What do you get when doctors regulate doctors?


Today I filed an amicus brief I wrote in Teladoc v. Texas Medical Board, a Fifth Circuit case involving the antitrust state-action immunity doctrine. The brief is for me and 54 other antitrust and competition policy scholars (many of whom joined the antitrust scholars' N.C. Board of Dental Examiners brief by Rebecca Haw Allensworth, Aaron Edlin, and Einer Elhauge). Our appellate lawyer was friend and onetime co-blogger, D.C.-based appellate attorney Erik Jaffe.

As I mentioned above, the basic issue in the case is the antitrust state-action immunity doctrine. In 1943, the Supreme Court held that anticompetitive action by state legislatures doesn't violate federal antitrust law, no matter how anticompetitive it is. Since then, the Supreme Court has explained when subdivisions of the state (like municipalities or state agencies) or even private people can get that immunity. The leading case on the subject is a 1980 case called Midcal Aluminum, but last year's N.C. Dental case is the latest word on what happens with state licensing boards that are composed of active market participants.

In this case, the Texas Medical Board wants to regulate telehealth providers; one such provider, Teladoc, sued the Board under federal antitrust law, arguing that the rule the Board promulgated was anticompetitive; and the Board claimed that it was immune from federal antitrust law as a state agency. Agencies composed of market participants need to be actively supervised by the state if they want to get immunity; so the question here is whether state-court administrative-law judicial review counts as "active supervision" within the meaning of the doctrine.

Longtime readers may remember this post about N.C. Dental when it came down from the Supreme Court, posts like this one when N.C. Dental was up on cert, my posts about N.C. Dental and Phoebe Putney on the Reason Foundation web site, or my article about N.C. Dental in the NYU Journal of Law and Liberty.

To introduce this case, I can't do better than to reproduce the summary of argument from the brief, which follows below. The brief itself is here, if you want to read the whole thing.

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This appeal involves an effort by a state administrative agency, the Texas Medical Board, to evade the substance of federal antitrust law. The basic purpose of antitrust law is to prevent markets from being manipulated anticompetitively-yet that is precisely what professional licensing boards dominated by market participants do. The Board argues that it is actively supervised and therefore qualifies for the narrow state-action immunity to antitrust law. But this active supervision is illusory, and this Court should not be fooled by the Board's attempt to argue otherwise.

The background for this dispute begins with California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980), where the Supreme Court held that private parties are not immune from antitrust law unless (1) they are acting pursuant to a clearly articulated anticompetitive state policy and (2) they are actively supervised by the State.

In particular, professional licensing boards dominated by market participants can have anticompetitive effects, and federal antitrust law plays a valuable role in controlling these effects. The Supreme Court recognized as much in North Carolina State Board of Dental Examiners v. FTC, 135 S. Ct. 1101 (2015), holding that the Midcal test-in particular its second prong-applies to such boards, just as it applies to fully private parties: "[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." 135 S. Ct. at 1114.

The Texas Board concedes that it is dominated by active market participants and that the active-supervision requirement therefore applies. However, it argues, first, that state judicial review satisfies this requirement. Second, it argues that because Texas law has mechanisms to limit Board members' self-dealing and promote accountability, the active-supervision requirement should be enforced less strictly than it would otherwise be. In effect, the Board contends that that this Court should endorse a "sliding scale" approach to assessing state supervision.

Both these arguments are mistaken.

For judicial review to count as active supervision, it must reach the merits of the specific anticompetitive decisions; it must be de novo; and it must be actual, not potential-that is, it must occur before anticompetitive harm is suffered, and it must not require victims to engage in costly litigation. See N.C. Dental, 135 S. Ct. at 1116 ("The supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it; the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy; and the 'mere potential for state supervision is not an adequate substitute for a decision by the State.'" (citations omitted) (quoting FTC v. Ticor Title Ins. Co., 504 U.S. 621, 638 (1992)). Yet state judicial review fails on all these dimensions. It goes to whether Board decisions are adequately reasoned and within the broad bounds of the Board's authority, not to whether disinterested officials actually approve of the merits. It defers heavily to Board decisionmaking in areas of discretion. And it relies on costly litigation by the victims of Board action, which is not guaranteed to occur before harm is suffered.

Moreover, the "sliding scale" of review is supported by neither existing law nor good sense. The strength of the active-supervision inquiry does not depend on whether there are mechanisms to limit self-dealing and promote accountability. Such mechanisms are praiseworthy, but they do not ensure that disinterested officials actually approve of the specific Board decisions challenged here. The reasoning of N.C. Dental does not support a sliding scale of active-supervision scrutiny depending on these factors, and such a sliding scale would not be judicially administrable.

Therefore, the Board should be denied state-action immunity.