Swimming in Hot Water: FINA Loses First Round in US Competition Law Complaint Filed by Organiser of ‘Unofficial’ League

Dan Harrington, Level, and Eric Solomon, Harvard Law School

Context and Background: This case concerned a US competition law complaint filed against FINA by a class of plaintiffs, including world renowned swimmers and the promoter of a privately-run event, the International Swimming League, Ltd (ISL) in the United States District Court, Northern District of California. FINA is the IOC-recognised international governing body for the sport of swimming. The full decision of the interim hearing can be read here.

The case is important as it helps define the limits of the ability of sports governing bodies to control and sanction athletes who wish to participate in unofficial events that are not officially recognised by such bodies.

Facts: From September until December 2017, ISL and FINA engaged in unsuccessful negotiations regarding ISL’s plan to host an international swimming league in 2018. In spring 2018, ISL turned to FINA’s member federations and began direct discussions with USA Swimming for that national governing body to host, manage and organise the ISL event in Las Vegas in December 2018. Planning continued between ISL and USA Swimming for some time until, following the signing of an MOU in May 2018, FINA sent a letter to all FINA members stating that ISL is neither recognised by nor affiliated with FINA, threatening ongoing monitoring and sanctions for anyone who violated FINA’s rules on unauthorised relations. A week later, USA Swimming sent a letter to ISL suspending its help in organising the competition until it received assurance that FINA approved the concept. A similar sequence of events transpired when ISL tried to pair with British Swimming to move the proposed competition to London and subsequently with the Italian Swimming Federation to host it in Turin. Direct negotiations between ISL and FINA to remedy the impasse also broke down over FINA’s demands for event ownership and FINA naming rights, plus FINA’s request for a payment of $50 million from ISL over 10 years. Finally, FINA threatened to ban participating swimmers at ISL’s proposed Turin event from future FINA events, including the competitions that would serve as the qualifying meets for the 2020 Olympic Games, prompting the plaintiffs to file their complaint in December 2018.

Basis of Complaint: The complaints made by the plaintiffs were based on:

• Alleged anti-competitive conduct (general): FINA grants itself complete authority under its rules to ban a swimmer from participating in events that serve as the Olympic Games qualifying events for no reason other than the swimmer competed in a top-tier international swimming event that FINA did not itself organise or approve. Hence, FINA uses its control over Olympic aquatic sports to determine the terms of compensation and competition for international events outside of the Olympic Games and FINA’s own competitions.
• Alleged anti-competitive conduct (specific): FINA has harmed the class-action plaintiffs by preventing them from participating in ISL events, like the Turin Event, and other non-FINA approved international swimming competitions.
• Alleged motive: to maintain both its monopoly power in the market for top-tier international swimming competitions and its monopsony power in the market for the supply of top-tier swimmers.

Claims: The claims of the plaintiffs included (1) Federal antitrust violations under Sections 1 and 2 of the Sherman Act (the US federal law preventing anti-competitive trade practices) and (2) a State law claim for tortious interference with prospective economic relations.

Purpose of Judgment: To decide upon the defendant’s interim motion to dismiss the complaints under Federal Rules of Civil Procedure 12(b)(2) (lack of personal jurisdiction) and 12(b)(6) (failure to state a claim) following jurisdictional discovery and supplemental briefing.

Result: The defendant’s motions to dismiss denied.

Judgment:

Rule 12(b)(2) Analysis (Motion to Dismiss for Lack of Personal Jurisdiction)

It is was held to be undisputed that the relevant forum for the Court’s jurisdictional analysis in antitrust actions is the US as a whole, and not merely California.

Legal test: The Ninth Circuit uses a three-prong test to determine specific jurisdiction: (A) Purposeful direction; (B) Plaintiffs’ claims are related to defendant’s forum-related activities; and (C) The Court’s exercise of jurisdiction over the defendant is reasonable. If the plaintiff satisfies its burden as to the first two prongs, the defendant must demonstrate that the court’s exercise of personal jurisdiction would be unreasonable.

The Court concluded that it has jurisdiction because (A) plaintiffs have made a prima facie case showing that Defendant purposefully directed its anticompetitive conduct at the United States by knowingly interfering with USA Swimming and ISL’s plans to host a competition in the United States, (B) defendant’s purposeful direction of its anticompetitive conduct at the United States is directly related to plaintiffs’ claims: the record supports an inference that “but for” that conduct, ISL would have hosted an event with USA Swimming in the United States obviating the need to look for alternative venues in Britain or Italy, and (C) defendant has failed to present a compelling case that the exercise of personal jurisdiction over FINA would be unreasonable based on a holistic, seven-factor test (even though the factors weighed relatively equally between plaintiffs and defendant).

Rule 12(b)(6) Analysis (Motion to Dismiss for Failure to State a Claim)

Legal test: Defendant presented three grounds for dismissal of Plaintiffs’ Sherman Act (antitrust) claims and state law claim for tortious interference with prospective economic relations: (1) Implied immunity under the Ted Stevens Olympic Amateur Sports Act (“ASA”), (2) Claims are barred by the Foreign Trade Antitrust Improvements Act (“FTAIA”), and (3) FINA and its members share a complete unity of economic interest and hence are not independent actors capable of conspiring to violate Section 1 of the Sherman Act.

The Court concluded that the complaints state plausible claims for relief because: (1) The ASA is intended to support national governing bodies. Unlike USA Swimming, however, defendant FINA is not a national governing body, but an international federation. The Court held that the ASA is inapplicable because this action does not challenge a national governing body’s compliance with an international federation’s rules, but rather an international federation’s improper use of its authority over the national governing bodies below it to foreclose competition in the market for international sports; (2) The claims are not barred by the FTAIA, which limits the reach of the federal antitrust laws in the event of conduct involving trade or commerce with foreign nations, because they fall within the direct domestic effect exception to the FTAIA. By pressuring USA Swimming to derail a US-based event by terminating negotiations with ISL, FINA’s conduct had a direct, likely substantial and reasonably foreseeable effect on US commerce; and (3) The complaints adequately allege that FINA and its member federations, based on a functional rather than legal inquiry, are distinct entities and at least potential competitors who separately organise and promote top-tier international swimming competitions. Therefore, FINA and its member federations are capable of conspiring under the Sherman Act.

Implications for Governing Bodies, Promoters and Athletes: Sports events are often seen as potential valuable business investments and official sports governing bodies occasionally find themselves threatened by the emergence of new breakaway leagues and innovative formats, established by competitive promoters and funded by private investors. The temptation of sports governing bodies when faced with such threats is to exercise their considerable power (over their member associations, rules and regulations, calendars, qualification criteria for world championships/Olympic Games, and conditions for the participation of athletes, etc) in a manner which operates to prevent rival promoters from organising competitive events, or deters athletes from participating in them. The facts of this case appear to provide a valuable insight into the kinds of actions and behaviours that sports governing bodies (who traditionally enjoy a dominant position as the owners and organisers of their sports) would be well-advised to avoid, lest they find themselves facing similar claims.

Whilst the final outcome at trial remains uncertain, it would appear from the tenor of this interim ruling that FINA may well be heading for defeat. From a broader perspective, it is clearly the case that sports governing bodies will need to take a measured approach to their treatment of breakaway/unofficial competitive events. In particular they will need to ensure that their actions, decisions, rules and regulations do not unlawfully: (i) have the effect of restricting the ability of promoters to organise ‘unofficial’ events, or attract athletes to participate in them, or (ii) seek to impose sanctions or bans on the athletes who choose to do so.