300 F.3d 230 (2nd Cir. 2002), 01-7900, Virtual Countries, Inc. v. Republic of South Africa

Docket Nº:01-7900
Citation:300 F.3d 230
Party Name:Virtual Countries, Inc. v. Republic of South Africa
Case Date:August 07, 2002
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 230

300 F.3d 230 (2nd Cir. 2002)

VIRTUAL COUNTRIES, INC., Plaintiff-Appellant,


REPUBLIC OF SOUTH AFRICA, a Foreign State, and South African Tourism Board, an Agency or Instrumentality of a Foreign State, Defendants-Appellees.

No. 01-7900.

United States Court of Appeals, Second Circuit

August 7, 2002

Argued: May 2, 2002.

Page 231

[Copyrighted Material Omitted]

Page 232

Maxim H. Waldbaum, Salans Hertzfeld Heilbronn Christy & Viener (Lora A. Moffatt, Lori D. Greendorfer, and Joseph E. Petersen, of counsel), New York, NY, for Plaintiff-Appellant.

David B. Goldstein, Rabinowitz, Boudin, Standard, Krinsky & Lieberman, New York, N.Y. (Roger Bearden, Rabinowitz, Boudin, Standard, Krinsky & Lieberman, New York, NY, and Terry Gross, Gross & Belsky LLP, San Francisco, CA, of counsel), for Defendants-Appellees.

Before: MINER and SACK, Circuit Judges, and BERMAN, District Judge.[*]

SACK, Circuit Judge.

Plaintiff Virtual Countries, Inc., appeals from a June 28, 2001 judgment of the United States District Court for the Southern District of New York (Allen G. Schwartz, Judge) that dismissed its petition for relief under the Declaratory Judgment Act, 28 U.S.C. §§ 2201-02, based on the court's conclusion that defendants Republic of South Africa (the "Republic") and the South African Tourism Board ("Sat-our") have sovereign immunity under the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1330, 1602-11 ("FSIA" or "the Act"), Virtual Countries, Inc. v. Republic of South Africa, 148 F.Supp.2d 256, 262 (S.D.N.Y.2001). The district court further concluded that none of the Act's exceptions to immunity applied. Id. at 267. Because the Republic's act of which Virtual Countries complains had no "direct effect in the United States," we conclude that none of the FSIA's exceptions, including 28 U.S.C. § 1605(a)(2) on which the plaintiff particularly relies, creates subject matter jurisdiction. We therefore need not and do not address the district court's alternative holding that the Republic's act was not "commercial."


Virtual Countries is a Seattle, Washington-based corporation, that owns Internet domain names1 including "algeria.com," "bangladesh.com," "belgium.com," and, most pertinently for this appeal, "southafrica.com."

Page 233

Virtual Countries has owned southafrica.com since at least May 13, 1995, using it since October 1996 to "provide[ ] access to news, weather, tourist information, and online shopping opportunities, particularly related to travel, and goods and services, available within or pertaining to the [southern region of the African continent]." Compl. ¶¶ 17-18.

The Republic, a foreign sovereign nation, owns southafrica.net. Satour, its "national tourism agency," has New York offices, operates a web site at satour.org, and owns the domain names satour.net and satour.com.

Two international organizations figure in this appeal. First, the World Intellectual Property Organization ("WIP0") is "one of the 16 specialized agencies of the United Nations system of organizations [that] administers 23 international treaties dealing with different aspects of intellectual property protection." About WIP0, at http://www.wipo.org/about-wipo/en/ (last visited August 6, 2002). One hundred seventy-nine countries maintain membership in WIP0. Id. Second, the Internet Corporation for Assigned Names and Numbers ("ICANN") was established in 1998 as a "non-profit, private sector corporation that coordinates a select set of the Internet's technical management functions currently performed by the U.S. Government or its contractors and volunteers." ICANN: A Structural Overview, at http://www.icann.org/general/structure.htm (last modified March 24, 2002). Since October 1999, ICANN has supervised a non-binding arbitral system, the Uniform Domain Name Dispute Resolution Policy ("UDRP"), for resolving domain names disputes. "UDRP proceedings are conducted by administrative dispute resolution service providers approved by ICANN . . . . ICANN has accredited four service providers and WIP0 is one of them." Sallen v. Corinthians Licenciamentos LTDA, 273 F.3d 14, 21 (1st Cir. 2001).

In July 2000, in response to various governments' requests to assess, inter alia, the extent of and possible solutions for "bad faith, abusive, misleading or unfair use of . . . geographical indications," WIP0 initiated the "Second Internet Domain Name Process." In the course thereof, the Republic submitted comments to WIP0 arguing that second-level domain names and generic top-level domains ("gTLDs")2 "that are the same as the official or common names of sovereign nations" should be protected "against bad faith, abusive, misleading, or unfair registration and use." The Republic cited as examples domain names containing the word "SouthAfrica," albeit without explicit reference to Virtual Countries, as having "substantial political and economic value" that were "national assets belonging to the . . . sovereign nation[ ]." The Republic further recommended binding UDRP arbitration governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 in disputes over such names. Only in April 2001, after the relevant events in this dispute had transpired, did WIP0 issue an interim report exploring possible solutions.

On October 30, 2000, the Republic issued a press release, the act that lies at the core

Page 234

of this litigation. The release asserted that the Republic "could be the first country in the world to make a challenge for the right to own its own domain name" in the generic top level domain ".com."3 The press release explained that the Republic intended to lodge "an application claiming the www.southafrica.com domain" with WIPO before November 10, 2000 because it wished to use that domain as a "strategic marketing tool in promoting trade and tourism." The press release also noted the Republic's aim to "take this matter [the ownership of www.southafrica.com] up in international fora" such as ICANN. And it reaffirmed the Republic's position that sovereign "countries ha[ve] the first right to own their own domain names."

The Complaint and District Court Decision

One week later, on November 6, 2000, Virtual Countries filed a complaint in the United States District Court for the Southern District of New York seeking declaratory relief pursuant to 28 U.S.C. §§ 2201-02 to the effect that the Republic lacked rights to the domain name "www.southafrica.com." The plaintiff also sought injunctive relief against any "arbitration or court proceedings in any forum worldwide" challenging its rights to that domain name.Compl.¶ 33(b). According to the complaint, the Republic's October 30 press release demonstrated its intent to "reverse-hijack[ ]"4 www.southafrica.com because it lacked a legitimate claim that could be established either before an ICANN arbitral forum or under United States law.Compl. ¶¶ 2-3. In a declaration responding to the defendants' motion to dismiss, Virtual Countries' president and principal shareholder, Gregory Paley, explained that the press release had a "devastating and direct effect . . . on Virtual Countries' short and long-term business operations." Paley Decl. ¶ 10. Paley asserted that the press release placed a "cloud" on Virtual Countries' ownership of domain names, obliging it to sell "switzerland.com." Id. ¶12. In addition, he said, a "possible strategic alliance" with a South African firm had failed due to the potential partner's fear of "reprisals from the South African government." Id. ¶ 13.

On April 30, 2001, the defendants moved pursuant to Fed.R.Civ.P. 12(b)(1) to dismiss the action for want of subject matter jurisdiction. They submitted a declaration of Andile Abner Ngcada, Director General of the South African Department of Communications, in which Ngcada explained that the Republic, in issuing the press release, had been "engag[ed] in international multistate, State-to-State and regional international diplomacy regarding the appropriate position that the relevant international bodies should follow regarding domain name registration of the names of sovereign nations." Ngcada Decl. ¶ 5. Ngcada further stated that the Republic had decided "not [to] commence an arbitration before WIPO or any other organization that has adopted ICANN's UDRP under the UDRP procedures currently in place." Id. ¶ 8.

Page 235

The district court granted the defendants' motion to dismiss because it concluded that subject matter jurisdiction under the FSIA was wanting. Virtual Countries, 148 F.Supp.2d at 268. The district court observed that absent the availability of a statutory exception, the FSIA granted general immunity from suit to "foreign states," including both the Republic and its instrumentality, Satour. Id. at 262. According to the court, the sole possible basis for subject matter jurisdiction required that the Republic's act, the preparation and initial dissemination of the press release, had been "taken 'in connection with a commercial activity'" and had had a " 'direct effect'" in the United States on the plaintiff. Id. at 263. The court concluded, however, that issuance of a press release was not a "commercial" activity. Id. at 263-65. Rather, the press release was part of the Republic's diplomatic efforts before WIPO, an international organization. Id. at 265. The district court further held that the press release had no direct effect in the United States. Id. Even assuming that financial loss or opportunity loss sufficed as a basis for jurisdiction, the district court rejected the plaintiffs allegations to this effect as "entirely conclusory." Id. at 266-67. Finally, the district court noted that Virtual Countries failed to state a claim against Satour, which had played no part in preparing or issuing the press release. Id. at 269.

Virtual Countries appeals.


Virtual Countries contends that we must vacate...

To continue reading