Ninth Circuit Does Flip Turn, Reversing Antitrust Case Against World Aquatics
In a decision that is making waves through the world of competitive swimming, the Ninth Circuit reversed a California district court’s grant of summary judgment in favor of Fédération Internationale de Natation (“FINA”), now known as World Aquatics, on antitrust claims brought by a group of professional swimmers and the International Swimming League (the “ISL”). (Shields v. World Aquatics, No. 23-15092 (9th Cir. Sept. 17, 2024) (unpublished)).
As we covered in a prior edition of Three Point Shot, this legal battle first began in December 2018, when the plaintiffs – a group of professional swimmers and the ISL – filed antitrust claims against FINA, contesting the organization’s rules that effectively barred national swimming federations from collaborating with “non-sanctioned” competitions such as the ISL. These rules placed national federations in a difficult position, as their cooperation with unsanctioned events could result in penalties.
FINA, first established in 1908 during the Olympic Games in London, is a Swiss organization recognized as the global governing body for aquatic sports, including swimming, and its membership includes 209 national federations. The national federations, by virtue of their membership, agree to comply with FINA rules and enforce FINA rules and penalties against swimmers. FINA sets the qualifying criteria for swimmers to participate in the Olympics and recognizes only qualifying times from competitions held or sanctioned by FINA. Swimmers themselves, however, are not members of FINA and are not required to swim in FINA-sanctioned events exclusively. FINA keeps a calendar of and holds its own international competitions, and if member federations also want to hold international competitions on their own or in partnership with independent organizations, they are required to seek FINA’s prior approval.
In 2017, a nascent ISL sought to organize international competitions among the world’s best swimmers, and structure them as a more traditional sports league. The ISL initially sought to hold competitions officially sanctioned by FINA (which comes with a spot on the FINA calendar alongside events such as the FINA World Championships and allows times to be official for purposes of Olympic qualification and world records). When negotiations with FINA stalled, however, the ISL went to the individual national federations to host their events. However, facing potential sanctions, the national federations declined to take the risk of getting in the water with the ISL.
Back in December 2018 the swimmers and the ISL brought a medley of antitrust claims alleging that FINA and its member federations conducted an illegal group boycott of the ISL by refusing to cooperate with the ISL. The essence of the complaint was that FINA used its control over Olympic aquatic sports to determine the terms of compensation and competition for international swimming events outside of the Olympic Games and FINA’s own competitions, thus engaging in anticompetitive conduct. As the Ninth Circuit stated in its decision reversing summary judgement in favor of FINA, while FINA never imposed sanctions on any swimmers for participating in non-FINA events, plaintiffs introduced evidence that all interested parties understood FINA rules might expose swimmers to suspensions, including from competing at the Olympics and World Championships, if they participated in unaffiliated ISL events. In the ISL’s view, this cut off its access to the very top-tier talent it needed to compete in the marketplace. Notably, in 2019, following the filing of the suit, FINA issued a statement that clarified it “recognizes the right of athletes to participate in any swimming event” but that if the event does not receive prior FINA approval, the “results of the competition would not be recognized by FINA.” In the meantime, the ISL hosted seasons in 2019, 2020 and 2021 and sought and obtained FINA's approval for some events in which ISL partnered with member federations.
In January 2023, the district court cleared the pool and ruled in favor of FINA. In its decision, the lower court granted summary judgment on the grounds that FINA’s rules, which stated “no affiliated Member shall have any kind of relationship with a non-affiliated… body [like the ISL]” without risking suspension or having the results be unrecognized internationally, did not unreasonably restrain trade under Section 1 of the Sherman Act. According to the district court, the rules did not expressly prevent swimmers from competing in unsanctioned events but instead they “prevented… member federations from affiliating with the ISL and other non-sanctioned entities.” The district court further reasoned that the ISL could – and did – hold its own top-tier competitions without requiring any formal affiliation with member federations, and therefore found that there was no evidence of anticompetitive effects.
Generally, Section 1 of the Sherman Act prohibits “contracts, combinations, or conspiracies that unreasonably restrain trade.” There are three standards for determining if restraints are unreasonable: (1) per se, if they always or almost always tend to restrict competition and decrease output, (2) “rule of reason” (most common), if not per se and following a fact-specific assessment of “‘market power and market structure…to assess the [restraint]’s actual effect’ on competition” or (3) “quick look,” if they are not per se but “where it is clear that the challenged restraints’ principal or only effect is anticompetitive.”
In a reversal, the Ninth Circuit changed strokes and found the district court’s conclusions were merely “one interpretation of the evidence,” giving new life to the plaintiffs’ claims. Applying a de novo review, the appellate court found that there were several triable issues that the district court had overlooked. Most notably, the Ninth Circuit concluded that the plaintiffs had raised a legitimate question as to whether FINA’s rules constituted a per se violation of antitrust law (i.e., unlawful group boycott) by preventing member federations and swimmers from doing business with the ISL without risking severe sanctions. According to the appeals court, a rational jury could find that the pre-amended rule concerning federations participating in unsanctioned events had “no purpose other than to disadvantage FINA’s competitors.”
The Ninth Circuit also found that the plaintiffs created a triable issue under the “quick look” standard and determined that there was enough evidence to suggest that FINA’s rules may have imposed a “naked restraint on price and output” in the market for professional swimming competitions.
Significantly, the Ninth Circuit rejected the district court’s conclusion that the more lenient “rule of reason” antitrust analysis was necessary. While FINA argued that the rule of reason should apply because “sports leagues and joint venture restrictions are unique antitrust contexts that are generally analyzed under the rule of reason,” the Ninth Circuit instead found that (1) “FINA and its members are not a joint venture sports league, but an association of independent national federations,” and (2) while “some restraints are necessary to create or maintain a league sport [that] does not mean all aspects of elaborate interleague cooperation are.” Applying this rationale, the appeals court stated that “a rational trier of fact could conclude that FINA can organize swimming competitions and maintain its calendar of events without restricting participation in non-affiliated events.” In addition, even though the appeals court affirmed the ruling that the plaintiffs failed to define the “relevant market” under a rule of reason analysis, the court stated that “a plaintiff is not required to define a particular market for… a rule of reason claim based on evidence of the actual anticompetitive impact of the challenged practice.” In this case, the court found that, drawing all reasonable inferences in plaintiffs’ favor, “a rational trier of fact could conclude that by threatening to sanction swimmers, [FINA’s rules] prevented the ISL from holding events in 2018 and thereby reduced output and wages.”
In the end, although the Ninth Circuit decision in the FINA case is unpublished and lacks precedential authority, it still may have an impact on future similar challenges to restrictions placed on athletes participating in non-league or governing body-sanctioned events. Regardless of the outcome of this litigation, there are bigger issues at play concerning the state of the league, as the ISL, whose founder is Ukrainian, most recently postponed its 2022 season due to the outbreak of the Russian-Ukrainian war. There have been no reported announcements about its return.