Supreme Court restricts state license schemes that limit competition

Supreme Court Justice Anthony M. Kennedy, shown in 2013, wrote the high court's ruling limiting the powers of state licensing boards.
Supreme Court Justice Anthony M. Kennedy, shown in 2013, wrote the high court’s ruling limiting the powers of state licensing boards.
(Matt Slocum / Associated Press)

The Supreme Court on Tuesday cut back on the power of state licensing boards to restrict competitors from offering low-cost services, a victory for consumers that could prove significant in industries as disparate as taxicabs, funerals and cosmetology.

The ruling came in a case challenging the power of North Carolina’s Board of Dental Examiners. The panel, most of whose members are dentists elected by dentists, for years has tried to prevent non-dentists from offering teeth-whitening kiosks in shopping malls.

The 6-3 decision upheld federal antitrust charges against the board.


The ruling could prove important in an era when licensed industries, such as taxi services, are facing competition from outsiders that offer services at lower prices. Until now, the law has been understood to allow states and municipalities to use licensing boards to enforce restrictions, even if doing so limits free competition.

But the court’s opinion said that power has limits, particularly when the licensing board is controlled by members of the industry affected by potential competitors.

The federal antitrust laws are a “central safeguard for the nation’s free market structure,” and they do “not authorize the states to abandon markets to the unsupervised control of active market participants, whether trade associations or hybrid agencies,” said Justice Anthony M. Kennedy.

A board controlled by the dentists and not by the state legislature may well be acting in its own interest rather in the public’s interest, Kennedy said.

The Federal Trade Commission, which enforces antitrust laws, brought charges against the North Carolina dental board in 2010 for sending official cease-and-desist letters to operators of shopping mall kiosks. The board said only dentists could legally offer teeth whitening.

Federal regulators said that although the state board may regulate the practice of dentistry, “teeth whitening is a safe cosmetic procedure” that can be provided by non-dentists.

The FTC ordered the state board to step back and not interfere with teeth-whitening services. A federal appeals court upheld that order. So did the high court, hearing an appeal by the dental board in North Carolina State Board of Dental Examiners vs. FTC.

In recent years, consumer advocates and free-market libertarians have complained of a growing number of licensing boards, including those for interior designers, funeral directors, cosmetologists, tour guides and moving services. Often, they argue, these licensing boards are dominated by a group of insiders who act to protect their private interests.

Kennedy’s opinion said state lawmakers may enact laws that regulate industries and restrict competition. The legislatures are presumed to act in the public interest, he wrote.

But it is different, he said, when that state power is turned over to “active market participants” who set the rules on their own.

Legal experts said the ruling stepped away from earlier decisions that had made state officials immune from federal antitrust charges. Tuesday’s “opinion confirms that the antitrust laws place important limits on what collusive actions private actors can take to advance their own businesses under the cloak of government action,” said Jane Willis, an antitrust lawyer in Boston.

Justice Samuel A. Alito Jr. dissented, saying the court had “veered off course…. Today’s decision will spawn confusion” when judges try to decide which state boards “merit a good-government seal of approval,” he wrote. Justices Antonin Scalia and Clarence Thomas agreed.

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