On September 17, 2024, a unanimous panel of the Ninth Circuit Court of Appeals granted an appeal from a group of professional swimmers and the International Swimming League (“ISL”) (together, “Plaintiffs”) in their ongoing litigation against World Aquatics, formerly known as Fédération Internationale de Natation, the governing body for international and Olympic aquatic sports (“FINA” or “Defendant”). Shields, et al. v. World Aquatics, No. 23-15092 (9th Cir. Sept. 17, 2024). Plaintiffs’ primary allegation in the litigation is that Defendant engaged in a group boycott of ISL, an upstart competitor to Defendant.
In December 2018, Plaintiffs sued Defendant in the United States District Court for the Northern District of California, alleging violations of Section 1 and Section 2 of the Sherman Act, and state law claims for tortious interference with contractual relations, for unlawfully boycotting ISL’s events and depriving it of a supply of swimmers. Plaintiffs—a group of professional swimmers—raised their claims on behalf of a putative class of similarly situated swimmers. Defendant kept a calendar of international swimming competitions, which included competitions hosted by FINA, and separate, endorsed competitions hosted by member federations in partnership with other international organizations. See Shields, et al. v. Fed’n Internationale de Natation, 649 F. Supp. 3d 904, 913 (N.D. Cal. 2023). ISL sought to enter the market for international swimming competitions and compete with Defendant. After failing to reach an agreement with Defendant to endorse ISL’s competitions, ISL began negotiations to partner with various member federations (e.g., Italian Swimming Federation, USA Swimming) to host international competitions. In response, Defendant notified its member federations that FINA rules prohibited “any kind of relationship” between a member federation and “non-affiliated or suspended body” unless authorized by FINA (the “Affiliation Rule”). At the time, FINA rules also required member federations to suspend individual swimmers for one to two years for violating FINA’s Affiliation Rule. Consequently, member federations stopped negotiating with ISL, and the Italian Swimming Federation cancelled an upcoming event with ISL in Turin, Italy, to avoid any risks to the “core purpose of delivering medals at the Olympic Games,” as FINA sets the qualifying criteria for swimmers to participate in the Olympics. FINA later clarified that the Affiliation Rule only applied to member federations (and not swimmers) and later repealed the suspension provision. ISL hosted seasons in 2019, 2020, and 2021 and obtained Defendant’s approval for some of its events with member federations.
Following discovery, all parties moved for summary judgment. The district court held that based on the record, a reasonable trier of fact could conclude that FINA was capable of conspiring with other member federations and indeed conspired to restrain trade through enforcement of the Affiliation Rule. The court next determined the standard of review for FINA’s Affiliation Rule, which allegedly constituted a group boycott of ISL. The court held that the Affiliation Rule was not subject to per se or quick-look review, as Plaintiffs advocated. The court noted that, because the Affiliation Rule did not deprive ISL of trade relationships needed to enter the market and survive, it did not “prevent swimmers from participating in unauthorized events; it prevented and continues to prevent member federations from affiliating with ISL and other non-sanctioned entities.” The court then applied the rule of reason to the Affiliation Rule, ultimately holding that Plaintiffs failed to introduce sufficient evidence to define a relevant market, and as such, there was no violation of Section 1 of the Sherman Act, as they could not demonstrate the requisite anticompetitive effects in that market. Because Plaintiffs failed to define the relevant market, their Sherman Act Section 2 claims also failed.
On appeal, the Ninth Circuit reversed the district court, holding that “Plaintiffs have created a triable issue as to whether [the Affiliation Rule] constituted a per se unlawful group boycott by preventing member federations and swimmers from doing business with ISL without risking draconian sanctions.” The panel held a trier of fact could conclude that the Affiliation Rule “had no purpose other than to disadvantage FINA’s competitors” and “cut off ISL’s access to top-tier professional swimmers” by citing record evidence demonstrating that “FINA, national federations, and swimmers understood the rule to expose swimmers to suspensions.” Id. at *2 (citing Honey Bum, LLC v. Fashion Nova, Inc., 63 F.4th 813, 820-21 (9th Cir. 2023)).
The Ninth Circuit panel next turned to the quick look standard. It held that Plaintiffs also created a triable dispute under the quick look standard on the grounds that the Affiliation Rule enforced a “naked restraint on price and output.” The court stated that a reasonable trier of fact could find that the Affiliation Rule could have reduced output by “suppressing the number of swimming competitors in 2018” and lowered prices by “reducing the total pool of prize money and appearance fees” for swimmers. Last, the panel held that district court erred in applying the rule of reason because “the likelihood that horizontal price and output restrictions are anticompetitive is generally sufficient to justify application of the per se rule without inquiry into the special characteristics of a particular industry.” Even without a viable market definition, the court concluded that drawing all inferences in Plaintiffs’ favor, the record showed that the Affiliation Rule could have prevented ISL from holding events, thereby reducing output and wages.
Following the Ninth Circuit ruling, the litigation returns to the Northern District of California, where Defendant will face Plaintiffs’ group boycott claims under the per se or quick-look standards.
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