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Sasha Volokh on Privatized Regulation and Antitrust

Leonard Gilroy
July 1, 2013, 6:00am

Sasha Volokh has a new article on Reason.org discussing the implications of a recent Fourth Circuit Court ruling related to privatized regulation and antitrust issues. Here's the intro:

Federal antitrust law enshrines a public-private dichotomy: unlike the private sector, state governments are completely immune from antitrust suits under the doctrine of Parker v. Brown (1943). Thus, a state legislature could restrict entry into an industry and fix product prices at monopoly levels with impunity; for the sake of federalism, courts would defer to its choice, at least for purposes of federal antitrust law. Municipalities, on the other hand—unlike states themselves—aren’t sovereign. They aren’t immune from antitrust law unless they can show that they’re following the state’s clearly articulated policy (see this previous post for a discussion of the clear articulation requirement). Private parties, understandably enough, get even less deference: they need to additionally show that they’re actively supervised by the state. If a municipality can’t show a clearly articulated state policy, or if a private party can’t show that plus active state supervision, it can be sued for antitrust violations and held liable for triple damages.

Even though municipalities can be thought of as an unusual type of state agency, the Supreme Court has never authoritatively decided how to treat state agencies generally under antitrust law. Are they more public, like municipalities, or more like private bodies? At first glance, it seems obvious that they should be considered governmental and thus more like municipalities, but in reality there’s a large gray area, depending on how the state agencies are constituted. A previous post has discussed the fuzziness of the public-private distinction—how private contractors can come to be treated like government agencies for some purposes, or how apparently public bodies can be treated like private corporations.

A recent Federal Trade Commission (FTC) ruling shows how that fuzziness plays out in the antitrust context. A state board of dental examiners, charged with regulating the practice of dentistry in North Carolina, was labeled as public under state law, but it was composed predominantly of practicing dentists, elected by no one but other practicing dentists. The FTC held that such a board, while nominally governmental, was in fact substantially private, making its oversight of the dentistry business an exercise in privatized regulation; and thus the board was fully subject to federal antitrust law unless it could show active state supervision. On May 31, the Fourth Circuit upheld the FTC’s ruling, in North Carolina State Board of Dental Examiners v. FTC. This case could potentially have interesting implications for the legality of privatized regulation in other areas, though it turns out that the result may be different in different federal circuits.

The full article is available here, and all of Volokh's recent legal analyses written for Reason Foundation on an array of privatization-related topics are archived here.


Leonard Gilroy is Director of Government Reform


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