrarily abusing government power to block entrepreneurs from entering an industry and providing for themselves and their families.
Cato and the Pacific Legal Foundation filed a Supreme Court brief supporting the FTC—you know it’s a bad case when we’re on the federal government’s side!—and arguing that courts should only rarely immunize private parties who act on government's behalf. The Fourth Circuit was not only correct in applying the "active supervision" requirement, but existing immunity doctrines are too lax. Instead, courts should grant antitrust immunity to private entities acting under color of state law only where their restraint on competition is commanded by state law, and where that restraint substantially advances an important state interest. This test would help protect the constitutional right to economic liberty against the only entity that can normally create monopolies and yet which today enjoys immunity from antimonopoly laws: the government.
The case will be argued at the Supreme Court on October 14.