Court Rules In Favor of World Aquatics In Long-Running Dispute With ISL

World Aquatics claimed victory in its long-running legal dispute with the International Swimming League (ISL) on Monday, with the U.S. District Court in San Francisco ruling in favor of the global governing body of aquatic sports in two cases originally opened in 2018.

Two antitrust lawsuits were filed—one from the ISL itself, and another from swimmers Tom Shields, Michael Andrew and Katinka Hosszu with the league’s support.

The lawsuits alleged that World Aquatics’ (then FINA’s) moves to block the 2018 Energy For Swim competition to take place and threaten athlete suspensions if they participated violated the Sherman Antitrust Act of 1890, which forbids organizations from engaging in anti-competitive behavior.

Attorneys for the plaintiffs also claimed tortious interference with contractual relations or prospective economic relations, for collusion to unreasonably restrict competition, and for monopoly.

The Court ultimately ruled in favor of FINA (World Aquatics) after finding that the ISL did not require FINA approval or affiliation with its member federations to host a “top-tier” swimming competition.

It also found that the premise of the plaintiff’s argument was that World Aquatics’ rules prohibited top-tier swimmers from participating in any unsanctioned event, which was not the case. The rules only prohibited member federations (national governing bodies) from affiliating with an unapproved entity (ISL).

The Court also found that the ISL never attempted to run an elite swimming competition without affiliation with member federations in 2018, and when it did so in 2019, it was successful. When World Aquatics threatened to suspend swimmers for participating in the 2018 Energy for Swim event, member federations (specifically the Italian Swimming Federation) were affiliated.

The threat of suspension never came in an event where a World Aquatics-member federation wasn’t affiliated. “There is no rule that allows World Aquatics to penalize a swimmer who participates in a competition that is not affiliated with a member federation, and no evidence that World Aquatics ever did, or ever threatened to do so,” the case reads.

Additionally, the plaintiffs opted not to adequately define the relevant market in which the restraint was in because they believed they had sufficient evidence of direct anticompetitive effects of World Aquatics’ authorized relation rule. However, failing to define the market ending up being a crucial factor in leading World Aquatics to win the case.

World Aquatics released the following statement on the decision:

“World Aquatics is grateful to Judge Corley for her thoughtful and just decision. We are pleased that it brings an end to a period of uncertainty. And we are thankful for the clarity that the Court’s decision provides,” said World Aquatics President Captain Husain Al-Musallam. “This is an important decision and also a good decision, not just for World Aquatics, but for the Olympic Movement and beyond.”

SwimSwam has reached out to the ISL for comment.

Find a breakdown of the full case below:

ELEMENT 1: CONTRACT, COMBINATION, OR CONSPIRACY

The first element of the case analyzed whether or not World Aquatics and its member federations were entities capable of conspiring and actual or at least potential competitors. Furthermore, it looked at if they took concerted action by World Aquatics and member federations and restraint threatening swimmers’ suspensions.

• The Court found that World Aquatics and its member federations were distinct entities and at least potential competitors, thus capable of conspiring. As an example, member federations competed with one another to host ISL events without permission from World Aquatics, and therefore it was concluded that World Aquatics and member federations are not a single economic unit and at least potential competitors.
• The record supported that World Aquatics and member federations took concerted action.
• The ISL contended that the unauthorized relations rule denied it access to the seller’s market for swimming competitions and buyers’ markets for swimmer services because member federations could not do business with the ISL unless approved by World Aquatics. Similarly, the plaintiffs argued that the threat of suspension denied them access to the seller’s market because selling their labor to ISL would result in a suspension from World Aquatics and thus jeopardize their Olympic eligibility.
• The record supports that member federations agreed not to do business with the ISL without World Aquatics’ approval, and thus a reasonable trier of fact could find World Aquatics and its member institutions are separate economic actors capable of conspiring and that they actually conspired on restraint of trade.

ELEMENT 2: UNREASONABLE RESTRAINTS OF TRADE

Plaintiffs and ISL argued that the “per se” or quick look approach applied, that is: “practices that are so harmful to competition and so rarely prove justified that the antitrust laws do not require proof that an agreement of that kind is, in fact, anticompetitive in the particular circumstances.”

This would mean that the Court assumes the restraint is anticompetitive without inquiry into the particular market context in which it is found; that is, the plaintiff is not required to define a particular market for a per se claim.

The Court ultimately ruled that the “per se” approach did not apply here as it does “not have any experience with the restraint at issue here” and that “such a restraint is not obviously unreasonable.”

The plaintiffs and the ISL claimed that World Aquatics’ threats to suspend swimmers who participated in the 2018 Energy for Swim event constituted a “classic group boycott”—a concerted attempt by a group of competitors at one level to protect themselves from competition from non-group members who seek to compete at that level. This typically would involve the boycotting group (World Aquatics) depriving their would-be competitors (ISL) of a trade relationship that they need in order to enter (or survive in) the level wherein the group operates.

The Court found that the plaintiffs and ISL did not identify any evidence that supports a finding that the ISL needed to associate with World Aquatics’ member federations (national governing bodies) in order to hold its own swimming competitions. It found that World Aquatics did not prevent swimmers from participating in authorized events, but rather it prevented and continues to prevent member federations from affiliating with the ISL and other non-sanctioned entities.

It is undisputed that top-tier swimmers are not bound by contract to swim only in World Aquatics sanctioned competitions. Indeed, the undisputed evidence is that ISL can and does sponsor top-tier swimming competitions without any affiliation with member federations. For example, in 2019, ISL hosted a swimming competition in Naples, Italy without affiliating with World Aquatics or any  member federation.

“While FINA’s cooperation makes it easier for ISL to organize a swimming competition, it is not necessary, ” the official ruling says.

No reasonable trier of fact could find that World Aquatic’s actions deprived “would-be competitors of a trade relationship in which they need in order to enter (or survive in) the level wherein the group operates.”

3. APPLYING THE RULE OF REASON

Due to the fact that the “per se” approach request was denied, the default rule of reason would be applied.

The rule of reason’s threshold requirement is “to accurately define the relevant market, which refers to the area of effective competitiveness.”

The plaintiffs and ISL did not offer expert testimony on the market—neither the geographic bounds of the market for top-tier international swimming competition or the cross-elasticity of demand between that product and its substitutes.

“Without expert testimony, the record does not have sufficient evidence from which a reasonable trier of fact could deduce any relevant market.

Are top-tier international swimming competitions interchangeable with NCAA Division I swimming competitions, top-tier international sports, sports more broadly, or entertainment more broadly?

The record is simply not developed.”

The case says that the ISL and plaintiffs do not dispute their lack of evidence of the relevant market, but contend such evidence was not required because they have identified sufficient evidence of direct anticompetitive effects of World Aquatics’ authorized relation rule.

“Specifically, they insist World Aquatics blocked ISL from holding as many as three events in 2018 and thus there is a genuine dispute as to anticompetitive effects. The court is unpersuaded.”

• The case notes that the plaintiffs’ argument is premised on the mantra that World Aquatics’ rules prohibited top-tier swimmers from participating in any unsanctioned events, which was not the case. The rules only prohibited member federations from affiliating with an unapproved entity, and for a brief time they could find that World Aquatics threatened suspension of any swimmer who participated in an unsanctioned event involving FINA member federations. “There is no rule that allows FINA to penalize a swimmer who participates in a competition that is not affiliated with a member federation, and no evidence that FINA ever did, or ever threatened to do so.”
• The case points to the first official ISL match in 2019 in Naples, Italy, where top-tier swimmers participated. “The ISL admits it does not require FINA approval or federation affiliation to put on international competition.”
• “As there is no evidence in 2018 that ISL even attempted to put on a swimming competition without affiliating with a FINA-member federation, let alone evidence that FINA stopped it from doing so, the record does not support a finding that FINA’s refusal in 2018 to approve ISL’s affiliation with a FINA-member federation so obviously had anticompetitive effects that plaintiffs and ISL have no need to define the relevant market.”

The Court says the plaintiffs and ISL’s reliance on a damages expert were misplaced, and that they provided no testimony disputing evidence that the ISL did not need World Aquatics to sponsor top-tier competition.

The Court also said identifying the relevant market is critical to determine anticompetitive effects under the first step of the rule of reason, which they did not do. (To prove a substantial anticompetitive effect directly, the plaintiff must provide proof of actual detrimental effects in the relevant market. When a plaintiff does so, no inquiry into the market definition and market power is required.)

The Court acknowledges the record is replete with evidence of FINA’s concern about competition from ISL. But, so what? The antitrust laws do not require one competitor to help another compete with it; instead, they prohibit only unreasonable restraints of trade.

Because Plaintiffs and ISL have insufficient evidence to prove the relevant market, no reasonable trier of fact could find FINA’s unauthorized relations rule violated the rule of reason. The Court need not analyze the third element of a Section 1 claim—the restraint’s effect on interstate commerce—because there is insufficient evidence in the record to support the second element.

A reasonable trier of fact could find a contract, combination, or conspiracy existed among FINA and its member federations. The trier of fact could also find that GR 4, the unauthorized relations rule, was a horizontal restraint of trade. However, under the rule of reason, and based on the record before the Court, no reasonable trier of fact could find the restraint was unreasonable because Plaintiffs and ISL have not offered enough evidence to define the relevant market and thus show the required anticompetitive effects. Accordingly, FINA is entitled to summary judgement on Plaintiffs’ and ISL’s section 1 claims.”

MONOPOLY & MONOPSONY POWER

After Section 1 ruled in favor of World Aquatics, Section 2 went the same way.

Due to the failure to provide sufficient evidence of a relevant market, the Court could find no reasonable trior of fact that World Aquatics had monopoly and monopsony power in the undefined market.

TORTS CLAIMS

ISL made a claim under California law for tortious interference with prospective economic relations, while the named plaintiff swimmers brought a California law claim for tortious interference with contractual relations.

World Aquatics was entitled to judgment on both claims. The ISL failed to provide sufficient evidence of a relevant market, while World Aquatics argued that the Court didn’t have personal jurisdiction on the plaintiffs’ claims, to which the Court agreed.