State regulatory board actions may violate the Sherman Antitrust Act
SmileDirectClub, LLC v. Tippins (9th Cir. March 17, 2022, No. 20-55735) _ F.4th _ [2022 WL 804146]
SmileDirectClub, LLC developed a direct-to-consumer online platform to sell clear aligners to orthodontic patients as an alternative to traditional wire-and-bracket braces. SmileDirectClub allegedly provides these services at a lower price than traditional dentists charge by utilizing a telemedicine model that allows dentists to treat out-of-state patients in states where they are licensed. The Dental Board of California, which is made up of ten dental professionals and five members of the public, regulates SmileDirectClub services provided in California. SmileDirectClub sued sixteen people affiliated with the Board, including past and current members and employees. SmileDirectClub alleged that the defendants, who compete in the teeth-straightening market, violated the Sherman Act by pursing an anticompetitive conspiracy to harass SmileDirectClub with unfounded investigations and an intimidation campaign designed to drive it from the market. The district court dismissed the Sherman Act claim, ruling that conduct consistent with the Board’s regulatory authority could not be the basis for an anticompetitive conspiracy. SmileDirectClub appealed.
The Ninth Circuit reversed in part and affirmed in part, holding regulatory board members and employees can form anticompetitive conspiracies, even when acting within their regulatory authority. First, the court held that the district court erred by ruling that the defendants could not violate the Sherman Act by engaging in conduct that was consistent with their regulatory duties. The court explained that board members’ “agreements are not always lawful simply because they are ‘consistent with’ the purpose of a regulatory Board dominated by market participants.” Rather, “the Board Actors’ concerted action can be unreasonable under the Sherman Act—even if they seek to achieve their anticompetitive aims through the exercise of valid regulatory authority.” Here, SmileDirectClub plausibly alleged that certain defendants entered into an anticompetitive agreement to engage in “an abusive, aggressive, retaliatory, and targeted campaign designed to intimidate the SmileDirectClub parties and to drive them out of the market” by “conduct[ing] aggressive and unreasonable ‘raids’ that were ‘designed to maximize … interference, disruption, and public spectacle’ and by beginning “a ‘retaliatory’ administrative proceeding to possibly revoke [the] dental license” of a SmileDirectClub dentist. In this circumstance, the dentist defendants’ “governance role is sufficient, when coupled with the congruence between the Board’s actions and their own self-interest, to allow a plausible inference of active participation.”