Antitrust Considerations for Regulating the Practice of Law Geoffrey

Antitrust Considerations for Regulating the Practice of Law Geoffrey M. Green Assistant Director, FTC Bureau of Competition May 29, 2019 1

Summary State Supreme Court acting in legislative capacity is always (ipso facto) exempt from federal antitrust liability. State bar is not ipso facto exempt, even where constituted as a state agency. Conduct of state bar is exempt where Supreme Court is real party in interest, or Midcal conditions are satisfied. Absence of exemption antitrust violation. 2

Antitrust Basics Antitrust law addresses restrictions on competition that harm consumers. FTC Act and Sherman Act do not prohibit all selfregulation of a profession. – Ethics rules – Discipline Antitrust targets – Monopolization – Agreements that harm competition 3

Agreements Raising Antitrust Issues Restraints on competition (collusion) – Minimum fees (SCTLA; Goldfarb) – Salaries; no-poaching – Market division; client allocation – Restrictions on advertising and solicitation – Restrictions on innovative/desired services Exclusion of actual or potential competitors – Admission requirements – Discipline/license revocation – Defining boundary of profession; unauthorized practice of law 4

Antitrust Basics Antitrust law distinguishes among: – Intra-firm restraints – “Naked” restraints – Restraints ancillary to a legitimate collaboration 5

State Action Doctrine Parker v. Brown (1943): Federal antitrust laws do not reach actions of the State acting as sovereign. Legislature is sovereign. Bates v. State Bar of Arizona (1977): A state Supreme Court acting in a legislative capacity also is sovereign. Hoover v. Ronwin (1984): Conduct of state bar incidental to the Supreme Court’s exercise of its sovereign authority is exempt. 6

Hoover v. Ronwin (1984) - Unsuccessful candidate for admission to legal practice sued members of Committee established by the Arizona Supreme Court to administer bar admissions process. - Allegation that Committee adopted a grading formula designed to limit the number of lawyers in the state. - Committee had discretion in administering and grading the bar exam, and in making recommendations to the Court. - BUT, Court specified subjects to be tested, approved grading formula, and retained sole authority to grant or deny admission to practice of law. 7

State Action Defense Midcal (1980): State action defense is available for the discretionary conduct of private parties where – Clear articulation – Active supervision Town of Hallie (1985): Municipality need not satisfy the active supervision requirement. 8

North Carolina State Board of Dental Examiners v. FTC (2015) – State Dental Board controlled by dentists – Statute prohibits a person from engaging “in the practice of dentistry” except with a license issued by the state Dental Board; statute specifies acts constituting the practice of dentistry (1935). – Modern teeth whitening techniques developed decades later. – Board decided that teeth whitening was exclusive to dentists; directed non-licensed persons to cease and desist. 9

North Carolina State Board of Dental Examiners v. FTC (2015) “[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 immunity.” 10

Who is an “active market participant”? Includes – a person licensed by the board – a person who provides any service that is subject to the regulatory authority of the board When is determination made – E.g., temporary suspension of license Method of selection not determinative 11

Clear Articulation Requirement Defendant must show that the alleged anticompetitive conduct was taken pursuant to a “clearly articulated and affirmatively expressed . . . state policy” to replace competition with regulation. Midcal, 445 U.S. at 105. 12

What constitutes “active supervision”? Supervisor must in fact review substance of decision, not merely procedures followed. Supervisor must have the power to approve, modify, or veto. Inquiry is flexible and context-dependent. Elements – development of an adequate factual record – a specific assessment of how board’s action comports with substantive standards established by the state legislature – a written decision on the merits 13

What are the required criteria of review? Substantive review Supervisor is not required to employ an antitrust/consumer welfare standard Supervisor should ensure that decision is in accord with the State’s chosen policy Legislature cannot defer to the policy preferences of the Board A determination only that the Board has acted within its statutory discretion is insufficient 14

Who may act as supervisor? Independent official: Supervisor may not be an active market participant? Potential supervisors: – Administrative agency or state official – Legislature – Court 15

Active Supervision Q: What is being supervised? A: The exercise of policy discretion by market participants. Q: Why is supervision necessary? A: The antitrust court cannot trust that the actions of market participants further state policy. Q: What is the purpose or function of supervision? A: To ensure that the restraint at issue advances state policy, as opposed to private interests. Q: Why is this distinction important? A: Antitrust enforcement defers only to policy preferences of the state. 16

Noerr Defense Bona fide (non-sham) efforts to petition or persuade the government to take actions that have the effect of harming competition are generally immune from antitrust liability. – Lawline v. American Bar Ass’n (7th Cir. 1992) 17