Second Circuit Affirms Welsh Government Advertising Activity Triggered Exception to Sovereign Immunity

On June 8, the U.S. Court of Appeals for the Second Circuit, in Pablo Star Ltd. V, Welsh Gov’t, affirmed a decision of the U.S. District Court for the Southern District of New York denying the Welsh government’s motion to dismiss a claim of copyright infringement on the ground of sovereign immunity. In particular, the circuit court held that the activity resulting in the lawsuit fell within the commercial-activity exception of the Foreign Sovereign Immunities Act (FSIA).

The Photographs and Alleged Infringing Activity

Dylan Thomas with family, 1953 (Not the subject photo).

Pablo Star owned copyrights in two photographs of the Welsh poet Dylan Thomas and his wife, Caitlin Macnamara (the photographs). The photographs included “Just Married,” which showed the couple after their wedding in 1937, and “Penard,” which showed the couple playing croquet. The photographs were taken by Vernon Watkins and copyrights were assigned to Pablo Star in 2011. Pablo Star registered the copyrights with the U.S. Copyright Office in 2012.

In 2006, the Welsh government began using the photographs to promote tourism to Wales. Later, in 2012, Pablo Star discovered that the Welsh government was using the photographs without permission and demanded that it cease and desist from using the photograph. However, the Welsh government continued to use and distribute the photographs in its promotional materials to encourage tourism from Germany, Ireland, the United States, and Canada.

In 2015, Pablo Star filed an infringement suit with the district court alleging copyright infringement by the Welsh government and the Welsh government moved to dismiss under Fed. R. Civ. P. 12(b)(1), asserting sovereign immunity under the FSIA, which states that “’a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States,’ subject to several enumerated exceptions” including the “commercial activity” exception. On March 29, 2019, the district court denied the Welsh government’s motion to dismiss and the Welsh government filed an interlocutory appeal to the circuit court.

Arguments on Appeal

The circuit court explained that “it is undisputed that the Welsh Government, as a subdivision of the United Kingdom, is a foreign state within the meaning of the Act, and is presumptively entitled to sovereign immunity.” Thus, the burden was on Pablo Star to show that one of the exceptions to sovereign immunity applied. Pablo Star asserted that the “commercial activity” exception applied to the Welsh government activity. In particular, the commercial activity exception of the FSIA states that a “foreign state shall not be immune from the jurisdiction of the courts of the United States or of the States in any case” where 1) “the action is based upon a commercial activity carried on in the United States by the foreign state” and 2) the commercial activity had “substantial contact with the United States.”

Analysis of Commercial Activity

The circuit court noted that the FSIA’s commercial-activity exception defines “commercial activity” as “either a regular course of commercial conduct or a particular commercial transaction or act.” Pablo Star asserted that the “activity” on which its infringement claim is based is the Welsh Gov’t’s use of the photographs “in promoting Wales-related tourist activities, specifically, on its wales.com web page; in the ‘Welsh in America 2010’ booklet, the ‘Welsh in America’ exhibition available from the Welsh Government in New York, and the ‘Dylan Thomas Walking Tour of Greenwich Village, New York’ brochure; and in providing the photographs to media companies for publication in articles about Wales and Dylan Thomas.”

The circuit court explained that whether an activity is considered “commercial” depends on the “nature” of the activity, rather than the “purpose”, wherein nature is defined as “the outward form of the conduct that the foreign state performs or agrees to perform” and purpose is defined as “the reason why the foreign state engages in the activity”. Noting that separating the nature and purpose of an activity is not an easy task, the circuit court cited the Supreme Court case Republic of Argentina v. Weltover, Inc., wherein “the Supreme Court explained that in applying the nature-versus-purpose analysis, the question is not whether the foreign government is acting with a profit motive or instead with the aim of fulfilling uniquely sovereign objectives. Rather, the issue is whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in trade and traffic or commerce.” The circuit court also cited Saudi Arabia v. Nelson in explaining that a foreign state engages in commercial activity “where it exercises only those powers that can also be exercised by private citizens, as distinct from those powers peculiar to sovereigns.”

The circuit court reasoned that even though the Welsh government’s actions were taken in order to enhance the image of its country, which were legitimate purposes for a sovereign to pursue, those purposes were “reasons”, rather than the “nature” of the actions. The “nature” or means by which it pursued its goals, i.e. the publication of advertising materials, was an action that is regularly performed by private businesses. Thus, the circuit court concluded that the nature of the Welsh government’s activity was clearly commercial and, therefore, the activities on which Pablo Star’s claim was based constituted commercial activity.

Substantial Contact with the United States

The Second Circuit then considered whether the Welsh government’s commercial activity had “substantial contact with the United States.” The circuit court agreed with the district court’s conclusion that the substantial contact requirement was satisfied because “the Welsh Government played an active role in the United States in the development and distribution in New York of promotional materials that included plaintiffs’ photographs, including by contracting with private businesses located in New York City to publish, print, display, and distribute the allegedly infringing materials.” The circuit court also noted that even though the Welsh Gov’t did not maintain an office in New York, its “conduct in New York reached beyond the confines of its consular office.” The circuit court reasoned that the Welsh Gov’t’s activities, including “The Welsh in America” campaign, the distribution of the photographs to American media companies, and “the Dylan Thomas Walking Tour of Greenwich Village … organized by New York Fun Tours in cooperation with the Welsh Government”, clearly demonstrated substantial contact with the United States.

Thus, the circuit court held that Pablo Star’s infringement suit was based on commercial activity carried out in the United States, which fell within the commercial activity exception to sovereign immunity under the FSIA. Thus, the district court judgment was affirmed.

Image Source: Wikipedia