Virtual Countries v. Republic of South Africa

Citation: Virtual Countries, Inc. v. Republic of S. Africa, 148 F. Supp. 2d 256 (S.D.N.Y. 2001), aff’d, 300 F.3d 230 (2d Cir. 2002).

Factual Background
Plaintiff managed country-specific ".com" domain names, including "southafrica.com." Defendant issued a press release stating that it intended to file an application with WIPO to assert its right to the "southafrica.com" domain name, which it intended to use as a strategic marketing tool for the promotion of trade, tourism, and the international image of the Republic of South Africa. Defendant also submitted position papers to WIPO and ICANN supporting its contention that countries should have the right to use their geographic indication as a domain name.

Trial Court Proceedings
Four days after defendant issued its press release, plaintiff filed this suit seeking (a) a declaration that it had the sole rights to the "southafrica.com" domain name and (b) an injunction preventing defendants from seeking a declaration of their rights in the name in arbitral or court proceedings worldwide. Defendant moved to stay the proceedings or to dismiss it for lack of subject-matter jurisdiction under the Foreign Sovereign Immunities Act (FSIA) and/or for failure to state a claim. The court granted defendant's motion to dismiss for lack of subject-matter jurisdiction because defendant was immune from suit under the FSIA. Specifically, plaintiff failed to satisfy the requirements for the "commercial activity" exception to the FSIA. The court determined that defendant's acts were not taken in connection with a commercial activity of the foreign state. The press release, without more, was insufficient to establish the requisite commercial activity. Moreover, defendant took no further action following the press release and affirmatively represented to the court that it would not begin a UDRP arbitration proceeding. The court also found that defendant's action did not have a direct effect in the United States and suggested that plaintiff's financial hardships were merely the result of the "dot com" slowdown, not defendant's press release.

Appellate Court Proceedings
On August 7, 2002, the Second Circuit upheld the district court's ruling that it did not have subject-matter jurisdiction under the FSIA. The appeals court rejected plaintiff's argument that the defendant's press release caused a direct effect in the United States by hampering its ability to raise capital from investors. The reaction of third-party investors to the press release was simply too attenuated a harm to constitute a direct effect sufficient to establish jurisdiction.

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