Regulating the unregulated

The US Supreme Court has issued a number of landmark judgments this year, on gay marriage and Obamacare for instance.

Another of these judgments has begun to affect lawyers significantly, although I don’t think it has been reported much in this country, if at all. It does not concern lawyers directly – it arose out of something which we Europeans consider an American obsession, teeth-whitening.

To return to lawyers, I have always wondered why the American competition authority, the Federal Trade Commission (FTC), did not intervene more often in their market. We Europeans have had competition authorities breathing down our necks in our legal services markets repeatedly over the years, and yet American lawyers cannot even practise (without considerable difficulty) across their own state boundaries.

I was told it was because of states’ rights. Now the FTC has intervened in a big way.

The teeth-whitening case (North Carolina State Board of Dental Examiners v Federal Trade Commission) was decided in February of this year. Dentists in North Carolina had been complaining to the State Board of Dental Examiners that non-dentists were charging lower prices for teeth-whitening than dentists.

And so the board issued at least 47 official cease-and-desist letters to non-dentist teeth-whitening service providers and product manufacturers, often warning that the unlicensed practice of dentistry was a crime (this despite the fact that the relevant act does not specify that teeth-whitening is within the practice of dentistry).

The FTC intervened, particularly because a controlling number of the board’s decision-makers were active market participants in the occupation the board regulated: dentistry. This meant that the board could invoke state-action antitrust immunity only if it was subject to active supervision by the state, which was not what happened here. The case went all the way to the Supreme Court, and the dental board lost.

After this, the history relating to lawyers unrolls like a novel, or more of a horror story. Several US bars had followed the case closely, particularly because they had been issuing cease-and-desist letters to unregulated providers of legal services over the years, more recently against large online providers. I had been reading about these cases, involving substantial damages against the giant legal services platforms. The Supreme Court case on teeth-whitening has turned the tide. The hunters have now become the hunted.

The North Carolina State Bar is a case in point. I cite from the plaintiff’s filing in a case brought against it a few months after the Supreme Court decision, in June of this year: ‘The North Carolina State Bar was sufficiently worried about the dental examiners case that it filed a “friend of the court” brief in the Supreme Court, arguing that unless the Supreme Court reversed the Fourth Circuit’s decision, the state bar would face antitrust lawsuits based on its unsupervised regulation of the market for legal services.’

That is just what has happened. LegalZoom, the plaintiffs responsible for the quotation above and one of the giant online providers, applied in April, immediately after the Supreme Court decision, to the North Carolina State Bar for registration of one of its prepaid legal services plans. The bar turned it down, and legal action against it has followed based on the Supreme Court case (LegalZoom.com, Inc. v North Carolina State Bar, The et al).

North Carolina is not alone. This month, another platform, specialising in automated document assembly for the construction industry, sued the Ohio State Bar and others on similar grounds (Express Lien Inc et al v Cleveland Metropolitan Bar Association et al in the Louisiana Eastern District Court). Of course, these two new cases against state bars have not been decided, but the Supreme Court case seems to have filled the unregulated providers with hope – and a mighty precedent.

Such cases do not translate exactly into the European scene. In England and Wales for a start, the regulators and decision-makers are no longer controlled by market participants. And of course US competition law does not match exactly its EU counterpart. But the narrative answers a question which faces regulators here: what to do about the unregulated?

One of the possible answers has been to sue them, and the US story shows the dangers of doing so.

I know of at least one similar European case: there has been litigation in France against a platform providing cheap online legal services, in which the judge expressed dissatisfaction with the plaintiff, on the grounds that the unregulated provider was trying to satisfy unmet legal need, in an area where the legal profession had not been successful (there is an appeal pending in the Court of Appeal of Paris).

I conclude that options other than pursuit of the large unregulated providers through the courts should be actively considered.

Jonathan Goldsmith is a consultant and former secretary-general at the Council of Bars and Law Societies of Europe, which represents around a million European lawyers through its member bars and law societies. He blogs weekly for the Gazette on European affairs