Regulatory compliance is a challenge faced by many companies, but it can be particularly daunting for young companies with disruptive business models. The individuals who serve on statewide regulatory and licensing boards are often active market participants who hold market share the young company hopes to take. The board members’ desire to retain their market share may influence them to unreasonably impede the company’s attempts to compete in the market. This dynamic is difficult to navigate, but several judicial decisions over the past ten years reveal that federal antitrust laws can be a powerful tool for companies seeking relief from anticompetitive and unreasonable regulators.
Most recently, on March 17, 2022, the United States Court of Appeals for the Ninth Circuit ruled that an antitrust suit against individual members of the Dental Board of California could proceed. SmileDirectClub, LLC sued the members of the Board and alleged they violated Section 1 of the Sherman Act by taking unreasonable enforcement actions against it because they saw the company as a competitive threat. The members argued they could not be liable for violating antitrust laws because they were merely performing their ordinary regulatory functions. The Court of Appeals rejected that argument and ruled that the Board members who actively participated in the market may have violated Section 1 of the Sherman Act through the legitimate exercise of their regulatory power.
It will be interesting to see how cases alleging antitrust violations against regulatory board members continue to develop. The immediate take-away is that young companies with disruptive business models should consider their rights under antitrust laws if their efforts to gain a foothold in a relevant market are complicated by regulatory or licensing boards. Please do not hesitate to reach out to us to discuss your options if regulatory enforcement is inhibiting your company’s growth.