Postal Service Must Pay Reasonable Royalty for Copyright Infringement

Considering the proper measure of damages under 28 U.S.C. § 1498(b), the U.S. Court of Appeals for the Federal Circuit vacated the trial court’s damages award and remanded to the Court of Federal Claims to determine the fair value of a license for the full scope of the Postal Service’s infringing use.  Gaylord v. U.S., Case No. 11-5097 (Fed. Cir., May, 14,2012) (Moore,  J.).

Frank Gaylord is the creator and holder of a copyright interest in “The Column,” a group of nineteen stainless steel sculptures representing a platoon of solders.  “The Column” is the centerpiece of the Korean War Veterans’ Memorial on the National Mall in Washington, D.C.  In 2002, the United States Postal Service issued a postal stamp and sold retail goods commemorating the 50th anniversary of the Korean War, featuring a photograph of “The Column.”  In 2006, Mr. Gaylord sued the United States under § 1498(b), which waives sovereign immunity for copyright infringement.  In a previous appeal, the Federal Circuit held that the Postal Service was liable for copyright infringement and identified three general classes of infringing items: stamps that were used to send mail, unused stamps retained by collectors and retail goods featuring an image of the stamp.  In the prior case, the Federal Circuit remanded for damages.

On remand, the Court of Federal Claims rejected Mr. Gaylord’s claim for a 10 percent royalty on about $30.2 million in revenue allegedly generated by the Postal Service, as well as his claim for prejudgment interest.  In determining damages, the lower court employed a “zone of reasonableness” standard to determine the copyright owner’s actual damages.  Applying this framework, the lower court determined that the “zone of reasonableness” for the value of a license on Mr. Gaylord’s copyright was between $1,500 and $5,000 based on evidence of prior postal services licenses.

The Federal Circuit rejected the lower court’s approach and adopted the same approach to damages under § 1498(b) that its predecessor court adopted for damages under § 1498(a), which waives sovereign immunity for patent infringement.  The Federal Circuit determined that the “reasonable and entire compensation” provided for (in both §§ 1498(a) and (b)), entitled a copyright holder compensatory damages only, not to non-compensatory damages.

In this case, the Court determined that the appropriate measure of compensatory damages under § 504 of the Copyright Law was the fair market value of a license covering the defendant’s use and that the proper value of this license should be calculated based on a hypothetical arms-length negotiation between the parties.  The lower court erred by restricting its focus to the Postal Services’ past payments and internal policies and was instructed on remand to consider all evidence relevant to a hypothetical negotiation, including Mr. Gaylord’s past royalties of between 8 percent and 10 percent.  The Federal Circuit also instructed that the lower court may conclude that different license fees are appropriate for the three categories of infringing goods identified in its prior opinion.

In addition, the Federal Circuit vacated and remanded the lower court’s denial of prejudgment interest, holding that sovereign immunity does not limit prejudgment interest under 28 U.S.C. § 1498(b).

© 2012 McDermott Will & Emery

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