June 4, 2010

License to kill competition

By License to kill competition

Author: Lana Harfoush

In PLF’s free enterprise litigation, we are frequently confronted by courts that are hesitant to strike down government licensing laws. Courts recognize that government licensing schemes are often designed to promote public health and safety, and so they defer to the government’s judgment. For example, more patients would be at risk of encountering physicians like the infamous Simpsons character, Doctor Nick Riviera, if licenses were not required to practice medicine. Unfortunately, however, occupational licensing laws are not always created to ensure quality of service; licensing laws are often abused as a means to promote economic protectionism for a government-preferred class or ethnicity. Indeed, in Clint Bolick’s essay, "The Grassroots Legal Reform Movement," he notes that "at the heart of every barrier to entry lurks an intent to exclude someone."

At a late nineteenth century constitutional convention in California, delegates discussed ideas on how to most effectively destroy competition created by Chinese immigrants; one delegate went so far as to unabashedly suggest his willingness to "refus[e] to license this class of aliens to carry on any trade or business whatever." Similarly, the 1989 case of Brown v. Barry overturned a Jim Crow-era ban on street corner shoeshine stands. The court found that the regulation in question was nothing more than a "vestige of the Jim Crow era when laws were intentionally designed to thwart the economic self-sufficiency of blacks." The opinion recognizes that the "post Civil War era is replete with examples of state and federal legislation sanctioned by the Supreme Court that was intended to disable the effects of the Civil Rights Act of 1871 and the Fourteenth Amendment."

Protectionism, however, is not limited to racial animus. Cases continue to arise where there is simply no purpose for imposing a licensing law other than creating barriers to entry to benefit those who are already in business. For example in Sweet v. Myers, PLF challenged a licensing scheme that required start-up moving companies to obtain a government certificate — subject to their competitors’ approval – before they could begin business. Fortunately, PLF’s involvement prompted Oregon’s legislature to remove the anti-competitive aspects of the movers’ licensing law, and Mr. Sweet is currently running his business in Oregon.

Competition lowers prices and creates better goods and services. Naturally, if a business can lobby the State for its benefits and blessings it will do so to protect its own profit margin. Yet, because of the tendency of licensing laws to be abused and transformed into channels through which protectionism and other discriminatory practices flow, courts should view licencing laws with skepticism. PLF continues to lead the fight against licensing schemes that are designed as protectionist barriers to competition: peoples’ livelihoods, consumers’ choices, and entrepreneurs’ spirits are at stake.

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