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ARTICLE
CARTELS BY ANOTHER NAME:
SHOULD LICENSED OCCUPATIONS FACE
ANTITRUST SCRUTINY?
AARON EDLIN† & REBECCA HAW††
It has been over a hundred years since George Bernard Shaw wrote that
“[a]ll professions are a conspiracy against the laity.” Since then, the number of
occupations and the percentage of workers subject to occupational licensing have
exploded; nearly one-third of the U.S. workforce is now licensed, up from ve
percent in the 1950s. Through occupational licensing boards, states endow
cosmetologists, veterinary doctors, medical doctors, and orists with the authority to
decide who may practice their art. It cannot surprise when licensing boards
comprised of competitors regulate in ways designed to raise their prots. The result
for consumers is higher prices and less choice, as licensing raises wages by eighteen
percent and bars competition from unlicensed workers. For African-style hair
braiders, the result is either an illicit business or thousands of hours of irrelevant
training imposed by a cosmetology board. For lawyers, the result is less competition
from tax accountants, paralegals, and out-of-state lawyers.
The Sherman Act’s great accomplishment has been to make cartels per se
illegal and relatively scarce—unless the cartel is managed by a professional licensing
board. Most jurisdictions consider such boards, as state creations, exempt from
antitrust scrutiny by the state action doctrine, leaving would-be competitors and
consumers no recourse against their cartel-like activity.
† Richard Jennings Professor o Law and Professor o Economics, University o California,
Berkeley; Research Associate, National Bureau o Economic Research; J.D., Stanford University;
Ph.D., Economics, Stanford University.
†† Professor o Law, Vanderbilt University Law School; J.D., Harvard University. We thank
Einer Elhauge, Prasad Krishnamurthy, and Carl Shapiro for helpful comments. We also thank James
Blumstein for comments on a previous draft and Sean Ryan for excellent research assistance.
University of Pennsylvania Law Review [Vol. :
We contend that the state action doctrine should not prevent antitrust suits
against state licensing boards that are comprised of private competitors deputized to
regulate and to outright exclude their own competition, often with the threat of
criminal sanction. At most, state action should immunize licensing boards from the
per se rule and require plaintis to prove their cases under the rule of reason. We
argue that the Fourth Circuit’s recent decision, soon to be reviewed by the Supreme
Court, to uphold a Federal Trade Commission (FTC) antitrust suit against a
licensing board—denying state action immunity to a licensing board and thereby
creating a circuit split—was a step in the right direction but did not go far enough.
The Supreme Court should take the split as an opportunity to clarify that when
competitors hold the reins to their own competition, they must answer to Senator
Sherman.
INTRODUCTION ............................................................................
I. OCCUPATIONAL LICENSING BOARDS: THE NEW CARTELS .......
A. The Scope of Professional Licensing: Big and Getting Bigger ............
B. The Anticompetitive Potential of Occupational Licensing .................
. The New “Professions” .....................................................
. Old Professions, New Restrictions ......................................
II. THE ROAD TO PROFESSIONAL CARTELIZATION .......................
A. The Economics of Licensing ..........................................................
. The Costs o Licensing: Higher Prices, Lower Quantity .....
. The Benets o Licensing: Improved Quality? ....................
B. The Legal Landscape of Professional Licensing ................................
. Twin Immunities Shield State Licensing Boards from
Antitrust Liability .............................................................
a. Parker and State Action Immunity ...................................
b. Noerr and Petitioning Immunity .......................................
c. Immunity for Professional Licensing Boards Under
Parker and Noerr ...........................................................
. The Common Route to Challenging State Licensing
Restraints: Due Process and Equal Protection ....................
III. THE NORMATIVE CASE: WHY SHERMAN ACT LIABILITY FOR
STATE LICENSING BOARDS IS A GOOD IDEA ............................
A. Antitrust Liability for Professional Licensing:
An Economic Standard for Economic Harm ...................................
. Sherman Act Policy and the Competitive Harm o
Licensing: A Close Fit .......................................................
. Constitutional Suits and Their Limited Ability to
Protect Consumers ............................................................
] Cartels by Another Name
B. Antitrust Federalism: Its Modern Justications and Applicability to
Sherman Act Liability for Licensing Boards ....................................
. The Parker Debate: Accountability Is Key ...........................
. State Licensing Boards: Self-Interested and
Unaccountable Consortiums o Competitors .......................
IV. THE MECHANICS OF ANTITRUST LIABILITY FOR STATE
LICENSING BOARDS ................................................................
A. Imagining a New Regime ...........................................................
. The Standard: Rule o Reason as Applied to Licensing ......
. The Parties: Standing to Sue and Available Damages .........
. The Defense: Boards as Single Entities? .............................
B. Possible State Responses and Their Likely Eects ............................
. Actively Supervising Board Activity ..................................
. Changing Board Composition ............................................
. Moving Licensing to the Interior o State Government ......
CONCLUSION .................................................................................
APPENDIX: FLORIDA ......................................................................
APPENDIX: TENNESSEE .................................................................
“All professions are conspiracies against the laity.”
George Bernard Shaw
The Doctor’s Dilemma ()
INTRODUCTION
The Sherman Act has had one principal success: cartels and their smoke-
lled rooms, where competitors agree to waste economic resources for their
own industry’s benet, are unambiguously and uncontroversially illegal in
the United States1—unless that industry is a profession and that cartel is a
state licensing board. Although often overlooked, licensing boards have
become a massive exception to the Act’s ban on cartels.
Licensing boards are largely dominated by active members o their
respective industries who meet to agree on ways to limit the entry o new
1 U.S.C. §§ – () (“Every contract, combination in the form o trust or otherwise, or
conspiracy, in restraint o trade or commerce among the several States, or with foreign nations, is
declared to be illegal.”). The loud and lively debate about the Sherman Act’s reach beyond this
uncontroversial core tends to obscure this simple yet powerful success o § .
University of Pennsylvania Law Review [Vol. :
competitors.2 Some boards use their power to limit price competition or
restrict the quantity o services available.3 But professional boards, unlike
cartels in commodities or consumer products, are sanctioned by the state—
even considered part o the state4—and so are often assumed to operate
outside the reach o the Sherman Act under a line o Supreme Court cases
starting with Parker v. Brown.5
When only about ve percent o American workers were subject to licensing
requirements during the s,6 the anticompetitive eect o these state-
sanctioned cartels was relatively small. Now, however, nearly a third o
American workers need a state license to perform their job legally, and this
trend toward licensing is continuing.7 The service sector—the most likely to
be covered by licensing—has grown enormously, with its share o nonfarm
employment growing from roughly % in to over % in .8 Some
recent additions to the list o professions requiring licenses include lock-
smiths,9 beekeepers,10 auctioneers, 11 interior designers,12 fortune tellers,13
tour guides,14 and shampooers.15
Many boards have abused their power to insulate incumbents from com-
petition. Cosmetologists, for example, are required, on average, to have ten
2 See Morris M. Kleiner, Occupational Licensing, J. ECON. PERSP. , () (dening
occupational licensing and explaining the composition o state licensing boards); see also infra text
accompanying notes - and Appendix.
3 See MORRIS M. KLEINER, LICENSING OCCUPATIONS: ENSURING QUALITY OR RE-
STRICTING COMPETITION? - () (discussing occupational regulations’ ability to restrict
supply and the implications o practitioner earnings).
4 See Benson v. Ariz. St. Bd. o Dental Exam’rs, F.d , (th Cir. ) (explaining
that the Board o Dental Examiners is “a state agency” due to state statutes that, among other
things, “establish the Board”).
5 U.S. , () (“The Sherman Act makes no mention o the state as such, and
gives no hint that it was intended to restrain state action or ocial action directed by a state.”).
6 KLEINER, supra note , at .
7 See Morris M. Kleiner & Alan B. Krueger, Analyzing the Extent and Inuence of Occupational
Licensing on the Labor Market, J. LAB. ECON. S, S () (estimating that, as o , %
o U.S. workers were licensed and noting that licensing is a growing phenomenon in the U.S.
economy).
8 See Marlene A. Lee & Mark Mather, U.S. Labor Force Trends, POPULATION BULL., June
, at , , available at http://www.prb.org/pdf/.uslabor.pdf.
9 Stephanie Simon, A License to Shampoo: Jobs Needing State Approval Rise, WALL ST. J., Feb.
, , at A.
10 Walter Gellhorn, The Abuse of Occupational Licensing, U. CHI. L. REV. , ().
11 Dick Carpenter & Lisa Knepper, Op-Ed., Do Barbers Really Need a License?, WALL ST. J.,
May , , at A
12 Clark Neily, Op-Ed., Watch Out for that Pillow, WALL ST. J., Apr. , , at A.
13 Emily Sweeney, Town Rebus Fortune-Teller, Citing Residency Law, BOS. GLOBE, May ,
, at W.
14 J. Freedom du Lac, Regulating the Right to Talk to Customers?, WASH. POST, Sept. , , at B.
15 Simon, supra note .
] Cartels by Another Name
times as many days o training as Emergency Medical Technicians (EMT)
must have.16 In Alabama, unlicensed practice o interior design was a
criminal oense until .17 In Oklahoma, one must take a year o course-
work on funeral service (including embalming and grie counseling) just to
sell a casket, while burial without a casket at all is perfectly legal.18 Even
traditionally licensed occupations, the so-called learned professions, use
licensing restrictions to repress competition. For example, all states impose
some restrictions on lawyer advertising, and some even prevent truthful
claims about low prices.19 In many states, dentists cannot legally employ
more than two hygienists each, a restriction that raises demand for den-
tists.20 And in some states, nurse practitioners must be supervised by a
physician,21 even though studies show that nurse practitioners and physicians
provide equivalent quality o care where their practices overlap.22
16 See DICK M. CARPENTER II ET AL., INST. FOR JUSTICE, LICENSE TO WORK: A NATIONAL
STUDY OF BURDENS FROM OCCUPATIONAL LICENSING () [hereinafter LICENSE TO
WORK], available at http://www.ij.org/images/pdf_folder/economic_liberty/occupational_licensing/
licensetowork.pd (reporting that states require an average o days o training for EMTs, but
days for cosmetologists). Arkansas, for instance, requires days o training for EMTs and days
for cosmetologists. Id. at -.
17 Neily, supra note .
18 See Powers v. Harris, F.d , - (th Cir. ) (outlining the regulatory
scheme for the funeral industry in Oklahoma).
19 See LEXISNEXIS, STATE SURVEYS OF STATUTES & REGULATIONS: ATTORNEY
ADVERTISING (Mar. ) (“Every state regulates the advertising o its attorneys.”); see also
OHIO RULES OF PROF’L CONDUCT R. . cmt. () (“Characterization o rates or fees
chargeable by the lawyer or law rm such as ‘cut rate,’ ‘lowest,’ ‘giveaway,’ ‘below cost,’ ‘discount,’
or ‘special’ is misleading.”).
20 See J. NELLIE LIANG & JONATHAN D. OGUR, BUREAU OF ECON. STAFF REP. TO
THE F.T.C., RESTRICTIONS ON DENTAL AUXILIARIES: AN ECONOMIC POLICY ANALYSIS
& n. (), available at http://www.ftc.gov/sites/default/les/documents/reports/restrictions-
dental-auxiliaries/.pd (noting that restrictions generally allow dentists to employ between
one and three hygienists).
21 See SHARON CHRISTIAN & CATHERINE DOWER, CAL. HEALTHCARE FOUND.,
SCOPE OF PRACTICE LAWS IN HEALTH CARE: RETHINKING THE ROLE OF NURSE
PRACTITIONERS (), available at http://www.chcf.org/~/media/MEDIA%LIBRARY%
Files/PDF/S/PDF%ScopeOf PracticeLawsNursePractitionersIB.pd (noting that thirty states
require at least some degree o physician supervision or collaboration); Tracy A. Klein, Scope of
Practice and the Nurse Practitioner: Independent, Collaboration, Supervision: How Is Your Scope
Regulated?, MEDSCAPE, http://www.medscape.org/viewarticle/_ (last updated Oct. ,
) (“[Twenty-three] states require no physician involvement for the licensed [Nurse Practitioner]
to diagnose and treat, while the remainder o states require some degree o written or formal
physician involvement in [Nurse Practitioner] practice.”).
22 CHRISTIAN & DOWER, supra note , at (listing multiple studies nding no material
dierence in quality o care); Morris M. Kleiner et al., Relaxing Occupational Licensing Require-
ments: Analyzing Wages and Prices for a Medical Service (Nat’l Bureau o Econ. Research, Working
Paper No. , ), available at http://www.nber.org/papers/w.
University of Pennsylvania Law Review [Vol. :
Labor economists have shown that the net eect o licensing on quality
is equivocal.23 What is not equivocal, according to their empirical studies, is
the eect o licensing on consumer prices. Morris Kleiner, the leading
economist studying the eects o licensing on price and quality o service,
estimates that licensing costs consumers to billon every year.24
And consumers are not the only potential losers, since more licensing means
fewer jobs.25 All this said, we do not claim that all licensing rules are
harmful. Some no doubt improve service quality and public safety enough
to justify the costs. Our point is that many do not.
Thanks in part to a spate o stories in mainstream news outlets like The
New York Times,26 The Wall Street Journal,27 NPR,28 and even The Daily
Show,29 politicians are taking notice o the growing problem with licensing.
In early , Massachusetts Governor Deval Patrick announced a set o
“common-sense changes in the Division o Professional Licensure” designed
to improve the business climate in the state.30 Governor Patrick only
proposed modest changes,31 perhaps because an attempt at more dramatic
licensing reform by Florida Governor Rick Scott failed in .32 The White
23 See CAROLYN COX & SUSAN FOSTER, BUREAU OF ECON., FTC, THE COSTS AND BENE-
FITS OF OCCUPATIONAL REGULATION -, (), available at http://www.ramblemuse.com/
articles/cox_foster.pd (“The empirical ndings indicate that mandatory entry requirements o
licensing cannot necessarily be relied upon to raise the quality o service or decrease the overpre-
scription o treatment.”).
24 KLEINER, supra note , at .
25 See Kleiner & Krueger, supra note , at S (noting studies that have found that licensing
restricts the supply o workers).
26 See Jacob Goldstein, So You Think You Can Be a Hair Braider..., N.Y. TIMES MAG., June ,
, at (discussing the burdens o licensing requirements on certain low- to moderate-income
occupations).
27 See Simon, supra note (citing the eorts o cat groomers, tattoo artists, tree trimmers,
and other specialists to increase regulations in their elds).
28 Why It’s Illegal to Braid Hair Without a License, NPR (June , ), http://www.npr.org/
blogs/money/////why-its-illegal-to-braid-without-a-license (telling the story o
one Utah woman who was forced to abandon her business).
29 The Braidy Bill, DAILY SHOW WITH JON STEWART (June , ), http://
www.thedailyshow.com/watch/thu-june--/the-braidy-bill (parodying the potential harm from
“illegal braiders”).
30 Press Release, Massachusetts Oce o the Governor, Governor Patrick Builds on Regula-
tory Reform Successes; Files Legislation to Improve Business Climate for Licensed Professionals
( Jan. , ), http://www.mass.gov/governor/pressoce/pressreleases//-regulatory-reform.html.
31 Governor Patrick proposed merging the electrology and barbering boards and eliminating
the Board o Radio and Television Technicians. Id.
32 See Chip Mellor & Dick Carpenter, Op-Ed., Want Jobs ? Cu t Loca l Reg ulati ons , WALL
ST. J., July , , at A (criticizing the Florida legislature for rejecting Governor Scott’s
proposal to deregulate twenty occupations). Michigan Governor Rick Snyder has made similar
proposals. See Carpenter & Knepper, supra note (referencing Governor Snyder’s April
proposal to abolish eighteen occupational licenses and eliminate nine licensing boards).
] Cartels by Another Name
House has also taken a stand against excessive licensing. In , President
Obama named Alan Krueger, a labor economist whose empirical work
highlights some o the anticompetitive eects o licensing, as Chair o the
President’s Council o Economic Advisers.33 Krueger has written that
licensing has gone too far and become a way to restrict labor supply.34 First
Lady Michelle Obama has successfully lobbied twenty-two states to approve
legislation that recognizes out-of-state licenses held by military spouses as a
part o her “Joining Forces” initiative.35 Even Congress has started to pay
attention. In , Congress commissioned a report on the eect o
healthcare worker licensing on the aordability o care; the report advised
streamlining license requirements and allowing for interstate reciprocity.36
Despite wide recognition o the potential for economic harm associated
with allowing professions to control their licensing rules and dene the
scope o their art, real reform is elusive. Part o the reason is that, in the
professional licensing context, the most powerful legal tool against anticom-
petitive activity appears unavailable. Most jurisdictions interpret antitrust
federalism to shield licensing boards from the Sherman Act despite the fact
that the boards often look and act like § ’s principal target. Other avenues
for reform, including constitutional suits asserting the rights o would-be
professionals, have done little to slow or reverse the trend toward cartelized
labor markets.
Last year, in North Carolina State Board of Dental Examiners v. FTC,37 the
Fourth Circuit upheld an FTC decision nding a state licensing board
liable for Sherman Act abuses, becoming the only appellate court to expose
a licensing board to antitrust scrutiny and thereby creating a circuit split.
The case is a step in the right direction, but it does not go far enough
because the court could be seen as relying on the method o appointment to
33 See Press Release, White House, Remarks by the President in Announcing his Nomination
o Alan Krueger for Chair o CEA (Aug. , ), http://www.whitehouse.gov/the-press-
oce////remarks-president-announcing-his-nomination-alan-krueger-chair-cea.
34 See, e.g., Alan B. Krueger, Do You Need a License to Earn a Living? You Might Be Surprised at
the Answer, N.Y. TIMES (Mar. , ), http://www.nytimes.com////business/yourmoney/
scene.html.
35 See EXEC. OFFICE OF THE PRESIDENT, MILITARY SKILLS FOR AMERICA’S FU-
TURE: LEVERAGING MILITARY SERVICE AND EXPERIENCE TO PUT VETERANS AND
MILITARY SPOUSES BACK TO WORK - (), available at http://www.whitehouse.gov/
sites/default/les/docs/veterans_report_--.pd (detailing the scope o the problem and the
White House’s response).
36 U.S. DEP’T OF HEALTH & HUMAN SERVS., HEALTH LICENSING BOARD REPORT TO
CONGRESS (), available at http://www.hrsa.gov/ruralhealth/about/telehealth/licenserpt.pdf.
37 F.d (th Cir. ).
University of Pennsylvania Law Review [Vol. :
the board—not just on the identity o its members as competitors.38 The
Supreme Court has now granted certiorari; we urge the Court to take this
opportunity to hold boards composed o competitors to the strictest version
o its test for state action immunity, regardless o how the board’s members
are appointed. In particular, the Court should make clear that, just like the
wine producers in Midcal, competitor-dominated boards that regulate their
own competition and the entry o competitors will be treated as private
actors and subject to antitrust review unless their acts are both () pursuant
to the state’s clearly articulated purpose to displace competition and ()
subject to active state supervision.39 Where a board fails either prong o this
test, courts should subject the board’s actions to antitrust scrutiny under a
modied rule o reason.
Our proposal recognizes the potential benets o licensing—preventing
charlatanism and injury to the public—but rejects the idea that the potential
benets justify total antitrust immunity for licensing. We advocate for an
approach that uses the potential benets to inuence how restrictions will
be reviewed, not whether they will be reviewed at all. Although our proposal
involves a shift in the dominant interpretation of state action doctrine, it
does not require any change in Supreme Court precedent, and the Supreme
38 The majority in North Carolina State Board of Dental Examiners agreed with the FTC that
“state agencies ‘in which a decisive coalition (usually a majority) is made up o participants in the
regulated market,’ who are chosen by and accountable to their fellow market participants, are
private actors and must meet both Midcal prongs.” Id. at . The majority did not explicitly
decide whether a board should be treated as private actors i a “decisive coalition . . . is made up o
participants in the regulated market” but chosen by the governor, for example, as is true o the vast
majority o boards we survey in our Appendix. And, in fact, elsewhere in the opinion, the majority
leaves out the method o appointment. Id. at . (“At the end o the day, this case is about a state
board run by private actors in the marketplace taking action outside o the procedures mandated
by state law . . . .”). Judge Barbara Keenan, in contrast, makes clear in her concurrence that, as
she understands the court’s decision, the selsh nancial interest o the board members as market
participants would not alone make them private actors subject to antitrust review; instead,
according to the concurrence, the court’s holding “turn[ed] on the fact that the members o the
Board, who are market participants, are elected by other private participants.” Id. at (Keenan,
J., concurring).
Our reading, however, is that the majority was careful not to decide a case that was not before
them, such as a case in which a nancially interested board is appointed by a governor, rather than
elected by other nancially interested market participants. I the majority had decided that the
dental board’s method o appointment were critical, the majority could have been explicit about
that and thus eliminated the need for a concurrence. The best reading is that the majority simply
did not decide this important question because it did not need to in the case before the court. That
said, under the Fourth Circuit’s opinion in North Carolina State Board of Dental Examiners, there is
ample room for boards to argue that they are not private actors so long as they are appointed by
the state without any election.
39 Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., U.S. , () (ex-
plaining the two standards—namely, state articulation and supervision—for antitrust immunity).
] Cartels by Another Name
Court’s unanimous opinion last term in FTC v. Phoebe Putney Health System,
Inc. demonstrated its appetite for stopping cartel-like abuses o antitrust
immunity.40 The time is right to take action.
This Article proceeds in ve parts. Part I details the expansion o licensing
in the United States and gives examples o its excesses. Part II explains how
the current crisis arose, rst summarizing the economics o licensing and
then surveying the legal landscape that allowed its relatively unfettered
expansion. Part III makes our normative case for imposing Sherman Act
liability on state licensing boards, arguing that there is a logical t between
antitrust policy and the economic harm o heavy-handed licensing require-
ments. We also address antitrust federalism, claiming that deference to state
decisionmaking is especially dicult to justify in the context o occupational
licensing. Part IV details the mechanics o the alternative system we pro-
pose. We suggest that in the licensing context, the rule o reason should be
modied to allow defendants to justify their restraint with the argument
that less competition (o certain kinds) benets consumers in the regulated
labor market because it will improve public safety and the quality o service
provided, an argument that is traditionally out of bounds in § cases. Part
40 S. Ct. (). In Phoebe Putney, a local government entity (the Hospital Authority
o Albany-Dougherty County) purchased a hospital, changing the local market from one with two
competing hospitals to one with a single monopolistic provider o acute-care hospital services. The
purchase was possible because the state o Georgia had granted the Hospital Authority a variety o
powers, including the power to buy hospitals. Because Town of Hallie v. City of Eau Claire
previously held that sub-state governmental entities do not require supervision to trigger antitrust
immunity, U.S. , (), the question in Phoebe Putney was whether the state had clearly
articulated a policy o displacing competition through an anticompetitive merger when it granted
the Hospital Authority the power to buy hospitals. S. Ct. at . The Court held that the
state had not done so, reasoning that although the Authority was entrusted with providing medical
care and acquiring the means to provide medical care (which may involve purchasing hospitals),
those powers can be exercised without raising competitive issues. Id. at . Therefore, the grant
o those powers did not implicitly and necessarily contemplate anticompetitive use. Id. at .
The Court also emphasized that state action exemptions should be disfavored, quoting its prior
language from FTC v. Ticor Title Insurance Co., to this eect. Id. at (“[S]tate-action immunity
is disfavored, much as are repeals by implication.” (quoting FTC v. Ticor Title Ins. Co., U.S.
, ())).
To the extent that licensing board cases are about supervision, which is our focus here, Phoebe
Putney’s relevance to state action immunity for licensing boards is indirect. The case mainly
demonstrates an appetite for narrow readings o the state action doctrine and a reiteration o
Ticor’s language that state action immunities are disfavored. We argue, however, that the FTC’s
success in arguing that the “clear articulation” prong was not met would be much more dicult in
the context o professional licensing. Unlike the authority to purchase hospitals, the state-granted
ability to restrict professional entry and practice will almost always have an anticompetitive eect.
Thus, we do not see Phoebe Putney as widening the path for challenges to licensing board
immunity. Rather, the battleground in the case o occupational boards remains the supervision
prong under Midcal. Still, Phoebe Putney is in the spirit o narrowing state action immunity and
reiterates that state action immunity is disfavored. In that sense, it accords with our thesis.
University of Pennsylvania Law Review [Vol. :
IV then discusses the parties, damages, and defenses that would be involved
in a licensing board suit and speculates about likely state responses to the
new system.
I. OCCUPATIONAL LICENSING BOARDS: THE NEW CARTELS
Once limited to a few learned professions, licensing is now required for
over occupations.41 And once limited to minimum educational require-
ments and entry exams, licensing board restrictions are now a vast, complex
web o anticompetitive rules and regulations. The explosion o licensing and
the tangle o restrictions it has created should worry anyone who believes
that fair competition is essential to national economic health.
A. The Scope of Professional Licensing: Big and Getting Bigger
State-level occupational licensing is on the rise. In fact, it has eclipsed
unionization as the dominant organizing force o the U.S. labor market.
While unions once claimed % o the country’s working population, that
gure has since shrunk to below %.42 Over the same period o time, the
number o workers subject to state-level licensing requirements has doubled;
today, % o the U.S. workforce is licensed and % is certied by the
government.43 The trend has important ramications. Conservative esti-
mates suggest that licensing raises consumer prices by %.44 There is also
evidence that professional licensing increases the wealth gap; it tends to
raise the wages o those already in high-income occupations45 while harming
low-income consumers who cannot aord the inated prices.
The expansion o occupational licensing has at least two causes. First, as
the U.S. economy shifted away from manufacturing and toward service
industries, the number o workers in licensed professions swelled, accounting
for a greater proportion o the workforce. Second, the number o licensed
41 KLEINER, supra note , at .
42 Kleiner, supra note , at .
43 Kleiner & Krueger, supra note , at S, S g., S.
44 Id. at S (“[E]stimates of . . . state licensing’s inuence on wages with standard labor
market controls show a range from % to % for higher wages associated with occupational
licensing.”).
45 See Kleiner, supra note , at - (calculating the extent to which licensing aects wages);
see also Timothy R. Muzondo & Bohumir Pazderka, Occupational Licensing and Professional Incomes
in Canada, CAN. J. ECON. , () (performing a regression analysis and nding that
licensing restrictions confer benets to employees in educated professions); Robert J. Thornton &
Andrew R. Weintraub, Licensing in the Barbering Profession, INDUS. & LAB. REL. REV. ,
() (nding that minimum education requirements may “exclud[e] signicant numbers from
entering the trade”).
] Cartels by Another Name
professions has increased. Where licensing was once reserved for lawyers,
doctors, and other “learned professionals,” now oral designers,46 fortune
tellers, and taxidermists47 are among the jobs that, at least in some states,
require licensing. Licensing requirements are ubiquitous, although the
extent o regulation diers dramatically between states. For example,
Massachusetts licenses almost three times as many occupations as Rhode
Island does.48
Since boards are typically dominated by active members o the very pro-
fession that they are tasked with regulating, this dramatic shift toward
licensing has put roughly a third o American workers under a regime o
self-regulation. Our study o the composition and powers o all occupational
licensing boards in Florida and Tennessee revealed that license-holders
active in the profession have a majority on % o boards in Florida and
% o boards in Tennessee.49 Our empirical ndings, which we report in
the Appendix, corroborate the anecdotal references to “practitioner domi-
nance” in the legal and economic scholarship on occupational boards.50
Given this composition, it is not surprising that boards often succumb to
46 See Meadows v. Odom, F. Supp. d , (M.D. La. ), vacated as moot, F.
App’x (th Cir. ) (noting Louisiana’s licensing requirement in the oral profession).
47 CARPENTER ET AL., supra note , at tbl. (noting that twenty-six states require licensing
for taxidermists).
48 See Kleiner, supra note , at (suggesting that state-by-state comparisons are one good
way to structure economic analysis o licensing); see also Charles J. Wheelan, An Empirical
Examination o the Political Economy o Occupational Licensure (Mar. ) (unpublished
Ph.D. dissertation, University o Chicago) (on le with University o Chicago) (noting that the
total number o professions that a state licenses is an obvious indicator o a state’s proclivity to
license).
49 For a table reporting our ndings on the composition and rulemaking authority o boards in
Florida and Tennessee, see Appendix.
50 See, e.g., Jarod M. Bona, The Antitrust Implications of Licensed Occupations Choosing Their
Own Exclusive Jurisdiction, U. ST. THOMAS J.L. & PUB. POL’Y , () (noting that
individuals have strong incentives “to expand the reach o their occupation to the detriment o
both consumers and other occupations”); Clark C. Havighurst, Contesting Anticompetitive Actions
Taken in the Name of the State: State Action Immunity and Health Care Markets, J. HEALTH POL.
POL’Y & L. , () (observing that board members are typically chosen from lists o
nominees from within the profession itself, with one or two outside members); Kleiner, supra note
, at (“Generally, members o the occupation dominate the licensing boards.”); see also COX &
FOSTER, supra note , at - (conceding that members o the profession have valuable industry
knowledge but acknowledging the accompanying dangers); Jared Ben Bobrow, Note, Antitrust
Immunity for State Agencies: A Proposed Standard, COLUM. L. REV. , () (noting
that some state statutes require licensing board members to have experience in the industry);
J.R.R. II, Note, Due Process Limitations on Occupational Licensing, VA. L. REV. , ()
(“[S]eventy-ive percent o all occupational licensing boards are made up exclusively o practitioners
licensed in the respective occupations.”).
University of Pennsylvania Law Review [Vol. :
the temptation o self-dealing, creating regulations to insulate incumbents
rather than to ensure public welfare.
B. The Anticompetitive Potential of Occupational Licensing
This Section illustrates the anticompetitive potential o licensing regula-
tions as well as the breadth o occupations subject to licensing. A complete
picture o state licensing activity is impossible, as there are thousands o
professional boards operating in the United States. But a few snapshots
suce to show that the theoretical problems o self-regulation are all too
real in practice.
. The New “Professions”
Jobs once thought to be low-skill and low-stakes are increasingly coming
under state regulation. In Louisiana, for example, all ower arranging must
be supervised by a licensed orist.51 So when ower shop owner Monique
Chauvin’s only licensed employee passed away, she found her business in
violation o state law.52 Although Chauvin had run her New Orleans shop
successfully for over ten years and her arrangements were frequently
featured in magazines, she could have been subject to nes and even
imprisonment i she continued to operate.53 One should note that the
Louisiana Horticulture Commission uses money collected from the licensing
scheme to fund enforcement actions against unlicensed practitioners, rather
than using its authority to pursue complaints or alleged violations o its
quality and safety requirements.54 Constitutional challenges against Louisi-
ana’s licensing scheme have proven unsuccessful. A federal court recently
upheld the scheme, persuaded by an expert who claimed that licensing
51 LA. REV. STAT. ANN. § :(B)() () (“A retail orist’s license authorizes the
holder thereo to arrange or supervise the arrangement o oral designs which include living or
freshly cut plant materials and to sell at retail oral designs, cut owers, and ornamental plants in
pots normally and customarily sold by orists.”).
52 See Freeing Louisiana Florists: Licensing Law is Blooming Nonsense, INST. JUST., http://www.ij.org/
freeing-louisiana-orists-licensing-law-is-blooming-nonsense (last visited Mar. , ) (telling
Monique Chauvin’s story as an example o licensing gone too far).
53 Id.
54 The Louisiana Horticulture Commission governs licensure for landscape architects, land-
scape horticulturists, landscape irrigation contractors, arborists, and orists. The Commission held
fourteen meetings between March and December and considered sixty-four cases. In
sixty-two o those cases, the alleged infraction was practicing without a license. In only two cases
did the Commission address violations o substantive rules governing the practice o horticulture.
For board meeting minutes, see Horticulture Commission Meeting Minutes, ST. LA. BOARDS &
COMMISSIONS, https://wwwprd.doa.louisiana.gov/boardsandcommissions/viewMeetingMinutes.
cfm?board (last visited Mar. , ).
] Cartels by Another Name
“prevents the public from having any injury” from exposed picks, broken
wires, or infected owers.
55 But the court also noted that the regulation
could stand even without a public health justication—“industry protection-
ism” was itsel a legitimate state interest.56
As another example, Minnesota (along with several other states57) now
denes the ling o horse teeth as the practice o veterinary medicine, a
move that has redened an old vocation as a regulated profession subject to
restricted entry and practice rules. This put Chris Johnson, a “teeth-oater”
for hire, out o work. Although his family had practiced this routine,
noninvasive, and painless procedure58 for satised customers for genera-
tions, the Minnesota Veterinary Board sent Johnson a cease-and-desist
letter. Since his business did not employ veterinarians to supervise the teeth
oating, continued operation would be considered an unlicensed practice o
veterinary medicine, which carries severe penalties in Minnesota. Johnson
lost a constitutional challenge against the rule.59
Several states even prohibit the sale o caskets by anyone other than
licensed funeral directors.60 This restriction outlawed businesses like a
Benedictine monks’ woodshop at Saint Joseph Abbey in Louisiana.61 For
years, the monks had made simple pine cons to bury their departed. But
when they opened their shop to the public to help cover the costs o their
healthcare, the State Board o Embalmers and Funeral Directors (a body
with only one member from outside the industry62) found the competition
unwelcome. It served the monks with a cease-and-desist letter, threatening
jail time and a ne.63 The monks never handled bodies or planned funeral
55 Meadows v. Odom, F. Supp. d , (M.D. La. ), vacated as moot, F. App’x
(th Cir. ).
56 Id. at -.
57 See State Summary Report: Authority of Veterinary Technicians and Other Non-Veterinarians to
Perform Dental Procedures, AM. MED. ASS’N, https://www.avma.org/advocacy/stateandlocal/pages/
sr-dental-procedures.aspx (last updated Oct. ) (listing each state’s scope o practice for non-
veterinarians).
58 A domesticated horse’s modern diet is not coarse enough to wear down its teeth naturally,
which never stop growing. Horse teeth therefore require periodic ling, or “oating.” For more
information on Johnson’s story and the industry generally, see Challenging Barriers to Economic
Opportunity: Challenging Minnesota’s Occupational Licensing of Horse Teeth Floaters, INST. JUST.,
http://www.ij.org/minnesota-horse-teeth-oating-background (last visited Mar , ).
59 Johnson v. Minn. Bd. o Veterinary Med., No. -CV-- (Minn. Dist. Ct. th Judi-
cial Dist. June , ).
60 See, e.g., LA. REV. STAT. ANN. § :()-() () (dening “funeral director” under
Louisiana law as one with a valid license to perform all aspects o “funeral directing,” which
includes the sale o caskets and other funeral merchandise).
61 See St. Joseph Abbey v. Castille, F.d (th Cir. ).
62 Id. at .
63 See LA. REV. STAT. ANN. § : ().
University of Pennsylvania Law Review [Vol. :
services.64 They simply drop-shipped the empty caskets to mortuaries,
oering an inexpensive and simple alternative to the extravagant caskets
typically sold at funeral homes. And although Louisiana restricts the sale o
caskets, it does not regulate the design o caskets or even require that bodies
be buried in a casket at all.65
For a nal example, we turn to the beauty industry. State cosmetology
boards have responded to competition from two increasingly popular
practices—African-style hair braiding and eyebrow threading—by demanding
that braiders and threaders obtain cosmetology licenses before they can
lawfully practice their craft.66 Neither practice requires sharp instruments or
chemicals, and neither involves a signicant risk o infection. Now many
state cosmetology boards want braiders and threaders to attend two years o
school (with a price tag o ,) to learn cosmetology procedures and
techniques irrelevant to their practice, pass an exam, and pay yearly dues to
maintain a license in cosmetology—a profession they have no interest in
practicing.67
For Texas entrepreneur Ashish Patel, this meant shuttering his success-
ful brow threading business and ring his employees after the state upheld
the licensing requirements against his constitutional challenge.68 For hair
braider Amber Starks, it means crossing the border daily from her native
Oregon, where hair braiders are explicitly required to have a cosmetology
license, to Washington, where they are not.69 The majority o her clientele
come from Oregon as well, but they make the trip over the border to get
their preferred hairstyle at a price they can aord.70 The millions o cus-
tomers that live far away from the eleven states that exempt hair braiders
from the cosmetology license requirements71 must either nd a practitioner
willing to out the board or pay cartel prices.
64 St. Joseph Abbey, F.d at .
65 Id. After several years o litigation, the monks nally won a constitutional challenge
against the restriction. Id.
66 See Goldstein, supra note , at (describing the challenges that an African-style hair
braider faced when seeking an exemption from Utah’s licensing requirements).
67 Id.
68 See Monica Luhar, Threading Licensing in Texas Tied Up in Debate, Lawsuit, INDIA WEST,
Mar. , , at B, available at http://indiawest.com/news/-Threading-Licensing-in-Texas-
Tied-Up-in-Debate—Lawsuit.html (discussing a lawsuit led by eight plaintis against the Texas
Department o Licensing and Regulation).
69 See Anna Grin, Braiding African American Hair at Center of Overregulation Battle in Oregon,
THE OREGONIAN (Aug. , ), http://www.oregonlive.com/politics/index.ssf///braiding_
african_american_hair.html (describing Starks’s challenge to an Oregon law).
70 Id.
71 Id.
] Cartels by Another Name
. Old Professions, New Restrictions
For some professions, licensing provides such an obvious public benet
that barriers to entry and regulation o practice are accepted as necessary
evils. But while some professions may require restrictions to ensure quality
and public safety, a close examination o restrictions in those professions
suggests that those boards, too, have abused their ability to self-regulate.
For example, in many states, dental licensing boards restrict the number
o hygienists a dentist can hire to two.72 The anticompetitive eects o this
restriction are well known; in , the FTC published a policy paper
showing that dentist-to-hygienist ratios tend to raise prices but not quality.73
According to some dentists, the ratio restrictions are necessary to prevent
“hygiene mills”—practices that oer low-cost dental cleanings without
advanced dental services like exams, diagnosis, and surgery.74 The American
Dental Association (ADA) calls such practices unsafe, but since dental
hygienists must themselves possess a license requiring extensive education
on safe cleaning techniques,75 it seems clear that the main threat these
“mills” pose is to dentists themselves, in the form o reduced demand for
their services. At least one state has taken the hygienist restrictions further.
In , the South Carolina Board o Dentistry required that exams per-
formed by a licensed dentist accompany all cleanings.76 The rule frustrated
the state legislature’s attempt to extend in-school dental cleanings to rural
and other underserved children.
Similarly, the advent o nurse practitioners and physician assistants has
ignited a tur war between these “physician extenders” and doctors.77 Nurse
practitioners and physician assistants are trained in some o the same skills
72 LIANG & OGUR, supra note , at (describing the increase in the number o states with
such restrictions since ).
73 See id. at - (estimating that, in , the deadweight loss from the restrictions was
- million in the sixteen states that imposed such restrictions); see also Morris M. Kleiner &
Robert T. Kudrle, Does Regulation Aect Economic Outcomes? The Case of Dentistry, J.L. & ECON.
, () (showing empirically that, at least for uninsured individuals, stricter licensing
restrictions for dentists has only very little impact on quality).
74 See VA. DEP’T OF PLANNING & BUDGET, REGULATIONS GOVERNING THE PRACTICE OF
DENTISTRY AND DENTAL HYGIENE DEPARTMENT OF HEALTH PROFESSIONS, VAC -, at
- (Jan. , ), available at http://townhall.virginia.gov/L/GetFile.cfm?FileC:%CTownHall%
Cdocroot%C%C%C%Cdhp%dentistry%(dental%hygienists)-b.pdf.
75 LIANG & OGUR, supra note , at -.
76 S.C. Bd. o Dentistry, F.T.C. , () (stating that the legislature amended its
law to require dental hygienists to work “under general supervision”).
77 Carl B. Meyer, Science and Law: The Quest for the Neutral Expert Witness. A View from the
Trenches, J. NAT. RESOURCES & ENVTL. L. , (–) (“[I]ntense tur battles have
been fought between . . . doctors and nurse practitioners over the scope o responsibilities o the
parties.”).
University of Pennsylvania Law Review [Vol. :
as family practice physicians but need not learn the more advanced skills
essential to obtaining a medical degree. Thus, nurse practitioners’ education
costs less than that o medical doctors, and nurse practitioners’ fees reect
those cost savings.78 For many procedures, outcome studies reveal that the
extenders’ services are as safe and eective as that o physicians.79 Extenders
have been essential to low-cost convenience clinics like CVS’s MinuteClinics
and public health initiatives aimed at serving low-income individuals with
restricted access to medical care.80
Undoubtedly inuenced by powerful lobbying from the American Medical
Association (AMA), twelve states (including more populous states such as
California, Texas, and Florida) require physician supervision over all nurse
practitioner activity. 81 Several states prohibit nurse practitioners from
prescribing medication.82 For the most part, state medical boards, made up
primarily o physicians, hold the reins o competition—and decide the level
o supervision required.
Lawyers, too, use licensing to limit competition. Restrictions on bar en-
try and rules dening the ethical conduct o lawyers reveal that attorney-
licensing bodies have yielded to the temptation o self-dealing. Advertising
restrictions insulate lawyers from competition from other lawyers who can
claim better average outcomes for clients. For example, Alabama requires all
attorney advertising to include the following disclaimer: “No representation
is made that the quality o the legal services to be performed is greater than
78 See Ver itas Prep, Should You Go to Medical School or Nursing School?, U.S. NEWS &
WORLD REP. (Aug. , ), http://usnews.com/education/blogs/medical-school-admissions-
doctor////should-you-go-to-medical-school-or-nursing-school (describing the educational
dierences for nurse practitioners and doctors in terms o time, requirements, costs, and roles).
79 See, e.g., Daniel Tramp & Je Oliphant, Licensed Athletic Trainers: A Traditional, Unique,
and Proactive Approach in Wisconsin Sports Medicine, WIS. MED. J. , () (“Outcome
studies at the national level prove that patients utilizing athletic trainers demonstrate a signicant
reduction in re-injury rates, restricted workdays, and lost work time, and they have a % or
greater patient satisfaction rating.”).
80 See Elcha Shain Buckman, The Healthcare Climate and Communication (“The mission o
[corporate-owned retail health] clinics is to . . . relieve the excessive time and costs o unneces-
sarily using emergency rooms and provide quality care and savings . . . for our millions o
Medicaid, Medicare, underinsured, and uninsured citizens . . . .”), in P
ATIENT-PROVIDER
COMMUNICATIONS: CARING TO LISTEN (Valerie A. Hart ed., ).
81 See State Practice Environment, AM. ASS’N NURSE PRAC., http://www.aanp.org/legislation-
regulation/state-practice-environment/-legislation-regulation/state-practice-environment/-
state-practice-by-type (last visited Mar. , ) (categorizing states by licensing and regulatory
requirements).
82 Id. (explaining that sixteen states and the District o Columbia allow nurse practitioners to
prescribe medication, while the remainder o states place restrictions or prohibitions on nurse
practitioners’ ability to do so).
] Cartels by Another Name
the quality o legal services performed by other lawyers.”83 In addition,
many states dene title certication and abstraction as the “practice o law,”
which eectively inates demand for legal services by requiring attorney
representation at all real estate transactions.84 And the state ethical rules
prohibiting “champerty”—selling an interest in the outcome o a lawsuit—
help contingency fee lawyers prop up the price o representation at thirty
percent o the award.85
Moreover, each state has its own bar exam and licensing procedure,
which reduces lawyer mobility across state lines. Segmentation o the
market means that lawyers in each state are insulated from out-of-state
competition, allowing attorneys to charge higher legal fees than they could
in a nationwide market. The justication for this is colorable—a dierent
exam is necessary for each jurisdiction because o diering state laws—but
it fails to account for practices such as California’s requirement that lawyers
qualied in other states retake the multistate portion o the exam when
sitting for the California bar.86
Licensing bodies have also devised ways to restrict competition among
law schools and among law professors. In , the Department o Justice
(DOJ) challenged the American Bar Association’s (ABA) law school accredi-
tation standards that required schools to pay faculty “compensa-
tion . . . comparable with that o other ABA-approved schools,” limited
teaching obligations to eight hours per week, and required schools to provide
professors with paid leaves o absence.87 Although the ABA entered a consent
83 ALA. CODE OF PROF’L CONDUCT R. .(e) (West ).
84 The FTC has written letters to state bar associations that are considering whether to im-
plement restrictions on who may participate in loan closings. The FTC has urged bar associations
to avoid “the anticompetitive consequences o rules that prevent nonlawyers from conducting
closings.” FTC OFFICE OF POLICY PLANNING, REPORT OF THE STATE ACTION TASK
FORCE () [hereinafter STATE ACTION TASK FORCE].
85 Max Schanzenbach & David Dana, How Would Third Party Financing Change the Face o
American Tort Litigation? The Role o Agency Costs in the Attorney-Client Relationship (Sept.
, ) (unpublished manuscript) (on le with authors). Professors Dana and Schanzenbach
explore the eciencies o allowing third-party assignment and highlight the anticompetitive eect
o a rule allowing assignment only to attorneys. They point out that “the emergence o a full
assignment market would undermine the ability o contingency fee rm lawyers to charge as much
as they do”—champerty would create a competitive market for legal claims and likely reduce fees
to below the traditional (and suspiciously stable) thirty percent that contingency lawyers currently
charge. Dana and Schanzenbach argue that this pay cut partially explains why legislation allowing
champerty lacks attorney support. Id. at .
86 Thirteen other states also require retaking the MBE (Multistate Bar Examination). Bar
Exam / MBE Transfer, BARRECIPROCITY.COM, http://barreciprocity.com/bar-exam-mbe-transfer
(last visited Mar. , ).
87 Competitive Impact Statement at , United States v. Am. Bar Ass’n, F. Supp.
(D.D.C. ) (No. -), available at http://www.justice.gov/atr/cases/f/.htm.
University of Pennsylvania Law Review [Vol. :
decree that eliminated some o the most anticompetitive rules,88 they
replaced them with standards that have the same anticompetitive eects.89
In the same vein, the ABA allegedly refused to accredit the Massachusetts
School o Law at Andover (MSLA) for pretextual reasons. MSLA sued,
accusing the ABA o enforcing a group boycott and conspiring to monopo-
lize legal education in violation o the Sherman Act.90 The school lost on
state action grounds.91
Another device that many professions now use to restrict competition is
the apprenticeship. Many state licensing boards require apprenticeships for
would-be professionals, essentially guaranteeing incumbents low-cost labor
and raising barriers to entry.92 For example, most states’ funeral and
mortuary licensing boards require an applicant to complete a one-year
apprenticeship under a licensed funeral director in addition to education
and testing requirements.93 Similarly, some states require lengthy appren-
ticeships for aspiring psychotherapists. California requires a total o
hours o therapy under the supervision o a licensed therapist at that
therapist’s place o work.94 Interns cannot receive compensation directly
from patients, but rather they can only be paid, i at all, by their supervising
therapist.95 And the statute actually limits supervision to ve hours per
week, restraining competition among therapists for interns.96
88 Id. at - (discussing the conditions outlined in the proposed nal judgment).
89 For example, where the standards limited teaching loads to eight hours per week, the
modern standards emphasize that professors should have enough time, in addition to teaching, for
research; scholarship; “keep[ing] abreast o developments in their specialties”; and fullling obligations
to the law school, university community, profession, and the public. ABA, STANDARDS AND RULES
OF PROCEDURE FOR APPROVAL OF LAW SCHOOLS, Standard , (-), available at
http://www.americanbar.org/content/dam/aba/publications/misc/legal_education/Standards/standardsar
chive/__standards_and_rules_complete_book.authcheckdam.pdf. Thus, the ABA can make a
compelling argument that any school requiring more than eight hours per week o teaching violates this
provision. For a list o contemporary restrictions on law schools, see generally id.
90 Mass. Sch. o Law at Andover, Inc. v. Am. Bar Ass’n, F.d , (d Cir. ).
91 Id. at (granting the ABA Noerr immunity).
92 Wayne McCormack, Economic Substantive Due Process and the Right of Livelihood, KY.
L.J. , (–) (identifying medicine and architecture as examples).
93 For a state-by-state breakdown o license, education, and apprenticeship requirements, see
Licensing Boards and Requirements, N
AT’L FUNERAL DIRECTORS ASS’N (Apr. , ),
http://www.nfda.org/licensing-boards-and-requirements.html.
94 See CAL. BUS. & PROF. CODE § . () (detailing requirements that interns or
trainees must complete before applying for licensing examinations).
95 Id. § .(h).
96 Id. § .(c)().
] Cartels by Another Name
II. THE ROAD TO PROFESSIONAL CARTELIZATION
State professional boards arose from a belie that, for some professions,
inexpert practice would be socially inecient or even dangerous. Licensing
created a mechanism by which the government could prevent incompetent
practitioners from participating in the market. Regulation was justied by
the idea that the public benets outweighed the costs o higher prices and
reduced economic liberty.97 But unlike other regulatory bodies, licensing
boards became dominantly comprised o practitioners themselves.98 The
theory was that only members o a profession had the expertise necessary to
dene ecient rules for entry and practice, but self-dealing is inevitable
when the regulated act as regulators.99 Thus, the board-as-cartel was born.
This Part tells the economic and legal stories o anticompetitive licensing
in the United States. Section A reviews the economic theory behind
licensing, identifying its potential costs and benets. It explains that
licensing schemes that raise consumer prices and yield little benet to
anyone other than incumbent practitioners are socially wasteful. But, as
Section B details, state licensing boards have virtually free rein to enact this
socially wasteful regulation.
A. The Economics of Licensing
Licensing has long been an obsession o economists, including Milton
Friedman, who dedicated an entire chapter to the topic in his book,
Capitalism and Freedom.100 But the past twenty years have witnessed an
explosion o empirical work on the eects o licensing restrictions on
service quality and price, led most prominently by Morris Kleiner at the
University o Minnesota. The work o Kleiner and his contemporaries
reveals a consensus in the academy: a licensing restriction can only be
97 See KLEINER, supra note , at - (discussing various theories o why occupations are
regulated); see also Lee Benham, The Demand for Occupational Licensure (“Licensed occupations
place great emphasis on convincing the larger society o the benets associated with their
licensure . . . .”), in OCCUPATIONAL LICENSURE AND REGULATION , (Simon Rottenberg
ed., ); Wheelan, supra note , at (discussing the three traditional public-interest justica-
tions for licensing).
98 See supra text accompanying notes - and Appendix A; see also Kleiner, supra note , at
(“Generally, members o the occupation dominate the licensing boards.”).
99 See COX & FOSTER, supra note , at - (discussing the impact o self-regulation on
the public).
100 MILTON FRIEDMAN, CAPITALISM AND FREEDOM, ch. IX (); see also ADAM
SMITH, THE WEALTH OF NATIONS, bk. I, ch. , pt. II (George Bell & Sons ) ()
(observing that guilds raise earnings by limiting the availability o apprenticeships and lengthening
their duration), cited in KLEINER, supra note , at .
University of Pennsylvania Law Review [Vol. :
justied where it leads to better quality professional services—and for many
restrictions, proo o that enhanced quality is lacking.101
. The Costs o Licensing: Higher Prices, Lower Quantity
Licensing restrictions can aect price along four dimensions. First, pro-
fessional licensing can act as a barrier to entry into the profession.102
Second, licensing can establish rules o practice, like advertising bans, that
restrict competition.103 Third, state boards can suppress interstate competi-
tion by recognizing licenses only from their own state.104 Finally, a profes-
sion can prevent competition by broadening the denition o its practice,
bringing more potential competitors under its licensing scheme.105 These
“scope-of-practice” limitations tend to oust low-cost competitors that
operate at the fringes o an established profession.106
101 See KLEINER, supra note , at (“The major public policy justication for occupational
licensing lies in its role in improving quality o service rendered . . . . [T]he eect o regulation
on the level o service quality is uncertain.”); REBECCA LEBUHN & DAVID A. SWANKIN,
CITIZEN ADVOCACY CTR., REFORMING SCOPES OF PRACTICE () (“The stated purpose
[o state licensing laws] is to ensure consumers that healthcare workers conduct their practices in
areas for which they are properly trained.”); Sidney L. Carroll & Robert J. Gaston, Occupational
Licensing and the Quality of Service, LAW & HUM. BEHAV. , () (“[L]icensing has gone
far enough to ensure adequate quality in most places and has gone too far in others.”); Morris M.
Kleiner, Enhancing Quality or Restricting Competition: The Case of Licensing Public School Teachers,
U. ST. THOMAS J.L. & PUB. POL’Y , , () [hereinafter Kleiner, Enhancing Quality] (“The
general rationale for licensing is the health and safety o consumers. Beyond that, the quality o
service delivery . . . [is] sometimes invoked.”); Morris M. Kleiner & Charles Wheelan,
Occupational Licensing Matters: Wages, Quality and Social Costs, CESIFO DICE REP., Mar. , at
, (“O course, these labor market distortions must be weighed against any potential gains to
consumers from the quality improvements in the licensed profession. Yet even the putative
benets o licensure have come under academic assault.”); Morris M. Kleiner, Occupational
Licensing: Protecting the Public Interest or Protectionism? (W.E. Upjohn Inst., Policy Paper No. -
, ) [hereinafter Kleiner, Protecting the Public Interest or Protectionism?], available at
http://research.upjohn.org/up_policypapers/ (“[S]everal studies have found a number o cases
where licensing reduces employment, increases prices, but does not result in better services.”).
102 See Kleiner, supra note , at (describing methods by which licensing curtails labor
supply); see also Simon Rottenberg, Introduction to OCCUPATIONAL LICENSURE AND REGULA-
TION, supra note , at , .
103 See John E. Kwoka, Jr., Advertising and the Price and Quality of Optometric Services, AM.
ECON. REV. , () (concluding from data in the optometry profession that advertising
increases competition but nonadvertising increases quality).
104 See Kleiner, supra note , at - (providing examples o limitations such as tougher
examination pass rates and longer residency requirements).
105 See Kleiner & Krueger, supra note , at S (“For example, the work o ‘hair braiders,’
which is an unlicensed profession, could be brought under the control o the cosmetology board
and limited to only licensed cosmetologists or barbers.”).
106 Id.
] Cartels by Another Name
It is worth starting this cost analysis with what makes a professional li-
censing cartel dierent from a typical cartel. A typical price-xing cartel
will only be eective i an industry has a small number o rms; otherwise,
the temptation to cut price and expand output will be too great. Licensing
boards, however, can eectively raise price despite thousands o market
participants. Sometimes they work by muting price competition among
members through direct restrictions on professional practice, but that is not
the only way. Limiting the number o licensed professionals by making entry
dicult—and unauthorized entry illegal—raises prices because it limits
supply, and it does so even i licensed participants compete vigorously.107
Unlike rms, which may be able to expand without bound, a licensed
professional can only provide so much service herself. Boards can further
limit supply by controlling what unlicensed workers can produce and how
they must be supervised; the rule requiring that dentists supervise a maxi-
mum o two hygienists is an example. As a result, licensing boards can limit
output and raise price even with thousands o competing professionals,
much as cartelized oligopolies can in other industries.
Economists have studied extensively the eects o these professional
licensing requirements on price and, less extensively, quantity o services.
Studies that have the statistical power to identify an eect tend to show an
increase in price and a reduction in quantity.108 Mandatory entry require-
ments—such as examinations or educational prerequisites—tend to raise
consumer prices, but estimating the eect with any certainty has proven
dicult.109 One study estimated that licensing requirements raise
wages by % to %.110 Newer data suggest that licensing raises hourly
wages by %.111 A study showed that tougher licensing, in the form o
107 See Kleiner & Wheelan, supra note , at (illustrating this point using a hypothetical
restriction on prospective teachers).
108 See KLEINER, supra note , at -. Since professional licensing is mostly the prerogative
o individual states, economists have used the United States as a kind o natural experiment to
observe price dierences under dierent licensing regimes. Studies o the eects o licensing on
price typically adopt one or more o three basic methodologies. First, studies can compare prices
in professions before and after states’ imposition o licensing requirements. Second, studies can
compare prices o professional services in a state that requires a license with prices in a state that
does not (interstate study). Finally, economists can compare wages (as a proxy for price) between
licensed professions and unlicensed professions that require similar education levels, similar day-
to-day responsibilities, and lifestyle. See generally Kleiner & Kudrle, supra note , at -.
109 See Kleiner, supra note , at (“[R]elatively little empirical work has looked at issues
involving the quality o output or the demand-side response to these quality eects.”).
110 Morris M. Kleiner, Regulating Occupations: Quality or Monopoly?, EMP’T RES. (W.E.
Upjohn Inst., Kalamazoo, Mich.), Jan. , at tbl., available at http://research.upjohn.org/
empl_research/vol/iss/.
111 Kleiner & Krueger, supra note , at S.
University of Pennsylvania Law Review [Vol. :
lower pass rates on the qualifying exam, increased prices for dental services
by %.112
Similarly, most studies examining practice restrictions show that when a
licensing board is more heavy-handed in dictating hours, advertising, or
levels o supervision within a profession, the consumer prices are higher.
For example, one team o researchers estimated that restricting the number
o hygienists a dentist may employ increased the cost o a dental visit by
%,113 resulting in an estimated million cost to consumers in .114
Restrictions on advertising by lawyers is associated with an increase in
price,115 and in optometry, restrictions on advertising have been shown to
inate prices by at least %.116 Geographic restrictions—like nonreciprocity
between states—also tend to increase consumer prices.117
Because the nature o licensed practice is not to produce physical goods
that can be counted, measuring output as a function o licensing restrictions
has been a less attractive method for economists to measure licensure’s
eect on competition. Several studies, however, have analyzed its eect on a
related issue: employment growth. Here, the results have been more mixed
than in the price context. One study examining electricians, dentists,
plumbers, sanitarians, and veterinarians found that licensing reduces the
number o practitioners in a given eld.118 Yet other studies have failed to
measure any appreciable eect o licensing on the supply o barbers119 and
nurses.120
I licensing increases consumer prices, then some consumers must go
without professional services—these are the services they could aord in a
112 Kleiner & Kudrle, supra note , at -.
113 LIANG & OGUR, supra note , at , .
114 Id. at .
115 See WILLIAM W. JACOBS ET AL., FTC, IMPROVING CONSUMER ACCESS TO LEGAL
SERVICES: THE CASE FOR REMOVING RESTRICTIONS ON TRUTHFUL ADVERTISING
tbl.D () (nding many instances o a statistically signicant higher price for legal work in
areas with restrictions on advertising).
116 Kwoka, supra note , at .
117 One study estimated that universal reciprocity among states for dentists would result in a
geographical reallocation o dentists generating million (in prices) in consumer surplus.
Bryan L. Boulier, An Empirical Examination of the Inuence of Licensure and Licensure Reform on the
Geographical Distribution of Dentists, in OCCUPATIONAL LICENSURE AND REGULATION, supra
note , at , -.
118 Carroll & Gaston, supra note , at , .
119 See Thornton & Weintraub, supra note , at (nding that licensing requirements had
a minimal impact on the number o barbers entering the profession).
120 See William D. White, Mandatory Licensure of Registered Nurses: Introduction and Impact, in
OCCUPATIONAL LICENSURE AND REGULATION, supra note , at , .
] Cartels by Another Name
world without licensing.121 Some would-be practitioners lose out as well;
these are the individuals who do not have licenses but would like to compete
with the licensed professionals by oering low-cost services.122 A state’s
ability to cite and even prosecute unlicensed practitioners deters these low-
cost transactions; in economic terms, these deterred low-cost transactions
are the deadweight loss from licensing.123
The story, however, might not be so simple. To get a complete picture o the
world but-for licensing, one needs a theory o how eciently an unrestricted
market would function.124 Advocates o licensing argue that the free market
does a poor job o eciently allocating professional services to consumers
because service quality would be too low without licensing.125 The notion
that a free market would result in too-low quality service rests on two
possible sources o failure in the market for professional services. First,
absent licensing, the asymmetry o information between professional
providers and consumers about the quality o service126 would create what
economists call the “lemons problem.” Second, free markets for professional
services would result in sub-optimal quality because the market participants
(providers and consumers) do not internalize all the costs o bad service.127
In other words, a free market for professional services creates negative
externalities.
The lemons problem, rst articulated by George Akerlo in , occurs
in a market where products vary in quality but consumers cannot reliably
distinguish good products from bad ones.128 I consumers cannot distinguish
between good and bad professional service, the high-quality, high-price
121 See KLEINER, supra note , at (quoting an article about a farm worker who performed
two root canals on himsel because he could not aord dental services).
122 See Kleiner, supra note , at - (describing the deterrent eect o licensing, which may
lead to greater entry into unlicensed professions).
123 See Kleiner, Enhancing Quality, supra note , at (noting that using licensing require-
ments as a gatekeeping mechanism can lead to negative consequences); see also Kleiner &
Wheelan, supra note , at (“When members o the legal profession told Milton Friedman that
every lawyer should be a Cadillac, he famously replied that many people would be better o with a
Chevy . . . .”).
124 See Kleiner & Wheelan, supra note , at (comparing and contrasting certication
regimes with licensure regimes).
125 See Kleiner, supra note , at ; see also Benham, supra note (“Almost all licensed occu-
pations have claimed they will successfully cope with undesirable market failures.”).
126 Alex R. Maurizi, The Impact of Regulation on Quality: The Case of California Contractors, in
OCCUPATIONAL LICENSURE AND REGULATION, supra note , at .
127 See COX & FOSTER, supra note , at - (discussing how reputation and litigation will
likely be ecient to control the problem o externalities only in some circumstances).
128 See George A. Akerlof, The Market for “Lemons”: Quality Uncertainty and the Market Mech-
anism, Q.J. ECON. , () (explaining that buyers possess imperfect information when
purchasing a car because they do not know whether the car “will be good or a lemon”).
University of Pennsylvania Law Review [Vol. :
providers will not be able to attract even those customers who both want
and can pay for better quality service.129 Unable to obtain a premium for
their service, high-quality providers will either exit the market or reduce the
quality o the service to match their low-quality, low-cost competitors.130
This leads to deadweight loss in the form o deterred transactions between
high-quality providers and high-quality demanding consumers.131 Licensure
addresses the information asymmetry at the root o the lemons problem by
assuring consumers that all providers meet a minimum quality standard.
The second market failure possibly addressed by licensure occurs when
low-price, low-quality transactions impose costs on third parties. An
individual may be willing to receive poor service for a low price rather than
no service at all, but only because she does not have to bear the full costs o
bad service (e.g., treatment in a public hospital for infection from a careless
barber or a nuisance settlement o a frivolous suit led by an unscrupulous
lawyer). Licensure can improve public safety by imposing quality standards
on professionals through education or examination and by setting rules o
professional practice.
It may not be fair to say that professional licensure results in deadweight
loss by harming competition i it also avoids the deadweight loss (associated
with the lemons problem and negative externalities) that would obtain in a
free market. But the cure must not be worse than the disease: a procompeti-
tive licensing scheme should avoid more deadweight loss than it creates.
Quantifying the social harm from licensure on the one hand, and from free-
but-inecient markets for professional services on the other, is dicult.
But i licensing has any eect on the market failures it is designed to
address, then it should improve service quality. Put simply, i licensure
works, quality o service should improve.132
. The Benets o Licensing: Improved Quality?
The economic research on quality o service as a function o licensing
paints a murky picture. Some studies show modest increases in quality,133 at
129 See COX & FOSTER, supra note , at -.
130 Id. at .
131 Id.
132 Kleiner, supra note , at -.
133 See KLEINER, supra note , at tbl.. (showing varying levels o quality improvements
in a number o licensed professions); Carroll & Gaston, supra note , at (concluding that
licensing results in better delivered quality but not better quality received by society as a whole);
Kleiner & Kudrle, supra note , at (suggesting that licensing increased the quality o dental
visits but not overall dental health); Carl Shapiro, Investment, Moral Hazard, and Occupational
Licensing, REV. ECON. STUD. , - () (nding an overall increase in service quality
] Cartels by Another Name
least for some kinds o consumers, but other studies do not nd that same
eect.134 A few studies even claim to show that licensing reduces quality.135
Part o the explanation for the mixed results may be the diculty o
assessing the quality o professional services;136 this is the very source o the
lemons problem that licensing is designed to address. Researchers have used
a variety o ingenious methods to evaluate the quality o professional
services in the last few decades, but none is without its aws.
Alex Maurizi, for example, used the number o consumer complaints
lodged with the California Contractors’ State License Board as a proxy for
the quality o service provided by professional contractors.137 He hypothe-
sized that i barriers to entry (a licensing examination in this case) were
eective in eliminating low-quality providers, then lower pass rates should
be associated with higher quality service.138 In fact, he found the opposite.139
Similarly, economists have used malpractice litigation rates to measure the
quality o professional outcomes.140 Using consumer dissatisfaction to gauge
quality has obvious limits because consumers may not take the initiative to
formalize their unhappy experience in a complaint or lawsuit.141
due to licensing, but nding that consumers who put little value on quality are worse o because
o higher prices).
134 See Joshua D. Angrist & Jonathan Guryan, Teacher Testing, Teacher Education, and Teacher
Characteristics, AM. ECON. REV. , () (“[T]here is . . . no evidence that testing
hurdles have raised the quality o new and inexperienced teachers . . . .”); Thomas J. Kane et al.,
What Does Certication Tell Us About Teacher Eectiveness? Evidence from New York City, ECON.
EDUC. REV. , () (“We nd little dierence in the average academic achievement
impacts o certied, uncertied and alternatively certied teachers.”); Morris M. Kleiner & Daniel
L. Petree, Unionism and Licensing of Public School Teachers: Impact on Wages and Educational Output
(concluding that teacher licensing has “ambiguous eects” on student performance), in W
HEN
PUBLIC SECTOR WORKERS UNIONIZE , (Richard B. Freeman & Casey Ichniowski eds.,
); Robert Gordon et al., Identifying Eective Teachers Using Performance on the Job (The
Hamilton Project, Discussion Paper No. -, ) (“[R]aising the hurdles for entry into the
teaching profession a little higher is not likely to generate a watershed improvement in teacher
quality.”).
135 See Carroll & Gaston, supra note , at (suggesting that “excessive restriction” reduces
the quality o services available to the “lower middle income classes”); Maurizi, supra note , at
(“[C]onsumers may be receiving a quality o service quite similar to what would prevail in the
absence o licensing, and they may be paying higher prices for that quality.”).
136 Kleiner, supra note , at .
137 Maurizi, supra note , at -.
138 Id. at -.
139 Id.
140 See, e.g., KLEINER, supra note , at -.
141 Maurizi, supra note , at - (challenging the assumption that increases in low-quality
work will “produce an equivalent increase in the number o voiced complaints”). But see KLEINER,
supra note , at (“[L]icensing makes an occupation more visible and sets up rules and regula-
tions that make lawsuits easier to le.”).
University of Pennsylvania Law Review [Vol. :
Sometimes quality can be measured directly by looking at actual out-
comes from professional services. For example, Kleiner used test scores to
measure the eect o licensing requirements for public school teachers on
student performance.142 His study ultimately did not show an eect from
licensing.143 Using a similar outcome-based technique, Kleiner and Kudrle
analyzed dental exam results from new enlistees in the U.S. Air Force. They
found that, for uninsured individuals, the strictness o licensing require-
ments for dentists in their home states did not impact enlistees’ dental
health at the time o enlistment.144
B. The Legal Landscape of Professional Licensing
Where researchers have been able to show that licensing improves quality,
existing regulation might be addressing the market failures caused by
information asymmetry and negative externalities. I so, and i the benets
o licensing outweigh its harm to competition, then it is socially desirable.
But under the dominant interpretation o antitrust immunity, state licensing
boards never have to balance the procompetitive benets o a restriction
against its anticompetitive eects. While all other combinations o competi-
tors operate in Sherman’s shadow, licensing boards have mostly escaped
antitrust suits—allowing them to create rules that maximize welfare for
incumbent professionals at the expense o everyone else. That leaves only
constitutional avenues o redress, which have proven to be weak against self-
dealing boards.
. Twin Immunities Shield State Licensing Boards from
Antitrust Liability
Licensing requirements are essentially agreements, usually among com-
petitors, to create barriers to entry into their profession. These incumbent
professionals reap the rewards o weaker competition in the form o higher
prices and higher prots. This conduct sounds, on its face, like a perfect
142 See Kleiner, Enhancing Quality, supra note , at -; see also KLEINER, supra note , at
(calling test scores “a generally recognized measure o ‘quality’ in education”).
143 Kleiner, Enhancing Quality, supra note , at -; see also Kane et al., supra note , at .
144 Kleiner & Kudrle, supra note . For those with insurance coverage (which was also asso-
ciated with higher income), however, tougher state regulations on dentistry improved average
dental health. Id. at -. The results o the Air Force study exemplify an interesting nding o
some quality studies: positive quality eects, where found, tend to be limited to higher-end
consumers. See, e.g., Carroll & Gaston, supra note , at (showing that licensing improved
practitioner quality but decreased overall service quality for consumers by creating a practitioner
shortage).
] Cartels by Another Name
target for Sherman Act liability. But with Parker v. Brown145 and Eastern
Railroad Presidents Conference v. Noerr Motor Freight, Inc.,146 the Supreme
Court has created twin immunities that make antitrust suits over state
licensure regulation very dicult.
Parker created antitrust immunity for “state action,” which shields state
governments and bodies delegated a state’s authority from federal antitrust
liability.147 In the line o cases following Parker, the Court dened the
contours o the immunity to include all bodies “clearly authorized” by the
state to restrict competition.148 In most cases, where these bodies are
deemed private actors, these bodies must also be subject to active supervi-
sion by the state itself.149 State action immunity bars suits by aggrieved
competitors and public enforcers alike. In Noerr, the Court held that private
individuals and organizations cannot be sued under the Sherman Act for
attempting to inuence government action—by either ling a law suit or
lobbying a legislature—even i their intent and eect is anticompetitive.150
Together, these doctrines “are complementary expressions o the principle
that the antitrust laws regulate business, not politics.”151
a. Parker and State Action Immunity
In Parker, the Supreme Court rejected antitrust claims against what was
essentially a price-xing scheme among competitors because the scheme had
been blessed by the state o California.152 In holding that the Sherman Act
does not apply to state government action, the Court found the identity o
the actor—the state or private citizens—essential but provided no guidance
on how to draw the line.153 This created serious problems for lower courts
trying to apply Parker because states rarely regulate economic activity
directly through a legislative act. Rather, states delegate rulemaking and
145 U.S. ().
146 U.S. ().
147 Parker, U.S. at - (“We nd nothing in the language o the Sherman Act or in its
history which suggests that its purpose was to restrain a state or its ocers or agents from
activities directed by its legislature.”).
148 See, e.g., Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum Inc., U.S. ,
() (“First, the challenged restraint must be one clearly articulated and armatively expressed
as state policy . . . .” (internal quotation marks omitted)).
149 See, e.g., id. (“[S]econd, the policy must be actively supervised by the State itself.” (inter-
nal quotation marks omitted)).
150 Noerr, U.S. at .
151 City o Columbia v. Omni Outdoor Adver., Inc., U.S. , ().
152 Parker, U.S. at .
153 Id. at .
University of Pennsylvania Law Review [Vol. :
rate-setting to agencies, councils, or boards dominated by private citizens.154
Are these bodies arms o the state or collections o private actors?
The Court responded in with California Retail Liquor Dealers Ass’n
v. Midcal Aluminum Inc.,155 which provided a test to distinguish private
action from state action. To enjoy state action immunity, the Court held, the
challenged restraint must be “one clearly articulated and armatively
expressed as state policy to restrict competition,” and the policy must be
“actively supervised by the State itself.”156 For many potential defendants,
the Midcal rule thus shifted the battleground from the public–private bounda-
ry to the precise meanings o “clear articulation” and “active supervision.” In
no fewer than ten decisions rening Midcal’s two-step test,157 the Court has
made clear that virtually any colorable claim to state authority can be all the
articulation necessary.158 The supervision requirement, in contrast, can have
real bite.
Since Midcal, however, the Court has created a category o entities not
subject to the supervision requirement at all.159 These entities, which
include municipalities,160 enjoy immunity i they can meet the clear articula-
tion prong alone. The question in the recent Fourth Circuit case, currently
under review by the Supreme Court, is whether licensing boards are like
municipalities in this respect; in particular, whether a licensing board
dominated by competitors—who regulate the way they compete and exclude
154 For evidence o delegation in two states, see Appendix.
155 U.S. ().
156 Id. at (citation and internal quotation marks omitted).
157 For the evolution o the Midcal two-step test, see FTC v. Phoebe Putney Health Sys., Inc.,
S. Ct. , - (); FTC v. Ticor Title Ins. Co., U.S. , - (); City of
Columbia v. Omni Outdoor Adver., Inc., U.S. , - (); Patrick v. Burget, U.S. ,
- (); 324 Liquor Corp. v. Duy, U.S. , - (); Fisher v. City of Berkeley,
U.S. , - (); Town of Hallie v. City of Eau Claire, U.S. , - (); S. Motor
Carriers Rate Conference, Inc. v. United States, U.S. , - (); Hoover v. Ronwin, U.S.
, - (); Cmty. Comm’ns Co., Inc. v. City of Boulder, U.S. , - ().
158 Clear articulation need not be an armative statement about abrogating a competitive
policy. See STATE ACTION TASK FORCE, supra note , at (“To satisfy the ‘clear articulation’
standard, the case law provides that the state need not compel the anticompetitive conduct at
issue . . . .”). And i a state creates a policy that has foreseeable anticompetitive eects, that
policy is sucient under Midcal’s rst prong. See Hallie, U.S. at . Indeed, since Midcal, the
Supreme Court has rejected a clear articulation claim only twice. See Phoebe Putney Health Sys.,
Inc., S. Ct. ; Cmty. Comm’ns Co., Inc., U.S. .
159 STATE ACTION TASK FORCE, supra note , at (noting an exception for boards that
“perform a public function and are directly accountable to the state”).
160 See Hallie, U.S. at (“None o our cases involving the application o the state action
exemption to a municipality has required that compulsion be shown.”).
] Cartels by Another Name
would-be competitors—enjoy state action antitrust immunity without being
supervised by the state.
b. Noerr and Petitioning Immunity
Whereas Parker immunity insulates public or quasi-public bodies from
antitrust scrutiny, Noerr immunity shields private actors’ eorts in petitioning
governments for anticompetitive restraints.161 Noerr and Parker immunities
are, as Justice Scalia has observed, “two faces o the same coin”162—by
disallowing suits against the private parties that inuence state action, Noerr
essentially closes a loophole left open by Parker. Noerr itsel was a suit
against a confederacy o railroad companies accused o persuading a state
legislature to pass laws unfavorable to truckers.163 Even though the railroads
had used deception in their campaign to inuence the state legislature,164
the Court found their actions to be immune to antitrust liability on federalism
grounds.165 Later cases extended Noerr immunity to government petitioning
through all avenues, including lawsuits166 and executive branch lobbying.167
c. Immunity for Professional Licensing Boards Under Parker and Noerr
Although many potential plaintis and scholars—and probably licensing
board members—assume that state occupational boards operate outside o
the Sherman Act’s reach,168 the question is more complex than it appears.
161 See Omni, U.S. at - (“The federal antitrust laws also do not regulate the con-
duct o private individuals in seeking anticompetitive action from the government.”); Allied
Tube & Conduit Corp. v. Indian Head, Inc., U.S. , () (“Concerted eorts to
restrain or monopolize trade by petitioning government ocials are protected from antitrust
liability . . . .”).
162 Omni, U.S. at .
163 E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., U.S. , - ().
164 The defendants deceived the legislature by attributing their own antitrucking statements
and studies to “bogus independent civic groups.” Marina Lao, Reforming the Noerr-Pennington
Antitrust Immunity Doctrine, RUTGERS L. REV. , ().
165 Noerr, U.S. at (holding that allowing such liability would “substantially impair the
power o government to take actions through its legislature and executive that operate to restrain
trade”).
166 See Pro’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., U.S. ,
() (“I an objective litigant could conclude that the suit is reasonably calculated to elicit a
favorable outcome, the suit is immunized under Noerr . . . .”).
167 See United Mine Workers o Am. v. Pennington, U.S. , () (“Joint eorts to
inuence public ocials do not violate the antitrust laws even though intended to eliminate
competition.”).
168 See, e.g., Neil Katsuyama, The Economics of Occupational Licensing: Applying Antitrust Eco-
nomics to Distinguish Between Benecial and Anticompetitive Professional Licenses, S. CAL.
INTERDISC. L.J. , () (“Most licensing boards were created or are managed by the
University of Pennsylvania Law Review [Vol. :
Notably, the Fourth Circuit recently held a state licensing board accountable
for its anticompetitive restrictions on dental practice in North Carolina State
Board of Dental Examiners v. FTC.169 The law here is complicated and in
ux; thus, a comprehensive treatment o its details is necessary.
Certainly, licensing restrictions passed directly by a state’s legislature or
supreme court enjoy state action immunity.170 Most licensing regulations,
however, become law when promulgated by an administrative board, and the
Supreme Court has not determined the status o practitioner-dominated
boards since Midcal. Most board decisions likely meet Midcal’s rst prong
requiring clear articulation from the state, but these decisions are not
typically subject to the kind o state review that courts have required to nd
active supervision. Thus, immunity turns on whether state licensing boards
are among the entities that do not have to show supervision.
Any state mandate calling for the regulation o entry and good standing
in a profession is likely to meet the Court’s low bar for clear articulation,
since all licensing restricts competition by reducing the number o competing
professionals in the eld.171 The Ninth Circuit’s opinion in Benson v. Arizona
State Board of Dental Examiners172 is typical. In considering Sherman Act
claims challenging a state dental board’s refusal to recognize out-of-state
licenses, the court easily found the necessary clear articulation in the state’s
statute giving the Board discretion to adopt reciprocity rules.173 Contrary
outcomes involve boards acting in violation o state policy. In Goldfarb v.
state, and therefore are beyond the reach o the Sherman Act.”); cf. Einer Richard Elhauge, The
Scope of Antitrust Process, HARV. L. REV. , () (noting the Supreme Court’s
suggestion that “the active supervision requirement is probably inapplicable to state agencies, a
suggestion with which the lower courts have virtually all agreed” (footnote omitted)).
169 F.d (th Cir. )
170 See Hoover v. Ronwin, U.S. , - () (“[W]hen a state legislature adopts
legislation, its actions constitute those o the State . . . and ipso facto are exempt from the
operation o the antitrust laws.” (citations omitted)); see also Mass. Sch. o Law at Andover, Inc. v.
Am. Bar Ass’n, F.d , (d Cir. ) (applying state action immunity because the
states made the ultimate decision whether to adhere to ABA standards); STATE ACTION TASK
FORCE, supra note , at (noting that “actions o a state legislature and o a state supreme court
acting in a legislative fashion are those o the state acting as sovereign” (footnote omitted));
Bobrow, supra note , at (noting that discretion over a law restricting attorney advertising
was properly left to the state in Bates v. State Bar of Arizona, U.S. ()).
171 See, e.g., Earles v. State Bd. o Certied Pub. Accountants, F.d , (th Cir.
) (noting that, in establishing a permissive policy with respect to the State Board o Certied
Public Accountants Board o Louisiana, “the state rejected pure competition . . . in favor o
establishing a regulatory regime that inevitably has anticompetitive eects”); see also Havighurst,
supra note , at (“Few things are more foreseeable than that a trade or profession empowered
to regulate itsel will produce anticompetitive regulations.”).
172 F.d (th Cir. ).
173 Id. at .
] Cartels by Another Name
Virginia State Bar, the Supreme Court held that although a state bar associa-
tion was a state agency for the purpose o “investigating and reporting the
violation” o ethical rules promulgated by the Supreme Court o Virginia,174
it could not enjoy immunity for its price-xing because it acted contrary to
the state’s clearly articulated competition policy.175
As clear as it is that typical licensing board actions pass Midcal’s rst
prong, it is equally clear that many would fail the second prong—the active-
supervision requirement—i subjected to it. The Supreme Court has
recognized that the active-supervision requirement is met only when states
actually “exercise ultimate control over the challenged anticompetitive
conduct;”176 the Court has overturned schemes where states possessed, but
never exercised, their authority to review the scheme.177 Even schemes
where the state provides the nal authorization o a restriction can lack
supervision i the state uses a “negative option” that allows a state’s silence
to signify approval.178 For most licensing boards, their restrictions become
operational upon, at most, a rubber stamp from the state. The typical case
falls short o Ticor’s requirement o an armative pronouncement by the
state signaling that it has “played a substantial role in determining the
specics o the economic policy.”179
Thus, a board’s status under Parker turns on whether it is subject to the
requirement o supervision at all. In Town of Hallie v. City of Eau Claire, the
Court found a municipality immune under Parker because it acted pursuant
174 U.S. , n. () (quoting VA. CODE ANN. § - ()).
175 See id. at - (“[A]nticompetitive activities must be compelled by direction o the State
acting as a sovereign.”); see also FTC v. Mass. Bd. o Registration in Optometry, F.T.C. ,
() (refusing to nd clear articulation for an optometry board’s onerous advertising
restrictions in light o contrary statutory language).
176 Patrick v. Burget, U.S. , (); see also Cal. Retail Liquor Dealers Ass’n v.
Midcal Aluminum Inc., U.S. , () (nding inadequate supervision because the “State
does not . . . engage in any ‘pointed reexamination’ o the program”). Although decided decades
before Midcal’s two-step formulation, Parker itsel emphasized the fact that the challenged
restriction did not take eect until approved by the state. Parker v. Brown, U.S. ,
().
177 See, e.g., FTC v. Ticor Title Ins. Co., U.S. , () (“The mere potential for
state supervision is not an adequate substitute for a decision by the State.”).
178 Id. at -. Likewise, the FTC has held that “silence on the part o the state does not
equate to supervision.” N.C. Bd. o Dental Exam’rs, F.T.C. , ().
179 Ticor, U.S. at . Boards are typically subject to several mechanisms that improve
their accountability to the state, such as member disclosure requirements, adherence to state
administrative procedure acts, and public access to meetings and minutes. See, e.g., N.C. Bd. of
Dental Exam’rs, F.T.C. at - (noting the board’s required compliance with “North
Carolina’s Public Records Act, Administrative Procedure Act, and open meetings law”). But at
least one lower court has held that these devices are inadequate to establish supervision under
Midcal’s second prong. See N.C. State Bd. o Dental Exam’rs v. FTC, F.d (th Cir. ).
University of Pennsylvania Law Review [Vol. :
to the state’s clearly articulated policy to displace competition, despite being
unsupervised.180 The Court reasoned that, for municipalities, supervision is
unnecessary because there is no “real danger that [it] is acting to further
[its] own interests, rather than the governmental interests o the State.”181
Although Hallie did not provide a test for determining which entities, in
addition to municipalities, are entitled to this fast track to immunity, a
footnote provided a hint: “In cases in which the actor is a state agency, it is
likely that active state supervision would also not be required, although we
do not here decide that issue.”182
Many lower courts have applied Hallie’s footnote, though dicta, as law.183
But by and large these courts have not interpreted the footnote to mean that
all entities with a colorable claim to being a “state agency”—which probably
includes occupational licensing boards—are automatically exempt from the
supervision requirement.184 Rather, most lower courts analyze the function,
composition, and accountability o the entity claiming immunity when
considering its status under the Hallie footnote.185 The circuits, too, are split
on this question o how state occupational licensing boards fare under this
analysis.186
Some courts have concluded that occupational boards are among the
“state agencies” to which the Hallie Court was referring, and thus exempted
them from Midcal’s supervision prong. For example, in Earles v. State Board
of Certied Public Accountants of Louisiana, the Fifth Circuit declined to apply
Midcal’s supervision prong to a state board and thus rejected Sherman Act
claims against it.187 The opinion reasoned that Louisiana’s Board o Certi-
ed Public Accountants “is functionally similar to a municipality” because
“the public nature o the Board’s actions means that there is little danger o
a cozy arrangement to restrict competition.”188 Similarly, in Hass v. Oregon
State Bar, the Ninth Circuit held that the state bar, as an agent o the
Oregon Supreme Court, “is a public body, akin to a municipality for the
180 U.S. , ().
181 Id.
182 Id. at n..
183 Elhauge, supra note , at .
184 See A PHILIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ c, at
(d ed. ) (describing state court cases after Hallie); C. Douglas Floyd, Plain Ambiguities in
the Clear Articulation Requirement for State Action Antitrust Immunity: The Case of State Agencies,
B.C. L. REV. , - ().
185 See sources cited supra note .
186 Id.
187 F.d , (th Cir. ).
188 Id.
] Cartels by Another Name
purposes o the state action exemption.” 189 The court cited the board’s three
(o fteen) nonlawyer members, public meetings, and open records as
evidence o the board’s public nature.190 Finding no danger that the bar
(acting as a state licensing board) was “pursuing interests other than those
o the state,” the court did not apply the supervision prong.191
Not all courts have been as comfortable eliding Midcal’s second prong
when considering action by a state agency, especially when that agency is an
occupational licensing board. But until last year, the only circuit cases that
suggested state agencies must pass both prongs did so in dicta, providing
relatively weak support for potential antitrust plaintis. Even now, the only
circuit decision squarely holding that a state agency must satisfy both
prongs has some language suggesting that it could have narrow application.
Before last year’s Fourth Circuit decision, precedent supporting the su-
pervision requirement for licensing boards was weak because the cases at
most implied that supervision would apply. For example, in FTC v. Mo-
nahan, Judge Breyer (then writing for the First Circuit) rejected a licensing
board’s claim that state action immunity automatically allowed it to circum-
vent a federal subpoena in an antitrust case.192 The court explained that
whether the state supervision condition applies “depends upon how the
Board functions in practice,” which in turn depends on the information
requested in the subpoena.193 The opinion thus ordered the board to comply
with the subpoena, but made no holding on the merits o the board’s claim
that its public nature meant it need not show state supervision to enjoy
Parker immunity.194 Similarly, the Ninth Circuit, in an opinion that does not
cite its somewhat contrary opinion in Hass, has observed that a board “may
not qualify as a state agency” because its “private members have their own
agenda which may or may not be responsive to state labor policy.”195 As in
Monahan, the court did not issue a merits opinion after the remand.
Without an opinion squarely holding a licensing board to antitrust scru-
tiny, case law such as Hass and Earles has caused scholars to assume away the
possibility o an antitrust suit against a licensing board and to deter litigants
189 F.d , (th Cir. ).
190 Id.
191 Id. at .
192 F.d (st Cir. ).
193 Id. at .
194 Id. (“[W]e cannot now say, without knowing more facts, whether or not this additional
‘state supervision’ condition will apply.”).
195 Wash. State Elec. Contractors Ass’n, Inc. v. Forrest, F.d , (th Cir. )
(emphasis added).
University of Pennsylvania Law Review [Vol. :
from pursuing such suits.196 Even i courts acknowledged that the doctrinal
question o Parker immunity for occupational boards was technically open,197
scholars and litigants seem to assume that, as a practical matter, the court-
room door was closed.
Last year, however, the Fourth Circuit took these holdings out o the
hypothetical realm and squarely applied Midcal’s second prong to a licensing
board in North Carolina State Board of Dental Examiners v. FTC.198 The
decision thus created a circuit split with the Ninth and Fifth Circuits—a
split that the Supreme Court recently decided to review.199 As we noted
earlier, the breadth o the Fourth Circuit holding is unclear.200 According to
the concurrence in the Fourth Circuit, the holding is very narrow; it leaves
many boards—as presently comprised—immune from suit. Specically, the
Fourth Circuit upheld an FTC decision that struck down North Carolina’s
dentistry board’s claim for immunity based on the board’s failure to show
adequate supervision.201 In a lengthy opinion, the Commission explained
that whether an entity must satisfy Midcal’s supervision prong depends not
on its formal label as a “state agency,” but rather on the “tribunal’s degree o
condence that the entity’s decision-making process is suciently inde-
pendent from the interests o those being regulated.”202 The Fourth Circuit
agreed, holding that “when a state agency appears to have the attributes o a
private actor and is taking actions to benet its own membership . . . both
parts o Midcal must be satised.”203
The potential narrowness o the Fourth Circuit holding arises because
the panel concluded that a board dominated by practitioners elected by
other industry members ts that description.204 The concurrence contended
196 See, e.g., Havighurst, supra note , at (observing that, despite the FTC’s success in a
case against the Texas State Board o Accountancy, “[t]here were few follow-up cases o this
kind”).
197 Some scholars have recognized this doctrinal uncertainty. See, e.g., Bobrow, supra note ,
at ; Bona, supra note , at .
198 F.d (th Cir. ).
199 N.C. Bd. o Dental Exam’rs v. FTC, No. -, U.S.L.W. (), granting cert. to
N.C. State Bd. of Dental Examiners, F.d .
200 See supra note .
201 Id. at (“[T]he Board’s status as a group o professionals does not condone its anticom-
petitive practices.”).
202 N.C. Bd. o Dental Exam’rs, F.T.C. , (). In this respect, the opinion echoes
the FTC’s State Action Task Force Report, which advocated supervision for organizations where
members essentially make rules for their own industries. STATE ACTION TASK FORCE, supra
note , at . The idea follows from Areeda and Hovenkamp’s argument that “bodies engaged in
self-regulation o their members’ commercial activities need active supervision by a more public
body to satisfy the Midcal requirements.” AREEDA & HOVENKAMP, supra note , ¶ , at .
203 N.C. State Bd. of Dental Exam’rs, F.d at (italics added).
204 Id. at .
] Cartels by Another Name
that practitioner-dominance is not alone sucient to show that a board is a
“private actor” in need o state supervision under the rule o the case. The
case’s holding, according to the concurrence, “turns on the fact that the
members o the Board, who are market participants, are elected by other
private participants in the market.”205 Under the concurrence’s reading,
boards comprised o private competitors appointed by a governor (ubiqui-
tous among licensing boards206) would not be subject to Midcal’s supervision
prong and therefore would almost always enjoy Parker immunity.
We argue that the concurrence’s interpretation—which results in a broad
state action immunity—has a weak foundation under Supreme Court
precedent or sound public policy, even i several circuit courts might agree.
A presumption o such a broad state action immunity has, in many circuits,
relegated plaintis to ill-suited constitutional challenges to boards’ anti-
competitive actions.
. The Common Route to Challenging State Licensing Restraints:
Due Process and Equal Protection
With powerful antitrust immunities in place, the only viable avenue for
consumers or would-be professionals seeking to challenge the actions o
state licensing boards is to make a constitutional claim.207 Like all state
regulation, professional licensing restrictions must not violate the Due
Process and Equal Protection Clauses o the Fourteenth Amendment. Due
process prevents a state from denying someone his liberty interest in
professional work i doing so has no rational relation to a legitimate state
interest. 208 Similarly, equal protection requires that states distinguish
licensed professionals from those excluded from practice on some rational
basis related to a legitimate state goal.209 The two analyses typically conate
into one question: Did the licensing restriction serve, even indirectly or
ineciently, some legitimate state interest?210
205 Id. at (Keenan, J., concurring).
206 Almost all the licensing boards we surveyed are appointed by the governor. See Appendix.
207 See Katsuyama, supra note , at - (“The two principle [sic] means through which
licensing regulations have been challenged are the Fourteenth Amendment’s Due Process Clause
and the Sherman Antitrust Act.”).
208 See generally Anthony B. Sanders, Comment, Exhumation Through Burial: How Challenging
Casket Regulations Helped Unearth Economic Substantive Due Process in Craigmiles v. Giles,
MINN. L. REV. , - () (explaining economic regulation and modern rational basis
jurisprudence).
209 See id. at - (noting the parallels between economic substantive due process and
equal protection jurisprudence).
210 Katsuyama, supra note , at -.
University of Pennsylvania Law Review [Vol. :
That burden is easy to meet, as illustrated by the leading Supreme Court
case on the constitutionality o professional licensing schemes. In William-
son v. Lee Optical, the Supreme Court upheld a state statute preventing
opticians from tting patients’ existing lenses in new frames without a
prescription from an ophthalmologist or optometrist.211 The Williamson
plaintis sued on the theory that the scheme was designed to articially
increase demand for optometry services and therefore violated the Due
Process and Equal Protection Clauses.212 The Court implicitly recognized a
liberty right under the Due Process Clause to pursue one’s chosen occupa-
tion.213 But since that right is not suciently “fundamental” to give rise to
strict scrutiny214 and because opticians are not a protected class under the
Equal Protection Clause, both claims were subject only to rationality
review.215 The Court rejected the plaintis’ challenge, making clear that any
possible justication for the restriction, however thin, was enough.216 Other
cases have further held that the proered justication need not have
actually motivated the legislature to survive rationality review; it may be
post-hoc and prepared only for litigation.217
The Supreme Court has only once found an occupational licensing re-
striction to fail rationality review, in Schware v. Board of Bar Examiners of
New Mexico,218 and then only because an otherwise valid licensing require-
ment was unlawfully applied to an individual. Like most states, New
211 U.S. , (). Although the case considered state legislative activity, subse-
quent cases have claried that the case’s analysis is applicable to administrative rules promulgated
by state licensing boards. See, e.g., Powers v. Harris, F.d , (th Cir. ) (suggest-
ing that “merely a citation to Williamson would have suced to dispose o” a case involving a
statute).
212 Williamson, U.S. at .
213 Although the Williamson Court did not make this explicit, subsequent cases have articu-
lated this nding. See, e.g., Meadows v. Odom, F. Supp. d , (M.D. La. ), vacated as
moot, F. App’x (th Cir. ) (“The right to pursue the ‘common occupations o life’ is a
protected liberty interest, subject to reasonable limitations.” (quoting Blackburn v. City o
Marshall, F.d , (th Cir. ))).
214 See Craigmiles v. Giles, F.d , - (th Cir. ) (“Although the licensing
requirement has disrupted the plaintis’ businesses, the regulations do not aect any right now
considered fundamental and thus requiring more signicant justication.”).
215 Williamson, U.S. at -.
216 Id. It found enough rationality in the fact that “in some cases the directions contained in
the prescription are essential, i the glasses are to be tted so as to correct the particular defects o
vision or alleviate the eye condition.” Id. at . Thus the Court upheld the statute even though it
conceded that “[t]he Oklahoma law may exact a needless, wasteful requirement in many cases.” Id.
217 See, e.g., Clark Neily, No Such Thing: Litigating Under the Rational Basis Test, N.Y.U. J.L.
& LIBERTY , - () (explaining that actual reasons are irrelevant because legislatures
need not articulate reasons for statutes).
218 U.S. ().
] Cartels by Another Name
Mexico requires attorneys to exhibit good moral character in order to sit for
the bar exam. In Schware, the Court found a rational basis for such a
requirement on its face, but it held that the New Mexico Supreme Court
did not have a rational justication for denying a former communist
permission to sit for the exam.219 Because o its politically charged subject
matter, Schware has largely been limited to its facts. In any case, it expressly
approved o a state’s ability to require its bar applicants to possess a quality
as subjective as “good moral character.”220
In applying Schware to the activity o state licensing boards, lower courts
have found even extremely thin justications for anticompetitive licensing
restrictions to suce for rationality review. In Meadows v. Odom, a Louisiana
district court accepted the state board’s contention that licensing orists
helped promote health and safety by decreasing the risk o pricks by wires
in haphazardly arranged bouquets.221 Similarly, a California district court
upheld the California Structural Pest Control Board’s requirement that
exterminators o rats, mice, and pigeons—but not those o skunks and
squirrels—obtain a state license.222
One circuit has even held that insulating professionals from competition
is itself a legitimate state interest, making matters even more dicult for
plaintis alleging harm to competition. The Tenth Circuit in Powers v.
Harris distinguished intrastate protectionism, which it considered constitu-
tionally permissible, from interstate protectionism, which it acknowledged
was illegitimate under the Dormant Commerce Clause.223
Contrary holdings are rare. The Sixth Circuit gave the campaign to
invalidate anticompetitive state licensing on constitutional grounds224 its
219 Id. at .
220 Id. at .
221 F. Supp. d , - (M.D. La. ), vacated, F. App’x (th Cir. ).
The court quoted the testimony o a retail orist, testifying as an expert, to support the assertion
that licensing orists reected the state’s “concern for the safety and protection o the general
public.” Id. at . The orist testied, “I believe that the retail orist does protect people from
injury . . . . We’re very diligent about not having an exposed pick, not having a broken
wire, . . . and I think that because o this training, that prevents the public from having any
injury.” Id.
222 Merrield v. Lockyer, F. Supp. d , - (N.D. Cal. ), a ’d in part, rev’d in
part, F.d (th Cir. ). It was enough to pass rationality review that the covered pests
were more commonly found inside structures than the noncovered pests, suggesting that they were
a more natural target for regulation. Id. at . Although the holding was reversed on appeal, the
case illustrates that some courts nd even very weak justications colorable.
223 F.d , (th Cir. ), cert. denied, U.S. ().
224 Institute for Justice, a public interest law rm, is at the forefront o this movement, and
many o the cases cited in this section were argued by their attorneys. See IJ Cases, INST. FOR
JUSTICE, http://www.ij.org/cases (last visited Mar. , ).
University of Pennsylvania Law Review [Vol. :
most signicant victory in Craigmiles v. Giles.225 Using reasoning that was
explicitly rejected in Powers, the Craigmiles court invalidated Tennessee’s
restriction on unlicensed casket sales.226 The court was unusually skeptical
about the justications advanced by the state board, which argued that
shoddy caskets presented a public health risk.227 The court found that only
one justication did not reek with “the force o a ve-week-old, unrefriger-
ated sh”228: the scheme would allow funeral directors to collect monopolis-
tic prots in selling cons.229 Unlike the Powers court, the Sixth Circuit
deemed such economic protectionism “illegitimate” and invalidated the
restrictions because they failed even “the slight review required by rational
basis review.”230
Powers’ condemnation o interstate protectionism suggests that the
Dormant Commerce Clause may be an alternative means o attacking the
constitutionality o occupational licensing restrictions.231 Yet cases brought
on this theory have failed. Most states do not recognize occupational licenses
from other states, and plaintis have argued that such “nonreciprocity”
violates the dormant commerce clause by discriminating against out-of-state
commerce in favor o in-state interests. But courts have rejected this claim,
explaining that states have a legitimate interest in applying their own
particular requirements to professionals. 232 “Nonreciprocity” licensing
schemes pass rationality review as long as they apply the same licensing
requirements to in-state and out-of-state applicants.
225 F.d (th Cir. ).
226 Id. at .
227 Id. at -.
228 Id. at (citation omitted).
229 Id. at . The court noted that the restriction allowed funeral homes to “mark up the
price o caskets to percent.” Id. at .
230 Id. at -.
231 See Herbert Hovenkamp, Federalism and Antitrust Reform, U.S.F. L. REV. ,
() (“[O]ne can imagine egregious situations in which the impact o state regulation falls
almost entirely on out-of-state interests, but then it seems the dormant Commerce Clause would
be sucient to handle the problem.”).
232 See, e.g., Locke v. Shore, F.d , (th Cir. ) (nding Florida’s interior
design license requirement constitutional); Kirkpatrick v. Shaw, F.d , (th Cir. )
(nding Florida Bar rules constitutional); Scariano v. Justices o the Supreme Court o the State
o Ind., F.d , (th Cir. ) (nding Indiana’s waiver o bar exam requirements for
select out-of-state applicants constitutional).
] Cartels by Another Name
III. THE NORMATIVE CASE: WHY SHERMAN ACT LIABILITY
FOR STATE LICENSING BOARDS IS A GOOD IDEA
State action immunity for occupational licensing boards is an anachro-
nism with an ever-increasing price tag as more professionals and more
services come under board authority. Constitutional suits have done little to
solve the problem. This Part makes the normative case for lifting antitrust
immunity for state licensing boards. It begins by illustrating the close t
between the harms that the Sherman Act sought to combat and the economic
harm from heavy-handed licensing regulation. We argue that it is antitrust
law, not constitutional law, that provides the most logical and eective
mechanism to evaluate the costs and benets o occupational licensure.
We then contend that the principal argument against broadening Sherman
Act liability—that it disrupts the balance o power between the states and
the federal government—is especially unpersuasive in the licensing context.
As the scholarly debate owing from Midcal reveals, concerns for federalism
are at their peak when federal laws displace state regulations enacted by a
locally accountable government with constituent participation. This does
not describe restrictions created by practitioner-dominated licensing boards.
A. Antitrust Liability for Professional Licensing: An
Economic Standard for Economic Harm
The Sherman Act—famously called “the Magna Carta o free enter-
prise”233—protects competition as a way to maximize consumer welfare.
According to courts and economists alike, competition is harmed when
competitors restrict entry or adhere to agreements that suppress incentives
to compete. When these kinds o restrictions are naked and horizontal,
liability attaches per se, but even when they are not, competitors must prove
that they provide a net benet to consumers in order to pass muster under
the rule o reason.234 At bottom, both the per se rule and the rule o reason
ask a single question: Is competition (and therefore are consumers) harmed
or helped by this activity? Because this test, unlike rationality review under
the Constitution, best safeguards consumer welfare, it should be used to
evaluate occupational licensing restrictions.
233 United States v. Topco Assocs., Inc., U.S. , ().
234 See Leegin Creative Leather Prods., Inc. v. PSKS, Inc., U.S. , () (“In its
design and function the rule [o reason] distinguishes between restraints with anticompetitive
eect that are harmful to the consumer and restraints stimulating competition that are in the
consumer’s best interest.”).
University of Pennsylvania Law Review [Vol. :
. Sherman Act Policy and the Competitive Harm o Licensing:
A Close Fit
Without the veneer o “professional licensing,” some board restrictions
epitomize the evil at which modern antitrust policy is aimed. Like all
agreements between competitors, licensing schemes can be used for compet-
itive good or competitive evil. The normative question in both traditional
cartel cases and licensing contexts should be the same: Does the combina-
tion, on net, improve consumer welfare?235 To ensure that this important
question is asked and answered in the licensing context, antitrust law and its
tools for balancing pro- and anticompetitive eects should be brought to
bear on licensing schemes.
This close t between the Sherman Act’s intended target and the eco-
nomic harm o excessive licensing can be seen in the functional equivalence
o the restrictions promulgated by occupational boards and the business
practices held unlawful under § . To cut hair legally in Tennessee, a
candidate must pass a test—designed by her would-be competitors—
proving she can le and polish nails.236 But when a gas burner manufacturer
was denied approval by a private standard-setting association that used a
test inuenced by his competitors and “not based on objective standards,”
the Supreme Court found Sherman Act liability appropriate.237 Similarly,
the Ohio Rules o Professional Conduct prohibit attorneys from advertising
their prices using words such as “cut rate,” “discount,” or “lowest.”238 But
when similar restrictions on price advertising are imposed by private
associations o competitors, rather than as a licensing requirement, they are
per se illegal.239 Additionally, all lawyers must prove their “good moral
standing” to join a state bar.240 But when a multiple listing service (a private
235 Cf. Timothy Sandefur, Equality of Opportunity in the Regulatory Age: Why Yesterday’s Ration-
ality Review Isn’t Enough, N. ILL. U. L. REV. , - (–) (“I the government
must protect consumers from the ill eects o monopolies, then monopolistic practices by
government licensing agencies should also be prohibited. The potential victims are the same
(consumers); the potential injury is the same (unreasonable prices); and the potential wrongdoers
are the same (monopolistic producers).”).
236 See TENN. CODE. ANN. §§ --; --; -- (West ) (requiring appli-
cants for a cosmetologist’s license to prove that they have passed a course o instruction in practice
and theory at a school o cosmetology).
237 Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., U.S. , , ().
238 OHIO RULES OF PROF’L CONDUCT R. . cmt. .
239 See AREEDA & HOVENKAMP, supra note , ¶c, at (discussing such cases).
240 For more information on bar qualications, see NAT’L CONFERENCE OF BAR EXAM’RS &
AM. BAR ASS’N SECTION OF LEGAL EDUC. & ADMISSION TO THE BAR, COMPREHENSIVE
GUIDE TO BAR ADMISSION REQUIREMENTS (), available at http://www.ncbex.org/
assets/media_les/Comp-Guide/CompGuide.pdf.
] Cartels by Another Name
entity not created by the state) comprised o competing real estate agents
tried to impose a “favorable business reputation” requirement on its mem-
bers, a court found the requirement to violate the rule o reason because the
standard was vague and subjective.241 The requirement failed Sherman Act
scrutiny because it gave the listing service the power to exclude competitors
in arbitrary and anticompetitive ways.242
Sometimes the match between a licensing restriction and an unlawful
private restriction on trade is more analogical than literal, but the anticom-
petitive risk is the same. For example, nonrecognition o out-of-state
licenses subdivides the national market for services and insulates profes-
sionals in one state from competitors in another. Market allocation, which
has a comparable economic eect, is per se illegal under § o the Sherman
Act when agreed to by private competitors. Similarly, when a licensing
board dominated by practitioners tightly controls the standards o profes-
sional practice, it acts as a standard-setting association passing judgment on
its competitor’s products. In both contexts, there is potential for consumer
benet and opportunistic self-dealing, but only private standard-setting
associations are subjected to antitrust scrutiny.243
Thus, licensing schemes can be similar to cartel agreements in substance,
which alone may justify antitrust liability. But making matters even worse
for consumers, licensing schemes come in a particularly durable form.
Licensing boards, by their very nature, face few o the cartel problems that
naturally erode price and output agreements between competitors. By
centralizing decisionmaking in a board and endowing it with rulemaking
authority through majority voting, professional competitors overcome the
hurdle o agreement that ordinarily inhibits cartel formation. Cheating is
prevented by imposing legal and often criminal sanctions—backed by the
police power o the state—on professionals who break the rules.244 Finally,
most cartels must fend o new market entrants from outside the cartel that
hope to steal a portion o its monopoly rents. For licensed professionals,
licensing deters entry and ensures that all professionals (at least those
practicing legally) are held to its restrictions.
241 United States v. Realty Multi-List, Inc., F.d , (th Cir. ).
242 Id. at -.
243 HERBERT HOVENKAMP, ANTITRUST LAW ¶ , at (d ed. ); cf. C-O-
Two Fire Equip. Co. v. United States, F.d , - (th Cir. ) (nding that the jury
could reasonably infer that the defendant corporations were maintaining noncompetitive prices in
order to sell to both dealers and the public), cert. denied, U.S. ().
244 Ninety-ve percent o Florida licensing boards and seventy-six percent o Tennessee
boards are backed up by criminal sanctions. See Appendix.
University of Pennsylvania Law Review [Vol. :
We highlight the similarities between cartel activity and licensing re-
strictions to suggest that licensing is a natural target for regulation under
the Sherman Act. But just because both kinds o restrictions can be held to
antitrust scrutiny does not mean that the outcome o that analysis will (or
should) be the same. As we explain in detail in Part IV, per se condemna-
tion o most board activity is inappropriate. And, under our proposed
modication to the rule o reason, some restrictions—restrictions that
would be condemned i used by a private cartel—will be approved. The
point here is that i excessive licensing threatens competition, then it should
be held to a standard designed to address competitive harm. Modern
antitrust law provides just that standard.
. Constitutional Suits and Their Limited Ability to
Protect Consumers
Constitutional suits alone cannot curtail the anticompetitive eects o
professional licensing for two reasons. First, and perhaps most important,
they are almost impossible to win.245 Second, successful challenges vindicate
an individual’s right to work, not a consumer’s right to low prices driven
down by robust competition.246 It is a happy coincidence that these interests
are often tethered. But because the constitutional question is framed as a
struggle between the individual and the state, the standard—rational basis—
requires no direct inquiry into competitive eects. Therefore, it is antitrust
law, not constitutional law, that can directly address the economic evils o
licensing by requiring restrictions to be economically reasonable. And it is
the rule o reason, not rationality review, that can balance pro- and anti-
competitive eects o a restriction and ensure that only the ecient survive.
Suits challenging state licensing restrictions on constitutional grounds
are rarely successful because plaintis must overcome powerful presump-
tions in favor o the state. In the professional licensing context, “the
demands o rational basis review are not impossible to overcome, but they
are extraordinarily high.”247 A law for which “there is any conceivable state
o facts that could provide a rational basis” will survive constitutional
challenge; 248 even the imsiest justication will do. The legitimizing
245 See supra subsection II.B..
246 See, e.g., McCormack, supra note , at (asserting that the Supreme Court has created
a right to livelihood and suggesting that it should be used as the basis for due process challenges to
regulation).
247 Sanders, supra note , at .
248 FCC v. Beach Commc’ns, Inc., U.S. , ().
] Cartels by Another Name
rationale may be post hoc, unsupported by facts or evidence,
249 or even
supplied by the judge himself250 i the state fails to articulate a sucient
rational basis in its brief. As one judge puts it, rational basis scrutiny
“invites us to cup our hands over our eyes and then imagine i there could
be anything right with the statute.”251 With so many ways to validate a
statute, plaintis are forced “to prove a negative—a nearly impossible
task.”252
When constitutional suits are successful, the right vindicated is that o
the individual against the government, not the right o the consumer against
a self-dealing industry. Sometimes these interests are aligned; robust
protection for an individual’s right to work means more competitors in the
profession, which in turn could mean lower prices for consumers. But
scholars have framed the campaign to invoke constitutional rights against
heavy-handed professional regulation as a revival o the right to liveli-
hood,253 not as a consumer-welfare movement. Thus, courts hearing consti-
tutional challenges to licensing schemes are confronted with arguments
about what kinds o economic activity a state may regulate in the rst place,
not arguments about whether the benets o licensing outweigh its costs.
When the dispute is framed as a question about when states can legitimately
use their police power for economic regulation, courts can invoke the
specter o Lochner254 to justify a hands-o approach.
Nowhere is it more apparent that constitutional law and antitrust law
serve dierent purposes than in Powers v. Harris. In that case, the Tenth
Circuit upheld a licensing restriction as rationally related to Oklahoma’s
“legitimate state interest” in insulating incumbent professionals from
competition.255 The court noted that “while baseball may be the national
249 Neily, supra note , at - (providing examples o regulations upheld merely because
a legislature does not have to articulate any reason or factual basis for adopting it).
250 Lana Harfoush, Grave Consequences for Economic Liberty: The Funeral Industry’s Protectionist
Occupational Licensing Scheme, The Circuit Split, and Why It Matters, J. BUS. ENTREPRENEUR-
SHIP & L. , () (noting that plaintis must anticipate not only rationales “stated in the
regulation, or . . . stated in the legislative records, but also whatever the judge may think o
while on the bench”).
251 Arceneaux v. Treen, F.d , n. (th Cir. ) (Goldberg, J., concurring).
252 Sandefur, supra note , at & n. (illustrating the dicult challenge that plaintis
face).
253 See, e.g., McCormack, supra note , at (pointing out that the right o livelihood does
not t within the normal construction o constitutional principles because it does not involve “the
political relation o the individual to government”).
254 Lochner v. New York, U.S. () (holding that New York could not legitimately
exercise its state police power to limit the number o hours that a baker could work each day and
week).
255 Powers v. Harris, F.d , - (th Cir. ), cert. denied, U.S. ().
University of Pennsylvania Law Review [Vol. :
pastime o the citizenry, dishing out special economic benets to certain in-
state industries remains the favored pastime o state and local govern-
ments.”256 Although other circuits have held otherwise,257 the Supreme
Court refused to grant certiorari to resolve the circuit split, leaving the
Tenth Circuit’s holding as one possible interpretation o “legitimate state
interest.” This interpretation eviscerates constitutional law’s ability to
safeguard robust competition and its benets to consumer welfare.
B. Antitrust Federalism: Its Modern Justications and Applicability to
Sherman Act Liability for Licensing Boards
The most serious argument against Sherman Act liability for state licensing
boards is that it would upset the balance between state and federal power
struck in Parker and its progeny. As discussed above, the doctrinal question
is technically unsettled, even i most courts and commentators take for
granted that boards are immune under Parker.258 That doctrinal uncertainty
raises a normative question: Should boards enjoy state action immunity? In
this Section, we argue that they should not.
We reveal the normative foundation o antitrust federalism by surveying
the Midcal case law and the voluminous scholarship interpreting it. Alt-
hough the various accounts dier in other ways, they all agree that self-
dealing, unaccountable decisionmakers should face antitrust liability. We
argue that state licensing boards fall squarely in this category when a
majority o members are competitors subject to or benetting from the
boards’ rules. Therefore, all practitioner-dominated boards should be subject
to Midcal’s supervision requirement, regardless o who selects their members.
. The Parker Debate: Accountability Is Key
Over a dozen Supreme Court cases since Parker have wrestled with de-
ning exactly who, and what kind o conduct, enjoys antitrust immunity.259
Likewise, much ink has been spilled in law reviews over the normative
commitments behind the Court’s handwringing. Do we require state
supervision because without it, federalism, the underlying justication for
256 Id. at .
257 See, e.g., Craigmiles v. Giles, F.d , (th Cir. ) (holding that “protecting a
discrete interest group from economic competition is not a legitimate government purpose”).
258 See supra subsection II.B..c.
259 For a listing o the cases decided after Midcal, see supra note . The cases decided between
Parker and Midcal include City of Lafayette v. La. Power & Light Co., U.S. (); Bates v.
State Bar of Ariz., U.S. (); Cantor v. Detroit Edison Co., U.S. (); and
Goldfarb v. Va. State Bar, U.S. ().
] Cartels by Another Name
immunity, is not implicated? Or do we require supervision because we trust
governments (but not private entities) to restrict competition only as
necessary to serve the public interest? Since Parker, both commentators and
courts have rejected pure comity justications for antitrust federalism.
Instead, the law reserves state action immunity for bodies whose struc-
tures and processes ensure they act in the public interest. In other words,
political accountability is the price a state must pay for antitrust immunity.260
So held the Court in FTC v. Ticor Title Insurance Co., explaining that
“[s]tates must accept political responsibility for actions they intend to
undertake” by active supervision.261 The Court further emphasized state
accountability: “Federalism serves to assign political responsibility, not to
obscure it.”262
The scholarship interpreting Midcal echoes this sentiment. Three o the
most cited commentators from the debate are William Page, John Shepard
Wiley, Jr., and Einer Elhauge. Each wrote within a decade after Midcal, and
all called for reforms to the state action doctrine that would more eectively
sort captured regulation from politically legitimate regulation. Each pro-
posed a dierent theory and disagreed with the others in signicant ways,
but all three would deny immunity for licensing boards—at least as they
operate presently.
In the year following Midcal, Page applauded the clear articulation
requirement as protection against industry self-dealing through state agency
capture.263 I a state wanted to enjoy federal antitrust immunity, it had to
make a clear statement—through an elected and politically accountable
body—expressing a policy in conict with the Sherman Act.264 To Page,
these legislative statements assured “valid popular consent” for anticompetitive
regulations, even i an unelected agency or committee subsequently hashed
out the details.265
260 See Havighurst, supra note , at (“The active-supervision requirement . . . may
also embody a federal expectation that any state that denies consumers the benets o competition
must provide some alternative protection for their interests.”).
261 U.S. , ().
262 Id.
263 See William H. Page, Antitrust, Federalism, and the Regulatory Process: A Reconstruction and
Critique of the State Action Exemption After Midcal Aluminum, B.U. L. REV. , ()
(noting that the clear articulation requirement enables courts and regulated rms to “predict
accurately whether their activities are exempt”).
264 Id. at .
265 Id. at .
University of Pennsylvania Law Review [Vol. :
Five years later, Wiley took an opposing view in criticizing Midcal,266
but like Page, assumed that an essential ingredient o antitrust federalism is
public participation.267 Wiley’s proposal allows Sherman Act scrutiny when
state restrictions result from producer capture, implying that federal
antitrust law should bow to state regulation only when that regulation is at
least minimally responsive to the public.268
Elhauge disagreed with the framing o the Midcal debate, both by the
Supreme Court (in post-Midcal cases such as 324 Liquor Corporation v.
Duy269 and Fisher v. City of Berkeley270) and by commentators like Page and
Wiley, precisely because it obscured the role that politically unaccountable
self-dealing played in antitrust federalism.271 He argued against what he
called the “conict paradigm”—in which state action immunity is perceived
as a battle between federal interest in free markets and state interest in
protectionism—in favor o his “more straightforward approach” o simply
asking whether “under the [state’s] statutory scheme, the person controlling
the terms o the restraint . . . was nancially interested.”272 Thus, Elhauge’s
vision o antitrust federalism overlaps with Page’s and Wiley’s where it sees
local political legitimacy—to Elhauge, nancial disinterest—as a prerequi-
site to immunity.273
266 John Shepard Wiley Jr., A Capture Theory of Antitrust Federalism, HARV. L. REV. ,
, ().
267 Id. at -.
268 Id. at -.
269 U.S. ().
270 U.S. ().
271 Elhauge, supra note , at -.
272 Id. at .
273 Many other scholars have argued that separating politically accountable decisionmaking
from self-dealing should be the main goal o the state action test. See, e.g., Merrick B. Garland,
Antitrust and Federalism: A Response to Professor Wiley, YALE L.J. , () (stating that
the underlying rationale o the state action exemption is “respect for the decisions for elected local
governments”); Hovenkamp, supra note , at (arguing that “antitrust need not countenance
restraints in which the eective decision makers are the market participants themselves”); Robert
P. Inman & Daniel L. Rubinfeld, Making Sense of the Antitrust State-Action Doctrine: Balancing
Political Participation and Economic Eciency in Regulatory Federalism, TEX. L. REV. ,
() (concluding that regulations are immune from antitrust scrutiny “provided those regulations
were decided by an open, participatory political process”); Thomas M. Jorde, Antitrust and the New
State Action Doctrine: A Return to Deferential Economic Federalism, CALIF. L. REV. , -
() (highlighting the importance o opportunities for public participation); David McGowan &
Mark A. Lemley, Antitrust Immunity: State Action and Federalism, Petitioning and the First Amendment,
HARV. J.L. & PUB. POL’Y , () (“Arguments about state action and petitioning
immunity ultimately converge on substantive ideas o democracy and democratic values.”); Jim
Rossi, Political Bargaining and Judicial Intervention in Constitutional and Antitrust Federalism,
WASH. U. L.Q. , () (“State-action immunity, implied from the Sherman Act, aords
immunity for purposes o promoting federalism—valued because o the democratic legitimacy it
] Cartels by Another Name
When the FTC published its State Action Task Force Report in , it
adopted what had become the consensus view: antitrust federalism is
defensible only when a state could be held accountable for an anticompeti-
tive restriction.274 According to the report, state action immunity exists to
exempt laws and regulations that are attractive to voters because they
restrict competition that harms some market participants but simultaneously
benets the public.275 Immunity is necessary because nearly all government
action changes the competitive environment and creates some market losers.
However, the FTC report recognized that meaningful voter support is
necessary to justify immunity.276 Unless the decisions o private actors are
properly supervised by political actors subject to election, the support
justifying immunity is lacking.
. State Licensing Boards: Self-Interested and Unaccountable
Consortiums o Competitors
The scholarly perspectives on Parker and Midcal suggest that state action
immunity is not appropriate where the temptation o self-dealing is espe-
cially high and the potential for holding ocials accountable especially low.
For state licensing boards, both conditions hold, resulting in absurd
licensing restrictions. First, those most hurt by excessive professional
restrictions—consumers—are particularly ill-represented in the political
process o licensure. Second, and most important, occupational licensing is
currently left up to members o the profession themselves. When Parker is
used to protect the eorts o incumbent professionals to restrict entry into
their markets, it creates the very situation Midcal warned against—it casts a
“gauzy cloak o state involvement over what is essentially a private price-
xing arrangement.”277
Public participation in state board activity is very low because the typi-
cal state board is comprised o appointed professionals, not consumers or
aords, not because state decisions in and o themselves are sacrosanct.”); Matthew L. Spitzer,
Antitrust Federalism and Rational Choice Political Economy: A Critique of Capture Theory, S. CAL.
L. REV. , () (criticizing Wiley’s state action test as unjustied because it does not
“proer[] an appealing theory o democratic legitimacy”).
274 STATE ACTION TASK FORCE, supra note , at (discussing scholarship and recent
Supreme Court case law addressing the active-supervision requirement).
275 Id. at .
276 Id. at (“Through the active supervision requirement, the Court . . . ensur[es]
that . . . the state’s legislators will not be ‘insulated from the electoral ramications o their
decisions.’”) (quoting New York v. United States, U.S. , - ()).
277 Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., U.S. , ().
University of Pennsylvania Law Review [Vol. :
other public members.278 While most states’ sunshine laws require publica-
tion o minutes and require that board meetings be open to the public, only
members typically attend.279 Individual consumers lack the incentive to
participate in the process o licensing regulation; rarely would it be rational
for a consumer to take the time and eort to try to change a licensing rule
in the hopes of getting a cheaper haircut. Lobbying groups could theoreti-
cally ll this void by aggregating consumer interests, but public choice
theory illustrates that meaningful consumer participation in the political
process is dicult even with this mechanism.280 The most motivated public
participants are the practitioners at the margins o the regulated professions
hoping for entry.281 As discussed above, the incentives o would-be profes-
sionals are sometimes aligned with those o consumers—but not always.282
Second, as our study o boards in Florida and Tennessee suggests, most
state licensing boards are dominated by practitioners in the eld.283 On one
hand, practitioner dominance is inevitable. Tailoring restrictions to benet
the public (namely, encouraging competent practice) usually requires
experience in the profession. Laypersons are generally unable to make
judgments about the quality and risks o professional service; indeed, that is
how licensing boards justify their actions. But the need for expertise creates
a problem: those who have the most to gain from reduced consumer welfare
in the form o higher prices are tasked with protecting consumer welfare in
the form o health and safety—the fox guards the henhouse.
The most inuential accounts o antitrust immunity would exclude prac-
titioner-dominated boards from Parker protection. In his straightforward
process-based account o state action, Elhauge recognized the anticompeti-
tive inevitability o self-regulation.284 His normative vision o antitrust
federalism, modest compared to Wiley’s and Page’s in its call to expose state
regulation to antitrust liability, would deny immunity to entities whose
278 Nominees are often selected from lists provided by regulated professional groups them-
selves. Havighurst, supra note , at . Some boards are comprised o members elected directly
by members o the profession. See, e.g., N.C. Bd. o Dental Exam’rs, F.T.C. , ()
(“[T]he six dentist members o the Board are elected directly by their professional colleagues, the
other licensed dentists in North Carolina.”).
279 See, e.g., FLA. STAT. ANN. § . (West ) (requiring open meetings and publica-
tion o minutes); TENN. CODE ANN. §§ --, -- (West ) (same).
280 See Ginevra Bruzzone, Deregulation of Structurally Competitive Services: Economic Analysis
and Competition Advocacy, in T
HE ANTICOMPETITIVE IMPACT OF REGULATION ,
(Giuliano Amato & Laraine L. Laudati eds., ).
281 Cf. Kleiner, supra note , at (discussing barriers to entry).
282 See supra Section II.A.
283 See supra notes - and accompanying text and Appendix.
284 Elhauge, supra note , at (“[T]he eect and intent o state and local regulation is
generally to restrain competition.”).
] Cartels by Another Name
members stand to prot nancially from anticompetitive regulation.285 This
would certainly describe the typical practitioner-dominated licensing board.
As Elhauge observes, “[A]ntitrust stands for the . . . limited proposition
that those who stand to prot nancially from restraints o trade cannot be
trusted to determine which restraints are in the public interest and which
are not.”286
I state licensing fails Elhauge’s test for immunity, then it must also fail
under Wiley’s and Page’s broader denitions o illegitimate capture. Cap-
ture is often subtle and debatable. Some would argue that the Federal
Reserve Board is captured by Wall Street because so many o its members
come from or go to Wall Street banks, or because banks have so much access
to the Federal Reserve that Federal Reserve board members begin to think
like bankers. Whether the Federal Reserve is captured in these senses
depends on where one draws the line between enough and too much
regulatory access. In the case o occupational licensing, however, this line-
drawing is not a problem. By dint o their membership, boards are literally
and explicitly captured: practitioners enjoy a majority—often a supermajority—
among the decisionmakers.287 Licensing boards are born captured.288
Cases that exempt state licensing boards from Midcal’s supervision
prong (such as Hass and Earles) are wrong because they fail to recognize this
basic feature o board decisionmaking. These cases analogize licensing
boards to municipalities because boards are “public,” citing open meetings,
public-minded mandates, and an aliation with the state.289 The cases,
however, fail to recognize that these features cannot meaningfully check
self-dealing in the way that elections and public visibility check municipal
ocers from self-dealing at the expense o their constituents. These cases
are also inconsistent with Bates, where the state bar o Arizona was treated
as a private actor requiring state supervision to claim state action immunity
for its actions.
285 Id. at .
286 Id. at .
287 Here we have, to use Wiley’s terminology, direct evidence o capture. He suggests that
judges should “demand . . . plaintis . . . identify producers who prot from the regulation’s
competitive restraint and who played a decisive political role in its adoption.” Wiley, supra note
, at .
288 In Tennessee and Florida, for example, the legislation creating the boards makes the vast
majority o boards majority-dominated by participants in the regulated industry. See Appendix.
289 See, e.g., Earles v. State Bd. o Certied Pub. Accountants, F.d , (th Cir.
) (“[T]he public nature o the Board’s actions means that there is little danger o a cozy
arrangement to restrict competition.”).
University of Pennsylvania Law Review [Vol. :
A more searching, case-by-case approach—such as the one the FTC ad-
vocated in North Carolina Board of Dental Examiners290—would look to the
actual accountability o the board to determine when there is “an apprecia-
ble risk that the challenged conduct may be the product o parties pursuing
their own interests rather than state policy.”291 The FTC, echoing Elhauge’s
argument, would nd that such risk is present whenever the entity “con-
sist[s] in whole or in part o market participants,”292 and certainly where the
entity is dominated by market participants. We agree.
Such an entity diers signicantly from the municipality in Hallie. The
Hallie Court found that when a municipality regulates, “there is little or no
danger that it is involved in a private price-xing arrangement.”293 Although
the Court does not provide reasoning for this conclusion, it is easily sup-
plied. A municipality makes decisions through elected ocials and civil
servants. These decisionmakers are charged with maximizing the public
good294 and—although only a very antiquated view o government would
hold that the ocials’ self-interest is irrelevant—their subjugation to the
electorate achieves the level o accountability and democratic legitimacy
that we require to grant immunity.
The aw o Hallie’s footnote ten is its failure to articulate why state
agencies and municipalities are so similar that “there is little or no dan-
ger”295 o self-dealing in both.296 There is a diversity o state agencies, and it
may be reasonable to presume that those not dominated by competitors or
captured by the regulated industry do in fact pursue the state’s governmen-
tal interest. 297 But, the mere fact that a legislature declares a body to be a
state agency as the legislature in North Carolina Board of Dental Examiners
did, cannot itsel eliminate the “real danger that [the board] is acting to
further [members’] own interests, rather than the governmental interests o
290 F.T.C. , ().
291 STATE ACTION TASK FORCE, supra note , at .
292 Id. at .
293 Town o Hallie v. City o Eau Claire, U.S. , ().
294 See Steven Semeraro, Demystifying Antitrust State Action Doctrine, HARV. J.L. & PUB.
POL’Y , () (explaining that the state action doctrine “posit[s] a social structure in
which government actors are supposed to act in the public interest”).
295 Hallie, U.S. at .
296 Bobrow, supra note , at (listing key dierences between state agencies and munici-
palities).
297 As the FTC has noted, “Whatever the case may be with respect to state agencies general-
ly . . . the Court has been explicit in applying the antitrust laws to public/private hybrid entities,
such as regulatory bodies consisting o market participants.” N.C. Bd. o Dental Exam’rs,
F.T.C. , (). Clark Havighurst has also advocated for a case-by-case analysis o state
agencies. See Havighurst, supra note , at (“[C]ourts applying the state action doctrine should
shape their inquiries to give proper weight to federal antitrust concerns as well as federalism.”).
] Cartels by Another Name
the State,” which the Hallie Court viewed as the reason private actors must
be state supervised to escape antitrust review.298 Who could seriously argue
that an unsupervised group o competitors appointed to regulate their own
profession can be counted on to neglect their selsh interests in favor o the
state’s?299 That would require blindness to Adam Smith’s observation that
“[p]eople o the same trade seldom meet together, even for merriment and
diversion, but the conversation ends in a conspiracy against the public, or in
some contrivance to raise prices.”300
The Fourth Circuit’s analysis in North Carolina State Board of Dental
Examiners dilutes the importance o a competitor-dominated board o
dentists’s self-interest by conating that self-interest with the self-interest
o the dentists who elect the board.301 Self-interest does not compound like
other interest; the self-interest o the board is enough to require supervi-
sion. The notion that governor appointment can meaningfully solve the
problem o self-dealing is also unrealistic. Indeed, all inuential accounts
o antitrust federalism, from Wiley’s focus on capture302 to Elhague’s focus
on nancial self-interest,303 focus on the identity o the decisionmakers, not
their means o appointment. A narrow reading o North Carolina Board of
Dental Examiners’s holding would allow governors—however well-
intentioned they may be in the appointment process—to hand the controls
o regulation over to the regulated themselves and walk away without any
oversight responsibility.
Sound public policy requires that any consortium o competitors be
supervised by disinterested state agents, be subject to antitrust laws, or
both. That the consortium o competitors is called a state board and given
power by the state to regulate its profession does not make it more trust-
worthy. The grant simply makes the board more powerful and therefore
more dangerous. Supervision by disinterested state agents should be a
minimum requirement for a state board to receive antitrust immunity under
Hallie and Midcal, Hallie’s footnote notwithstanding. I true independence is
impossible, which is arguably the case in the licensing context given that
industry expertise is essential to decisionmaking, there is even greater need
for active supervision to justify immunity. Common sense tells us that
298 Hallie, U.S. at .
299 See Havighurst, supra note , at - (noting that the composition o state licensing
boards qualies them as “more professional than governmental in character”).
300 SMITH, supra note , at .
301 F.d , - (th Cir. ) (“[W]hen a state agency is operated by market partic-
ipants who are elected by other market participants, it is a ‘private’ actor.”).
302 Wiley, supra note .
303 Elhauge, supra note .
University of Pennsylvania Law Review [Vol. :
competition law cannot abdicate control when a powerful consortium o
competitors regulates its own industry, even i the state has granted them
power to do so. Thus, the Supreme Court should use the circuit split as an
opportunity to embrace the Fourth Circuit’s holding in North Carolina State
Board of Dental Examiners—but then go further by clarifying that all practi-
tioner-dominated boards are subject to both Midcal prongs, regardless o the
appointment process.
In one sense, such a holding would be modest because it would not call
into question vast amounts o state law; many areas o state regulation are
not delegated to majority-industry boards, or at least are actively supervised
by the state itself. The California Department o Insurance, for example,
has an elected politician as its current head—one who never worked in the
insurance industry.304 Likewise, many state agencies are largely comprised
o civil servants and have only nominal participation from industry mem-
bers. But in another sense the change would be signicant. Most licensing
boards would fail the supervision prong i subjected to it; requiring state
supervision for licensing boards that claim state action immunity creates the
potential for sweeping changes to regulations aecting over a third o the
nation’s workforce.
IV. THE MECHANICS OF ANTITRUST LIABILITY FOR
STATE LICENSING BOARDS
Since our proposal would put thousands o boards under the Sherman
Act’s microscope, we dedicate the last Part o this Article to describing the
logistics o such a regime. Section A outlines how Sherman Act suits against
professional boards might proceed. Since boards resemble private profes-
sional associations in their composition and incentives and the parties
involved parallel those in a traditional § suit, we borrow the mechanics o
suits under that provision. This Section also recommends modifying the
rule o reason in the licensing context to a standard that allows as procom-
petitive arguments gains to public safety and quality o service, even when
these gains ow directly from limitations on competition. We then address
questions related to standing and the single-entity doctrine. Section B
predicts how states might react and evaluates the competitive consequences
o those reactions.
304 About Us: About the Commissioner, CAL. DEP’T INS. (Oct. , ), http://www.insurance.ca.gov/
-about-us/-commissioner.
] Cartels by Another Name
A. Imagining a New Regime
Some rules, such as the traditional rule o reason, should be altered to
accommodate arguments unique to licensing. But other doctrines, such as
standing, treble damages, and the single-entity defense, translate well into
the licensing context.
. The Standard: Rule o Reason as Applied to Licensing
The basic rule o § is the rule o reason. Under this rule, and since
Standard Oil Co. of New Jersey v. United States, only unreasonable restraints
o trade are illegal.305 Restraints without acceptable justication (or whose
justications are too implausible) are either held per se illegal or illegal
under a quick-look rule o reason.306 The full-blown rule o reason ferrets
out the good and the bad to determine i a restraint is justied.
The full-blown rule o reason is used for “agreements whose competitive
eect can only be evaluated by analyzing the facts peculiar to the business,
the history o the restraint, and the reasons why it was imposed.”307 The
central question under a § rule-of-reason analysis is whether a restraint
will tend to substantially limit competition. Justice Brandeis formulated the
test as “whether the restraint imposed is such as merely regulates and
perhaps thereby promotes competition or whether it is such as may suppress
or even destroy competition.”308 Modern courts frame the question as one
o balancing pro- and anticompetitive eects o the restraint.309
However, not all benets are considered “procompetitive” under the rule
o reason. In perhaps the strongest condemnation o social-welfare justica-
tions, the Supreme Court in National Society of Professional Engineers v.
United States rejected a professional society’s rule hindering comparison
price-shopping for engineering services. 310 The engineers argued that
“awarding engineering contracts to the lowest bidder, regardless o quality,
would be dangerous to the public health, safety, and welfare.”311 The Court
called the engineers’ attempt to so justify the restraint “nothing less than a
305 U.S. , () (discussing the rule o reason).
306 See, e.g., Nat’l Soc’y o Pro’l Eng’rs v. United States, U.S. , () (describing
the “two complementary categories o antitrust analysis”).
307 Id. at .
308 Chicago Bd. o Trade v. United States, U.S. , ().
309 See United States v. Microsoft Corp., F.d , (D.C. Cir. ) (“The plainti
must demonstrate that the anticompetitive harm o the conduct outweighs the procompetitive
benet.”).
310 U.S. .
311 Id. at .
University of Pennsylvania Law Review [Vol. :
frontal assault on the basic policy o the Sherman Act.”312 In particular,
public safety benets that ow directly from a reduction o competition do
not escape scrutiny because “the statutory policy precludes inquiry into the
question whether competition is good or bad.”313 Under a conventional rule-
of-reason analysis, a permissible agreement must directly enhance competi-
tion in some way, such as when a group o copyright holders creates a new
and valuable product together.314 O course, the most plausible benets o
many (and perhaps most) licensing restraints ow directly from their
limitations on competition. Curing the lemons problem or eliminating
externalities, therefore, might not be seen as procompetitive under the
Professional Engineers holding.
The basic policy justications for licensing boards ow from the belie
that free and unfettered competition will lower the quality o service
provided to the public.315 Under Professional Engineers, such justications
might not be viewed as procompetitive and therefore might be held illegal.
This, we think, would be a step too far.
The argument that boards protect the public from charlatans is not in-
herently implausible and deserves respect. We therefore advocate a modied
rule o reason that would allow licensing boards to cite public safety and
quality enhancement justications even when those alleged benets ow
directly from eliminating or limiting competition. When courts balance the
competitive eects o a licensing restriction, they should place service
quality and public safety benets on the procompetitive side o the scale.
Modifying the rule o reason to incorporate public health and safety
arguments may not actually be as large o a shift in doctrine as it may
appear at rst glance. Although courts often purport to nd public interest
justications irrelevant to a § analysis, this rejection is neither universal
nor complete. Courts have been willing to consider appeals to health and
safety, especially in the context o reviewing restrictions imposed by
professional associations.
For example, even in Professional Engineers, the Court acknowledged that
Goldfarb, which it had decided just three years earlier, “noted that certain
practices by members o a learned profession might survive scrutiny under
312 Id. at .
313 Id.
314 See Broad. Music, Inc. v. Columbia Broad. Sys., Inc., U.S. , - () (holding
that the issuance o blanket licenses to copyrighted musical compositions at negotiated fees does
not constitute price xing).
315 For a discussion o why licensing boards would likely pass rational basis review, see supra
subsection II.B..
] Cartels by Another Name
the Rule o Reason even though they would be viewed as a violation o the
Sherman Act in another context.”316
Lower courts have used this mixed message from the Supreme Court to
nd a place for social welfare justications in rule-of-reason analysis. For
example, in United States v. Brown University, the Third Circuit remanded a
suit challenging an agreement among elite universities about nancial aid
packages.317 The court required the district court to undertake a full-blown
rule-of-reason analysis and place “social welfare justications”—which the
lower court had previously rejected—on the procompetitive side o the
scale.318 The court said that proper rule-of-reason analysis would consider
the benets o making higher education available to the “needy” and o
having a more diverse student body at the elite schools.319 The court ex-
plained that the nancial aid agreement in place among the schools “may in
fact merely regulate competition in order to enhance it, while also deriving
certain social benets,” and noted that such an agreement would survive
Sherman Act scrutiny.320
Brown University may occupy the outer boundary o a court’s willingness
to entertain social welfare justications for agreements restricting competi-
tion, but even the Supreme Court has softened its hard line against these
arguments. In a decision that paralleled that in Brown University, California
Dental Association v. FTC remanded a challenge against a dental association’s
advertising ban that failed the lower court’s quick-look rule o reason
analysis.321 By calling for a less-abbreviated analysis o the restraint, the
Court implied that the association’s defenses o the ban—that it promoted
quality o care and information by restricting one dimension o competi-
tion—were legitimate under the Sherman Act.322
California Dental and Brown University set a foundation for the proper
standard for Sherman Act analysis o licensing board restrictions. As
discussed in Part II, unregulated markets for professional services can harm
social welfare in two ways. Oering consumers a choice between low-
quality, low-price services and high-quality, high-cost services is inecient
because consumers choosing the low-quality option will not fully internalize
316 Professional Engineers, U.S. at .
317 F.d (d Cir. ).
318 Id. at .
319 Id. at -.
320 Id. at .
321 U.S. ().
322 Id. at - (suggesting that there is “generally no categorical line to be drawn between
restraints that give rise to an intuitively obvious inference o anticompetitive eect and those that
call for more detailed treatment”).
University of Pennsylvania Law Review [Vol. :
its costs (the externalities problem). Furthermore, even i a full range o
quality were socially desirable, information asymmetries would cause the
market for high-quality services to unravel (the lemons problem). I licens-
ing works to remedy these market failures, then the average or minimum
quality o service will be higher than under an unlicensed regime.
To solve these problems, courts should apply a modied rule-of-reason
analysis in licensing cases as follows. First, courts should accept arguments
that a restriction improves consumer access to information or raises quality
o service as procompetitive justications. Measuring quality o service is
dicult, especially when it is impossible to observe a market unfettered by
licensing. But the diculty o quantifying competitive benets is nothing
new in rule-of-reason cases. Professional boards should be induced to bring
their best evidence o procompetitive eects to the suit. Second, claims o
quality improvement should be specic and tied to a theory o market
failure that justies government interference.323 In other words, for a
licensing restriction to pass muster under the rule o reason, it should
closely t the problem it is designed to solve. Finally, courts should consider
whether other regulations could restore information symmetry or raise
quality o service with less cost to competition. Put another way, courts
should consider whether there are less restrictive alternatives to the chal-
lenged licensing scheme.
This three-prong system for analyzing a licensing restriction—
identifying a legitimate reason for the licensing restriction, analyzing the t
between the restriction and the problem, and inquiring into less restrictive
alternatives—resembles the constitutional standard applied to equal protec-
tion or due process claims. But it can also be understood as a framework for
the balancing that the traditional rule o reason demands. Under the rst
two prongs, a court places the benets o restriction on the procompetitive
side o the scale. Under the last prong, the court places the restriction’s
competitive burden on the anticompetitive side o the scale, asking whether
there is an alternative less destructive to competition that achieves the same
benets.
Revisiting the specic examples discussed above will illustrate the kinds
o arguments that will be persuasive to a court analyzing a state board’s
restriction under our modied rule o reason. Louisiana’s rule forbidding
casket sales by anyone other than a licensed funeral director would fail the
323 This recommendation is similar to one o Wiley’s requirements for lifting state action
immunity where the regulation does not “respond[] directly to a substantial market eciency.”
Wiley, supra note , at .
] Cartels by Another Name
rst prong o the test. There is no empirical evidence that caskets are o
poor quality or that consumers cannot determine the value o a casket in
states without such a restriction. Further, the state would have diculty
raising even a theoretical argument that inferior-quality caskets present a
public health and safety issue because it does not even require burial by
casket at all. Nor could it easily argue that the free market for caskets would
suer from information asymmetries given that one can comparison shop
for caskets on websites like Amazon.com, which oers consumer reviews,
detailed specications, and photographs.324 Therefore, the restriction fails
the rst prong because it fails to address any signicant market failure—in
practice or theory.
Restrictions on nurse practitioners would also fail the rst prong, but
not because there are no theoretical failures in an unregulated market for
medicine. In theory, low-quality healthcare creates externalities when the
cost o xing (or living with) bad outcomes falls on other individuals or the
government. This is almost certainly the case in our system, in which the
eects o poor care are felt everywhere, from emergency rooms and inner-
city clinics to schools and the workplace. But despite the strong theoretical
argument that any given regulation on a nurse’s right to practice improves
quality and therefore addresses a market failure, there is no empirical
evidence that supervised nurses have better outcomes than unsupervised
ones.325 Thus, licensing restrictions that require nurse practitioners to be
supervised would fail the rst prong for lack o data suggesting that such
restrictions improve the quality o care.
State cosmetology boards’ attempts to bring African hair braiding under
their jurisdiction, on the other hand, would fail the second prong o our
modied rule-of-reason analysis. Whatever health and safety issues arise
from the unlicensed practice o braiding, they are not addressed by requiring
practitioners to attend up to hours o schooling on the use o chemi-
cals, dyes, and other beauty techniques that do not relate to African hair
braiding. There is simply a poor t between the restriction and the problem
that it purportedly addresses. Similarly, a state restriction requiring a
cosmetology license for brow threaders would fail the second prong, as
would requiring a degree in veterinary medicine for horse teeth oaters
when veterinary schools teach nothing about the practice.326
324 Amazon.com lawfully sells caskets online to customers living in states without regulations
similar to Louisiana’s.
325 See CHRISTIAN & DOWER, supra note , at .
326 See Challenging Barriers to Economic Opportunity, supra note .
University of Pennsylvania Law Review [Vol. :
I a restriction survives the rst two prongs, the court should balance the
benet o the restriction against its cost to competition. For example, some
regulation o horse teeth oating may be justiable since horse owners may
not be able to evaluate the quality o a oater’s service. In that case, the
third prong would be the crucial factor: making teeth oaters attend
veterinary school is an outsized requirement. Rather, a state might be able
to justify a less restrictive licensing requirement that is specic to horse
teeth oaters and mandates a short educational unit followed by a test
narrowly tailored to assessing competency in teeth oating.
In balancing the anticompetitive eects o the restriction, courts should
also consider other governmental regulations that are less restrictive than
licensing. For example, labor economists hail certication as a superior
option to licensing where a free market may suer from information
asymmetry.327 Certication is similar to licensing in that the state sets
educational or testing criteria for professionals; passing these hurdles
signals to consumers the individual’s minimum quality and competency. But
unlike under licensing schemes, uncertied practitioners may still practice
as long as they do not claim a “certied” title. Certication thus solves the
information asymmetry problem because consumers seeking higher-quality
services can pay more for certied practitioners. But it does so at a lower
cost to competition, since certication is not an absolute barrier to entry for
low-cost practitioners. Accordingly, Louisiana’s restriction on unlicensed
ower arranging would likely fail the third prong o the test. Since market
failure in the ower industry is at most information asymmetry, not exter-
nalities, oering state certication programs to orists could easily address
the problem.
. The Parties: Standing to Sue and Available Damages
Changing the state action regime for licensing boards raises several lo-
gistical questions. Who would sue? What would be the remedy? And would
board members pay damages? As a descriptive matter, the answers are
relatively easy: lifting state action immunity for state boards means that the
parties who sue and are sued would be the same as in a run-of-the-mill §
case.328 Government enforcement agencies such as the DOJ and the FTC,
327 KLEINER, supra note , at - (identifying certication and registration as policy alter-
natives); Michael Pertschuk, Needs and Licenses (noting that certication is one alternative that
provides information without creating a barrier to entry), in OCCUPATIONAL LICENSURE AND
REGULATION, supra note , at .
328 O course, under the Eleventh Amendment, federal courts could not entertain suits
against the boards as “arms” o the state. But under the holding o Ex parte Young, U.S.
] Cartels by Another Name
as well as private individuals capable o proving antitrust injury, could bring
suit against the conspirators (here, members o an industry serving on a
board) seeking equitable and monetary relief. But this analogy leads to an
important normative question: Does this regime create incentives that
ensure optimal enforcement o antitrust norms? This subsection argues that,
for the most part, it does.
Since anticompetitive licensing restrictions often further local state in-
terests, federal enforcement will be essential to police self-dealing. The DOJ
and the FTC will be able to bring suits based on the claim that a given
licensing regulation violates the Sherman Act. Without the bar o state
action immunity, the agencies will also be able to seek equitable relie under
§ o the Sherman Act329 and § o the Clayton Act330 to invalidate and
prevent a board from implementing an anticompetitive regulation. Federal
agencies will bring the knowledge, expertise, and resources for empirical
investigations necessary to identify anticompetitive targets.331
That said, licensing boards and private cartels should be treated dier-
ently under criminal law despite their many similarities. Just as the poten-
tial benets o licensing make per se condemnation inappropriate, they
should also preclude criminal prosecution. State licensing board activity,
while full o anticompetitive potential, is hardly among the hard-core
violations that serve as the primary target for criminal enforcement.
Lifting the state action ban on suits against boards will also allow private
individuals capable o showing antitrust injury to bring suit. These plain-
tis, like other antitrust plaintis, can be divided into two categories:
consumers and competitors. Although consumers o a professional service
may not have enough nancial incentive to bring a suit individually, they
could use class action suits to aggregate damages to a litigable amount. And
§ o the Clayton Act, o course, strengthens the incentive to sue by
providing plaintis with treble damages.332
(), individual board members could be sued in federal court in their ocial capacities. See
Earles v. State Bd. o Certied Pub. Accountants, F.d , - (th Cir. ) (noting
that the Ex parte Young rule has been viewed as allowing a federal court to entertain suits against
individual ocials).
329 U.S.C. § ().
330 U.S.C. § ().
331 In fact, even without the added incentive created by the power to bring suits, the FTC
has invested in numerous studies o the economic impact o professional regulation. See, e.g., COX
& FOSTER, supra note , at (summarizing the percentage increase in prices due to business-
practice restrictions); LIANG & OGUR, supra note , at - (providing empirical results on
dental restrictions).
332 U.S.C. § (a) ().
University of Pennsylvania Law Review [Vol. :
Similarly, competitors—most likely would-be professionals—could sue
to receive three times the wages they would have earned but for the anti-
competitive barrier to entry. These wages may be dicult to prove but not
necessarily more dicult to prove than lost earnings caused by cartel
activity. Would-be professionals could also use the Sherman Act as a shield
rather than a sword; lifting Sherman Act immunity would mean that would-
be professionals could defend against a board’s enforcement action by
invoking the invalidity o the board’s regulation.333
I lifting state action immunity would allow competitors and consumers
to sue for monetary damages, who would pay? In cartel cases, the industry
members who conspire must nancially compensate their victims. So, too,
should be the case in licensing board suits: the industry members on the
board would be liable for treble damages to competitors and consumers
harmed by their agreement.334 This is the result under current law when
courts deny professional associations state action immunity; Goldfarb v.
Virginia is an example.335
Individual nancial liability for board members may seem like an unjust
or unworkable regime, but § imposes similar liability on individual
state actors for violations o constitutional rights.336 States have responded
to the prospect o nancial ruin for their employees by indemnifying them
against § suits as a term o employment.337 With the deeper pockets o
333 The Supreme Court used state action doctrine to reject such a defense in Bates v. State
Bar of Arizona, U.S. , (). In Bates, lawyers who advertised their services in
contravention o the Bar’s rules argued that the rule was invalid under the Sherman Act. Id. at -
. But the Sherman Act challenge failed on state action grounds because the Arizona rules against
lawyer advertising “‘reect[ed] a clear articulation o the State’s policy with regard to professional
behavior’ and were ‘subject to pointed reexamination by the policymaker—the Arizona Supreme
Court—in enforcement proceedings.’” Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum,
U.S. , () (alteration in original) (quoting Bates, U.S. at ).
334 John E. Lopatka & William H. Page, State Action and the Meaning of Agreement Under the
Sherman Act: An Approach to Hybrid Restraints, YALE J. ON REG. , () (“[A]ny hybrid
restraint that violates the antitrust laws and fails the tests for immunity leaves private parties
exposed to the whole panoply o antitrust remedies.”).
335 The plaintis in Goldfarb, a class o consumers o legal services, sued the state bar associa-
tion for Sherman Act violations. The Supreme Court, in holding that the Bar acted in contraven-
tion o state policy—and therefore without adequate state delegation—remanded the case to allow
the class to hold individual members o the Bar liable for treble damages. Goldfarb v. Va. State
Bar, U.S. , ().
336 U.S.C. § () (providing a private right o action for money damages to com-
pensate victims o constitutional violations).
337 In the case o law enforcement, the state or local government that employs the ocer
typically promises to indemnify him in the case o a § suit. See, e.g., Jonathan Day & Jerey
W. Ja cobs, Opening the Deep Pocket—Sovereign Immunity Under Section 1983, BAYLOR L. REV.
, () (“[V]oluntary assumption o employees’ liability by governmental entities . . . ha[s]
already been adopted in most jurisdictions, at least to the extent o assuming the burden o
] Cartels by Another Name
the government available, victims have a meaningful opportunity for
compensation. Moreover, even though individual employees may not be
personally liable, the indemnication structure gives states the incentive to
train employees, tightly control conduct, and create disciplinary systems to
deter violations.338 States might choose to adopt a similar indemnication
structure for individual board members in case o a treble damages suit
under the Sherman Act.
. The Defense: Boards as Single Entities?
Board activity easily fullls the § requirement o agreement because
board members meet face-to-face and explicitly agree on licensing
restrictions, often by formal majority vote. Again, these agreements are
among competitors; licensing boards often have only nominal representa-
tion from nonprofessionals. Boards may argue, however, that their rules and
restrictions are not the products o conspiracies because they operate as
single entities. Conspiring with others on the board, so the argument would
go, is like conspiring with oneself.
This argument is likely to fail. The Supreme Court has held that profes-
sional associations, similar to boards in composition and incentives, can be
conspiracies under § . Recently, the Supreme Court rejected the National
Football League’s argument that individual teams could not conspire with
one another since they had a single economic incentive to maximize prots
from licensing team merchandise and ticket sales.339 The Court held that
the teams, absent the agreement, would have had individual prot incen-
tives to compete with one another, so the agreement “deprives the market-
place o independent centers o decisionmaking” in violation o § .340 To
the extent that there was a unitary nancial goal among the teams, it was to
suppress competition among themselves.341
Although the Supreme Court has not considered whether a state licens-
ing board is a single entity under § , the FTC has rejected this defense to
Sherman Act liability on several occasions. In FTC v. Massachusetts Board of
defending civil rights claims.”); Alexandra White Dunahoe, Revisiting the Cost-Benet Calculus of the
Misbehaving Prosecutor: Deterrence Economics and Transitory Prosecutors, N.Y.U. ANN. SURV. AM.
L. , - & n. ().
338 But see generally Daryl J. Levinson, Making Government Pay: Markets, Politics, and the Allo-
cation of Constitutional Costs, U. CHI. L. REV. () (arguing that governments do not
internalize costs in the same way that private rms do).
339 Am. Needle, Inc. v. Nat’l Football League, S. Ct. , ().
340 Id. at (citation omitted).
341 Id. at (“[I]llegal restraints often are in the common interests o the parties to the
restraint, at the expense o those who are not parties.”).
University of Pennsylvania Law Review [Vol. :
Registration in Optometry, the FTC explained that the optometry board was
not acting as a single entity in passing advertising restrictions: “Each
optometrist on the Board is principally engaged in the private practice o
optometry in the market that the Board regulates . . . . [I]n the absence
o those regulations, the Board optometrists would compete with each other
by individually deciding whether to advertise.”342 Similarly, federal courts
and the Supreme Court have held that private professional organizations, in
promulgating standards o practice, certication, and licensing, cannot claim
to be acting as a single entity under the antitrust laws.343
B. Possible State Responses and Their Likely Eects
Applying Sherman Act pressure to state licensing boards will alter the
equilibrium o a complex system o regulation, so a thorough analysis o its
benets must also consider how that system will likely adjust. As this
Section illustrates, states wishing to regulate professions without having to
answer to an antitrust suit will have several options. Each option will
require a departure from the current practice o using practitioner-
dominated administrative boards to promulgate rules and regulations—and
thus a step toward politically accountable, procompetitive regulation.
. Actively Supervising Board Activity
I the Court requires occupational boards to show supervision in order
to enjoy immunity from antitrust suits, then the most straightforward way
for states to insulate boards from antitrust scrutiny is to actively supervise
them. Supervision, at least in theory, will complete the link between a
board’s anticompetitive restrictions and the accountable, elected body that
342 F.T.C. , (). Likewise, after the NFL case, the FTC held that the single-
entity defense was not available to the North Carolina Board o Dental Examiners for the same
reason. The FTC explained that since board members “stand to reap economic gains when the
Board takes actions to exclude non-dentists from competing to provide certain services,” it could
not be said to be acting to further a nancial goal independent o those o the individual members.
N.C. Bd. o Dental Exam’rs, F.T.C. , - ().
343 See, e.g., Daniel v. Am. Bd. o Emergency Med., F. Supp. , - (W.D.N.Y.
) (holding that a private certication association can be a § conspiracy); PHILLIP E.
AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ (d ed. ) (“Trade associa-
tions are routinely treated as continuing conspiracies or ‘combinations’ o their members, as are
bodies promulgating rules or standards for the competitive conduct o their members, such as the
National Society o Professional Engineers. The most signicant attribute o trade associations
dictating that conclusion is that the individual members continue to have business separate from
the association itself.” (footnote omitted)).
] Cartels by Another Name
demanded them.344 Formal review and approval by the state will aord
consumers and would-be professionals a stronger voice against heavy-
handed restrictions since they could vote out ocials approving unjustia-
ble regulations.
Although consumer interests will likely always be more diuse than
those o practitioners, forcing states to answer for and stand behind a
board’s restrictions exposes these decisions to at least some political ac-
countability. As the Court explained in Ticor, “For States which do choose
to displace the free market with regulation . . . insistence on real compli-
ance with both parts o the Midcal test will serve to make clear that the
State is responsible for the price xing it has sanctioned and undertaken to
control.”345
. Changing Board Composition
Another way in which a state could protect a licensing board from anti-
trust scrutiny would be to change its composition. A state could limit a
board’s exposure to antitrust liability by reducing practitioner representa-
tion and lling the rest of the board seats with members representing other
interests. Having a diverse membership that includes consumers, civil
servants, labor economists, and members from adjoining professions may
serve as a prophylactic against liability. Such a board’s decisions are more
likely to have considered and resolved the concerns of the antitrust laws.
. Moving Licensing to the Interior of State Government
States may, however, nd cutting professional participation to token
levels or implementing costly mechanisms for supervision unattractive. An
alternative would be to directly regulate through sovereign branches o the
state itself. Even under the current regime, some professional entry and
practice requirements are passed as state statutes, and these acts o sovereign
authority are always immune under Parker.346 Such decisions would not be
subject to antitrust scrutiny, even under the change proposed in this Article.
344 See, e.g., Inman & Rubinfeld, supra note , at (concluding that Midcal’s supervision
prong “gives meaning to the rst [prong], for without supervision, interested individuals cannot be
assured that their initial participation in the political process will be meaningful.”). But see
Havighurst, supra note , at (disagreeing with the federal antitrust agencies’ apparent belie
that “giving greater weight to the active-supervision requirement is the best way to discourage
state licensing and regulatory boards from acting in anticompetitive ways”).
345 FTC v. Ticor Title Ins. Co., U.S. , ().
346 See Hoover v. Ronwin, U.S. , - () (“[U]nder the Court’s rationale in
Parker, when a state legislature adopts legislation, its actions constitute those o the State, and ipso
University of Pennsylvania Law Review [Vol. :
This change, like adding meaningful state supervision over board activity,
would facilitate competition by deterring regulation that benets only
practitioners. Elected ocials would be made to answer for and stand
behind decisions restricting entry and practice. Restrictions would be
proposed and debated openly in the legislature, allowing for more participa-
tion from the constituents currently absent from professional licensing
boardrooms. Requiring that the state place its imprimatur on regulation is
at least better than the status quo, in which states too often delegate self-
regulation to professionals and walk away.
CONCLUSION
Licensed occupations have been free to act like cartels for too long without
Sherman Act scrutiny. With nearly a third o workers subject to licensing
and a continuing upward trend, it is time for a remedy. We do not propose
an end to licensing or a return to a Dickensian world o charlatan healers
and self-trained dentists. But the risks o unregulated professional practice
cannot be used to rationalize unfettered self-regulation by the professionals
themselves. The law needs to strike a balance.
That balance is the same one sought in any modern rule o reason case: a
workable tradeo between a restriction’s salutary eects on the market and
its harm to competition. Immunity from the Sherman Act on state action
grounds is not justied under antitrust federalism when those doing the
regulation are the competitors themselves, where they are not accountable
to the body politic, where they have too often abused the privilege, and
where the anticompetitive dangers are so clear. The threat o Sherman Act
liability can provide the necessary incentives to occupational regulators
trading o competition for public safety and welfare. Without it, self-
dealing occupational boards will continue to be cartels by another name.
facto are exempt from the operation o the antitrust laws . . . . [A] state supreme court, when
acting in a legislative capacity, occupies the same position as that o the state legislature.” (citation
omitted)).
] Cartels by Another Name
APPENDIX: FLORIDA
Occupational Board
Statutory
Citation
Majority
Licensed
Professionals
Appointing
Body
Rulemaking
Authority
Criminal
Enforcement
Board of
Acupuncture
§ .
et seq. Yes Governor Yes Yes
Board of Athletic
Training
§ .
et seq. Yes Governor Yes Yes
Board of
Chiropractic
Medicine
§ .
et seq. Yes Governor Yes Yes
Board of Clinical
Laboratory
Personnel
§ .
et seq. Yes Governor Yes Yes
Board of Clinical
Social Work,
Marriage and
Family Therapy,
and Mental Health
Counseling
§ .
et seq. Yes Governor Yes Yes
Board of Dentistry § .
et seq. Yes Governor Yes Yes
Board of Hearing
Aid Specialists
§ .
et seq. Yes Governor Yes Yes
Board of Massage
Therapy
§ .
et seq. Yes Governor Yes Yes
Advisory Council of
Medical Physicists
(under authority of
Department of
Health)
§ .
et seq. No FL Surgeon
General No Yes
Board of Medicine § .
et seq. Yes Governor Yes Yes
(continued)
University of Pennsylvania Law Review [Vol. :
Board of Nursing § .
et seq. Yes Governor Yes Yes
Board of Nursing
Home
Administrators
§ .
et seq. No Governor Yes Yes
Board of
Occupational
Therapy Practice
§ .
et seq. Yes Governor Yes Yes
Board of Opticianry § .
et seq. Yes Governor Yes Yes
Board of Optometry § .
et seq. Yes Governor Yes Yes
Board of Orthotists
and Prosthetists
§ .
et seq. Yes Governor Yes Yes
Board of
Osteopathic
Medicine
§ .
et seq. Yes Governor Yes Yes
Board of Pharmacy § .
et seq. Yes Governor Yes Yes
Board of Physical
Therapy Practice
§ .
et seq. Yes Governor Yes Yes
Board of Podiatric
Medicine
§ .
et seq. Yes Governor Yes Yes
Board of Psychology § .
et seq. Yes Governor Yes Yes
Board of
Respiratory Care
§ .
et seq. Yes Governor Yes Yes
Board of Speech-
Language Pathology
& Audiology
§ .
et seq. Yes Governor Yes Yes
Board of
Architecture and
Interior Design
§ .
et seq. Yes Governor Yes Yes
(continued)
] Cartels by Another Name
Board of
Auctioneers
§ .
et seq. Yes Governor Yes Yes
Barbers' Board § .
et seq. Yes Governor Yes No
Building Code
Administrators and
Inspectors Board
§ .
et seq. Yes Governor Yes Yes
Regulatory Council
of Community
Association
Managers
§ .
et seq. Yes Governor Yes Yes
Construction
Industry Licensing
Board
§ .
et seq. Yes Governor Yes Yes
Board of
Cosmetology
§ .
et seq. Yes Governor Yes No
Electrical
Contractors’
Licensing Board
§ .
et seq. Yes Governor Yes Yes
Board of Employee
Leasing Companies
§ .
et seq. Yes Governor Yes Yes
Board of Landscape
Architecture
§ .
et seq. Yes Governor Yes Yes
Board of Pilot
Commissioners
§ .
et seq. No Governor Yes Yes
Board of
Professional
Geologists
§ .
et seq. Yes Governor Yes Yes
Board of Veterinary
Medicine
§ .
et seq. Yes Governor Yes Yes
Board of
Professional
Engineers
§ .
et seq. Yes Governor Yes Yes
(continued)
University of Pennsylvania Law Review [Vol. :
Board of Funeral,
Cemetery, and
Consumer Services
§ .
et seq. Yes Governor Yes Yes
Board of
Professional
Surveyors and
Mappers
§ .
et seq. Yes Commissioner
of Agriculture Yes Yes
Board of
Accountancy
§ .
et seq. Yes Governor Yes Yes
Real Estate
Commission
§ .
et seq. Yes Governor Yes Yes
Total Boards: % % %
] Cartels by Another Name
APPENDIX: TENNESSEE
Occupational Board
Statutory
Citation
Majority
Licensed
Professionals
Appointing
Body
Rulemaking
Authority
Criminal
Enforcement
Board of Accountancy § --
et seq. Yes Governor Yes Yes
Board of Examiners
for Architectural and
Engineering
Examiners
§ --
et seq. Yes Governor Yes Yes
Board of Barber
Examiners
§ --
et seq. Yes Governor Yes Yes
Board of
Cosmetology
§ --
et seq. Yes Governor Yes Yes
Board of Funeral
Directors and
Embalmers
§ --
et seq. Yes Governor Yes Yes
Board for Licensing
Contractors
§ --
et seq. Yes Governor Yes Yes
Real Estate
Commission
§ --
et seq. Yes Governor Yes Yes
Board of Examiners
for Land Surveyors
§ --
et seq. Yes Governor Yes Yes
Auctioneer
Commission
§ --
et seq. Yes Governor Yes Yes
Collection Service
Board
§ --
et seq. No Governor Yes Yes
Private Investigation
and Polygraph
Commission
§ --
et seq. Yes Governor Yes Yes
(continued)
University of Pennsylvania Law Review [Vol. :
Board for Licensing
Alarm System
Contractors
§ --
et seq. Yes Governor Yes Yes
Real Estate
Appraiser
Commission
§ --
et seq. Yes Governor Yes Yes
Motor Vehicle
Commission
§ --
et seq. Yes Governor Yes Yes
Soil Scientist
Advisory Committee
(under authority of
Commissioner of
Commerce and
Insurance)
§ --
et seq. Yes
Commissioner
of Commerce
& Insurance
No No
Geology Advisory
Committee (under
authority of
Commissioner of
Commerce and
Insurance)
§ --
et seq. Yes
Commissioner
of Commerce
& Insurance
No No
Home Inspectors
Advisory Committee
(under authority of
Commissioner of
Commerce and
Insurance)
§ --
et seq. Yes
Commissioner
of Commerce
& Insurance
No No
Advisory Committee
for Acupuncture
§ --
et seq. Yes Governor Yes No
Board of Athletic
Trainers
§ --
et seq. Yes Governor Yes No
Board of Alcohol
and Drug Abuse
Counselors
§ --
et seq. Yes Governor Yes No
Board of
Chiropractic
Examiners
§ --
et seq. Yes Governor Yes Yes
(continued)
] Cartels by Another Name
Committee for
Clinical
Perfusionists
§ --
et seq. Yes Governor Yes Yes
Board of
Communications
Disorders and
Sciences
§ --
et seq. Yes Governor Yes Yes
Board of Dentistry § --
et seq. Yes Governor Yes Yes
Board of
Dietitian/Nutritionis
t Examiners
§ --
et seq. Yes Governor Yes No
Board of Dispensing
Opticians
§ --
et seq. Yes Governor Yes Yes
Emergency Medical
Services Board
§ --
et seq. No Governor Yes Yes
Council for
Licensing Hearing
Instrument
Specialists
§ --
et seq. Yes Governor Yes Yes
Massage Licensure
Board
§ --
et seq. Yes Governor Yes No
Board of Medical
Examiners
§ --
et seq. Yes Governor Yes Yes
Medical Laboratory
Board
§ --
et seq. Yes Governor Yes Yes
Board of Nursing § --
et seq. Yes Governor Yes Yes
Board of Examiners
for Nursing Home
Administrators
§ --
et seq. No Governor Yes No
Board of
Occupational
Therapy
§ --
et seq. Yes Governor Yes Yes
Board of Optometry § --
et seq. Yes Governor Yes Yes
(continued)
University of Pennsylvania Law Review [Vol. :
Board of
Osteopathic
Examination
§ --
et seq. Yes Governor Yes Yes
Board of Pharmacy § --
et seq. Yes Governor Yes Yes
Board of Physical
Therapy
§ --
et seq. Yes Governor Yes Yes
Committee on
Physician Assistants
(under authority of
Board of Medical
Examiners)
§ --
et seq. Yes Governor Yes No
Board of Podiatric
Medical Examiners
§ --
et seq. Yes Governor Yes Yes
Polysomnography
Professional
Standards
Committee (under
authority of Board of
Medical Examiners)
§ --
et seq. Yes Governor Yes Yes
Board for
Professional
Counselors,
Licensed Marital
and Family
Therapists, and
Licensed Clinical
Pastoral Therapists
§ --
et seq. Yes Governor Yes Yes
Board of Examiners
in Psychology
§ --
et seq. Yes Governor Yes Yes
Board of Respiratory
Care
§ --
et seq. Yes Governor Yes Yes
Board of Social
Worker Licensure
§ --
et seq. Yes Governor Yes No
Board of Veterinary
Medical Examiners
§ --
et seq. Yes Governor Yes Yes
Total Boards: % % %
