Pending Case Will Answer Questions on Key Antitrust Immunity



Practice Areas

Matthew W. Sawchak
Robinson Bradshaw Publication
May 1, 2020

For years, courts have struggled to decide how federal antitrust law applies to regulatory decisions by state agencies. SmileDirectClub v. Battle, a case pending in the U.S. Court of Appeals for the Eleventh Circuit, should offer some answers. SmileDirect is likely to clarify what counts as active supervision that can immunize a state agency from federal antitrust liability.


SmileDirect involves the state-action doctrine, which holds that the federal antitrust laws do not apply to sovereign acts of state governments. Under the doctrine, state statutes and decisions of state supreme courts are absolutely immune. Other types of government actions are immune only under certain conditions.

State-action immunity is especially important for state agencies that regulate professions and occupations. Because these agencies need to be experts at the disciplines they regulate, they are usually governed mainly by members of those disciplines. In recent years, federal antitrust enforcers have argued that this governance can cause state agencies to apply their authority in anticompetitive ways.

These concerns came to a head in 2015, when the U.S. Supreme Court decided North Carolina State Board of Dental Examiners v. Federal Trade Commission. In that case, the North Carolina dental board sent cease-and-desist letters to nondentists who offered teeth-whitening services.

The Federal Trade Commission claimed that the cease-and-desist letters were the product of an antitrust conspiracy among the practicing dentists on the board. In response, the board argued that its actions were immune under the state-action doctrine. Those arguments led the Supreme Court to clarify how state-action immunity applies to regulatory boards that are governed by members of the professions they regulate.

The Court held that the statutory origin of state licensing boards is not enough to make the agencies categorically immune from antitrust scrutiny. Instead, to get immunity, these agencies must satisfy further conditions. According to the Court, when a state board has "a controlling number of decisionmakers [who] are active market participants in the occupation the board regulates," the board is immune only if it shows two things:

  1. The restraint at issue is clearly articulated as state policy.
  2. The state actively supervises the board's anticompetitive conduct.

In the wake of North Carolina Dental, one key question has been what arrangements count as active supervision. The SmileDirect case should help answer that question and others.

The SmileDirect case

SmileDirect sells orthodontic aligners to patients through an unusual business model. A patient visits a SmileDirect store, where a technician takes digital scans of the patient's teeth and gums. Later, a dentist in the patient's state can prescribe aligners for the patient.

In 2018, the Georgia Board of Dentistry adopted a rule that treats digital scans like SmileDirect's as part of the practice of dentistry. The rule allows certain dental assistants to perform these scans, but only under a dentist's direct, personal supervision. SmileDirect's current business model clashes with the rule.

To challenge the rule, SmileDirect sued the dental board and its members in federal court. It claimed that the rule was the product of an anticompetitive conspiracy among the board members. In Georgia, as in North Carolina, almost all the members of the dental board are practicing dentists.

The board members moved to dismiss based on state-action immunity, but the federal district court denied the motion. The court held that in view of SmileDirect's allegations, the court could not find state-action immunity at the motion-to-dismiss stage.

The board members have appealed from that ruling. The appeal is now fully briefed; oral argument is scheduled for May 20.

As one mark of the significance of this case, the U.S. Justice Department and the FTC have filed an amicus brief in support of SmileDirect. The federal agencies have also received permission to speak at oral argument.

The appeal centers on the effect of a statute that Georgia enacted in the wake of North Carolina Dental. The statute requires boards to submit their rules to the governor of Georgia for approval or rejection. It states only one test for the governor's review: whether a rule is "consistent with clearly articulated state policy."

In the Eleventh Circuit, the parties dispute the significance of this gubernatorial review. The dispute has two main features:

First, the board claims that the governor's review makes the governor, rather than the board, the decision-maker for purposes of the state-action doctrine. This "governor as decision-maker" argument relies on a legal premise that might or might not be true: that governors are considered sovereign actors—actors equivalent to states themselves—for purposes of the state-action doctrine. If that premise were true, the governor's approval of the orthodontic-scan rule would be automatically immune; no showing of clear articulation or active supervision would be needed. The U.S. Supreme Court has recognized this automatic state-action immunity for state supreme courts and state legislatures, but not yet for governors.

Here, the Eleventh Circuit is likely to avoid this issue of law by emphasizing the facts on how the orthodontic-scan rule came into being. The board of dentistry, not the governor, adopted the rule at issue. Likewise, the statute that defines the governor's involvement describes his role as review and supervision, not actual decision-making. In any event, when the Eleventh Circuit works through these facts, it is likely to announce standards on which state official in a fact pattern is considered the decision-maker for state-action purposes.

Second, the board argues that even if it (rather than the governor) is considered the decision-maker, the governor actively supervised the board's adoption of the orthodontic-scan rule. When the district court rejected this argument, it held that the complaint raised factual questions about the governor's review of the rule: "whether the Board provided all relevant information to the Governor, whether the proposed amendment was subjected to any meaningful review by the Governor, or whether the Certification of Active Supervision was merely 'rubberstamped' as a matter of course." Based on these factual disputes, the district court held that SmileDirect is entitled to discovery before the court rules definitively on active supervision.

This reasoning raises an important structural question: What is the scope of information that a court should review when it considers whether a particular case involves active supervision? In North Carolina Dental, the Supreme Court said that "the adequacy of supervision will . . . depend on all the circumstances of a case." On the other hand, the Court also said that in state-action cases, it seeks to avoid "deconstruction of the governmental process and probing of the official 'intent.'"

The Eleventh Circuit will need to reconcile these two principles to decide SmileDirect. The more the court emphasizes the fact-sensitive nature of active-supervision issues, the more the court will open the door for burdensome discovery into officials' decision-making process and reasoning. For example, is SmileDirect going to be able to depose the (now former) governor of Georgia and ask him to explain his analysis when he approved the orthodontic-scan rule? Will the deliberative-process privilege limit the questioning? And in the long run, what effect will this kind of discovery have on future government decisions?

In sum, SmileDirect will add definition to the antitrust landscape after North Carolina Dental. The answers to the questions raised by the case will affect the interactions between regulated parties and state agencies for years to come.

If you'd like to learn more on how the issues in SmileDirect affect your situation, please contact a member of Robinson Bradshaw's Antitrust and Competition Practice Group.

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