Coming, coincidentally, just days before the start of the 2018 Major League Soccer season, the recent Second Circuit decision in North American Soccer League, LLC v. United States Soccer Federation, Inc. has key takeaways for antitrust and injunction law practitioners.
As the governing body for soccer in the U.S. and Canada, the United States Soccer Federation (U.S. Soccer) promulgates Standards, tied to the number and location of a league’s teams, that it uses to designate leagues as Division I, II, or III each year. Major League Soccer (MLS) has been the only D-I men’s soccer league since it began play in 1995, while the North American Soccer League (NASL), despite aspirations to compete directly against MLS, has operated since 2011 as a D-II league. Last year, U.S. Soccer rejected NASL’s application for a D-II designation for the 2018 season. Rather than filing instead for D-III status, NASL sued U.S. Soccer in federal court in Brooklyn, alleging that U.S. Soccer violates Section 1 of the Sherman Antitrust Act by selectively applying its Standards to restrain competition among top-tier U.S. men’s professional soccer leagues. As part of its lawsuit, NASL sought a preliminary injunction requiring U.S. Soccer to grant it D-II status for 2018.
Because NASL wanted a D-II designation without going through the usual application process, the Second Circuit agreed with the District Court that the preliminary injunction being sought was intended to disrupt the status quo, not preserve it. So-called “mandatory” injunctions can be had only by showing not just a likelihood of success on the merits (in addition to irreparable harm and lack of harm to the public interest) – as is the case for typical preliminary injunctions – but a clear or substantial likelihood of success. NASL failed to meet this heightened standard.
No Sherman Act Section 1 claim is viable in the absence of an agreement or concerted action. That agreement must then constitute an unreasonable restraint on competition to be actionable. The Second Circuit assumed the existence of an agreement (despite concurring with the District Court that NASL had not adequately shown concerted action) and thus proceeded to analyze the Standards under the three-step rule of reason framework. First, NASL established that U.S. Soccer had an adverse effect on competition in the top-tier professional soccer leagues within its purview by virtue of the application and amendment of its Standards. The burden then shifted to U.S. Soccer, which offered satisfactory evidence of the Standards’ procompetitive effects – e.g., promoting league quality, generating fan interest, and providing financial stability. When the burden shifted back to NASL to demonstrate less restrictive alternatives to the current Standards, it could not do so. Because the rule of reason was not violated, NASL failed to show a clear likelihood of success on its Section 1 claim and thus was not entitled to a preliminary injunction.
Like a scoring attempt on Tim Howard, the NASL decision highlights difficulties – in this case, the difficulties that can arise in seeking a preliminary injunction based on an antitrust claim. NASL established two of the three prongs for a preliminary injunction – that it had been irreparably harmed and that the injunction it was seeking would not do harm to the public interest. NASL even successfully showed that U.S. Soccer’s Standards had an anticompetitive effect. But because the Standards had a procompetitive justification that could not be achieved through less restrictive means, the courts determined that NASL’s antitrust claim was not clearly likely to succeed on the merits, which sent NASL’s request for a mandatory preliminary injunction sailing wide of the goal.