Although a seemingly infrequent issue, the ability to sue domestic and foreign sovereign entities in intellectual property disputes has been the subject of recent seminal U.S. Supreme Court and Appellate Court decisions. In these decisions, the Courts addressed statutes that seek to abrogate sovereign immunity to allow suits by private individuals against foreign and domestic states in intellectual property actions. While the Supreme Court has now made it clear that a state cannot be sued for copyright (or patent) infringement, the Second Circuit held that a foreign entity may be sued in U.S. courts under certain circumstances.

State Sovereign Immunity – Allen v. Cooper

In Allen v. Cooper, 140 S. Ct. 994 (2020), the Supreme Court held unconstitutional the Copyright Remedy Clarification Act of 1999, a federal statute that allowed suits against states for copyright infringement. The Court’s decision followed an earlier Supreme Court decision, Florida Prepaid Postsecondary Ed. Expense Bd. v. College Savings Bank, 527 U.S. 627 (1999), holding unconstitutional a federal statute that similarly sought to abrogate a state’s sovereign immunity from suit for patent infringement.

Foreign Sovereign Immunities Act (FSIA) – Pablo Star Ltd. v. Welsh Government

Unlike actions against states, there is no absolute immunity from suit for a foreign sovereign in U.S. courts. Rather, such actions against a foreign sovereign are governed by the Foreign Sovereign Immunities Act (FSIA). Under FSIA, a foreign state is presumptively immune from U.S. jurisdiction unless a specific exception applies. One of the specific exceptions is commercial activity by the foreign sovereign in the United States.

The Commercial Activity Exception under FSIA

Applying the FSIA commercial activity exception, the Second Circuit Court of Appeals denied the Welsh Government’s motion to dismiss Pablo Star’s complaint for copyright infringement based on sovereign immunity. The Court found the Welsh Government’s use of two photos of Dylan Thomas and his wife in promotional material for Welsh-related tourism in the United States fell within the commercial activity exception. Pablo Star Ltd. v. The Welsh Government, 961 F.3d 555 (2nd Cir. 2020).

According to FSIA, sovereign immunity does not preclude jurisdiction in U.S. courts if the action is “based…upon commercial activity carried on in the United States by the foreign state.” 28 U.S.C. Sec. 1605(a)(2). Thus, to be able to sue a foreign state for copyright infringement as commercial activity under this provision, the action must meet the two statutory requirements: first, the action must be based on “commercial activity,” and second, the activity must be carried on in the United States.

“Commercial activity” is “either a regular course of commercial conduct or a particular commercial transaction or act.” 28 U.S.C. Sec. 1603(d). “[C]ommercial activity carried on in the United States by a foreign state” is commercial activity “having substantial contact with the United States.” 28 U.S.C. Sec. 1603(e), Pablo Star, 961 F.3d at 560. Quoting the Supreme Court, the Second Circuit commented that the statute “leaves the critical term ‘commercial activity’ largely undefined.” Id., citing Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 612 (1992).

1) The Requisite Commercial “Nature” of the Commercial Activity

Whether the activity is considered “commercial” depends on its “nature,” “the outward form of the conduct that the foreign state performs or agrees to perform;” not its “purpose,” “the reason why the foreign state engages in the activity.” Sec. 1603(d); Pablo Star, 961 F.3d at 560- 61, citing Saudi Arabia v. Nelson, 507 U.S. 349, 361 (1993). A government’s profit motive in the activity is irrelevant. Instead, the Court looks to whether the particular actions performed are “the type of actions by which a private party engages in trade and traffic or commerce.” Pablo Star, 961 F.3d at 561, 563 (emphasis in original), Weltover, 504 U.S. at 614.

While the statutory language appears to be fairly straightforward, its application is far more complicated. As the Court acknowledges, “[t]his is a standard more easily stated than applied.” Pablo Star, 961 F.3d at 561.

With respect to the “nature of its action,” the Welsh government’s purpose was promoting Welsh culture and tourism and “advancing the image of the country,” a seemingly governmental function. However, its actions to achieve this purpose were publication of promotional material, including reproducing the photos on the Wales.com webpage, in the “Welsh in America 2010” booklet, the Welsh in America exhibition available from the Welsh government, a New York map and walking tour brochure, and providing the photos for publication by U.S. media companies in articles about Wales and Dylan Thomas. Pablo Star, 961 F.3d at 558, 560 -61. Even if characterized as promoting tourism, the Court held that such actions are the publication of advertising materials regularly undertaken by private entities: “[e]very aspect of the Welsh Government’s conduct that forms the basis of Pablo Star’s claim could have been done by a private party for commercial gain.” Pablo Star, 961 F.3d at 564 (emphasis in original).

2) The Requisite Nexus Between the Conduct and the Injuries

Distinguishing other cases where the government action was arguably commercial activity that could have been performed by a private citizen, the Court explained that there must also be a sufficient nexus between the conduct and the injuries alleged. Pablo Star, 961 F.3d at 563. Therefore, a government’s action in torturing an engineer employed at a government hospital for reporting safety defects did not fit the commercial activity exception; there was a lack of nexus between the claim for wrongful arrest, imprisonment and torture, and the government’s commercial activity. Nelson, 507 US at 352-53, 358, Pablo Star, 961 F.3d at 563-64. Torture, arrest, and imprisonment are examples of a government’s police powers, not “commercial activity.” Pablo Star, 961 F.3d at 561.
Contributing to the uncertainty on characterizing the “nature” of the action, the day after Pablo Star, the Second Circuit issued another decision applying the commercial activity exception. In that case, the Second Circuit found that the Greek government’s assertion of ownership of property about to be auctioned did not fall within the commercial activity exception. Barnet as Tr. Of 2012 Saretta Barnet Revocable Tr. v Ministry of Culture & Sports of the Hellenic Republic, 961 F.3d 193 (2nd Cir. 2020). Although the Greek Government’s action sending a cease and desist letter could be undertaken by a private citizen, the Court found it was part of a governmental function because it was done in the context of an effort to nationalize Greek property.

3) The Commercial Activity Must Have Substantial Contact with the United States

The commercial activity must also “be carried out in the United States;” that is, the activity must have “substantial contact with the United States.” Pablo Star, 961 F.3d at 565, 28 U.S.C. Sec. 1603(e). Like the term “commercial activity,” the Second Circuit noted that the parameters of “substantial contact” are “poorly defined.” Id. The Court summarily concluded that the Welsh Government’s commercial activity had sufficient contact with the United States, citing the exhibition for display in the United States, distribution of the photographs to United States media companies and the organization of a walking tour of Greenwich Village by a New York-based touring company with a map and brochure provided by the Welsh Government.

Although each case is sui generis, the Court’s reasoning in Pablo Star indicates that a foreign sovereign’s actions constituting copyright infringement in the United States would typically fall within the commercial activity exception, depending on how the court defined the “nature of the action” by the government. In contrast, the Court’s determination of the requisite nexus between the injury and the contacts provides the Court with the means to avoid taking jurisdiction of actions arguably constituting police powers which are done in conjunction with its commercial activity.

Supreme Court To Examine the Application of Comity to FSIA Jurisdiction

The United States courts are obviously reluctant to judge the propriety of a foreign government’s actions which are arguably within its police powers, particularly when they apply to the foreign government’s own citizens. The Supreme Court has just granted certiorari with respect to two cases that will further define another exception to FSIA sovereign immunity, the expropriation exception. In the two cases, former citizens of Hungary and Germany sued their former governments for expropriation of their property during the Holocaust. The Supreme Court agreed to determine whether, considering international comity, the suits should go forward in the United States when a foreign government takes property from their own nationals. It is probable that a decision on comity in these cases will apply only to the expropriation exception and not to FSIA’s commercial activity exception.

Sovereign Immunity When the Sovereign is the Licensor

Adding further to the confusion, the Federal Circuit has now issued a “splintered” decision on whether sovereign immunity prohibits a patent licensor from being an involuntary plaintiff in a suit by the licensee against an infringer. Gensetix, Inc. v. Board of Regents of University of Texas System, 966 F.3d 1316 (Fed. Cir.2020). With three separate opinions, this is a case the Federal Circuit is most likely to take en banc.

Conclusion

To summarize the somewhat contradictory case law, states cannot get sued for copyright or patent infringement, but their patents can be the subject to a validity challenge in a Patent Trial and Appeal Board post-grant proceeding. Moreover, states can sue for patent and copyright infringement. However, a suit can be brought in U.S. courts against a foreign sovereign for copyright infringement (and likely patent and trademark infringement) if the infringing action is part of the foreign government’s commercial activity in the United States.

The parameters of sovereign immunity are currently in flux. As the law continues to evolve, private individuals and entities likely to become entangled in an intellectual property dispute with a sovereign entity need to monitor the case law carefully.

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