Sculptor Frank Gaylord created a group of 19 statues for the Korean War Veterans' Memorial in Washington, D.C. referred to as "The Column." In 2002, the United States Postal Service issued a stamp commemorating the 50th anniversary of the armistice of the Korean War that featured a photo of "The Column" licensed from photographer John Alli. The Postal Service did not seek or obtain Gaylord's permission to use "The Column" on the stamp or related merchandise.
The Postal Service issued almost 87 million stamps bearing the image, sold merchandise carrying the stamp image, and licensed the stamp image to retailers.
Gaylord sued the government for copyright infringement. In an earlier appeal, the Federal Circuit concluded that the trial court had erred in finding that the Postal Service's use was protected by fair use and remanded the case for a determination of damages. A discussion of that earlier decision can be found here.
On remand, the trial court rejected Gaylord's claim for a 10% royalty on about $30.2 million in revenue and his claim for prejudgment interest. Instead, the court employed a "zone of reasonableness" standard to determine Gaylord's damages, concluding that the appropriate range was between $1,500 and $5,000. The court ultimately awarded Gaylord the maximum amount in that range, $5,000, as a one-time royalty.
The Federal Circuit reversed. It held that the method used to determine actual damages under the copyright damages statute was the appropriate measure. In this case, the court should have awarded actual damages based on the fair market value of a license that would cover the Postal Service's use, which value should be calculated "based on a hypothetical, arms-length negotiation between the parties."
Here though, the Federal Circuit concluded that the trial court had erred in limiting its analysis of this hypothetical negotiation inquiry to only one side of the negotiations. Specifically, the trial court had incorrectly focused only on the Postal Service's assertion that it had never paid more than $5,000 for a license. The Federal Circuit rejected this narrow focus, stating that "Defendants cannot insulate themselves from paying for the damages they caused by resting on their past agreements and by creating internal 'policies' that shield them from paying fair market value for what they took."
The Federal Circuit thus remanded for the trial court to consider all evidence relevant to the hypothetical negotiation inquiry and provided specific examples of the types of evidence it might consider, including evidence that the Postal Service itself licensed the stamp image to third parties to be used on merchandise for an 8% royalty.
The Federal Circuit likewise reversed the trial court's conclusion that Gaylord was not entitled to prejudgment interest, concluding that he was entitled to such interest "because it is necessary to make his compensation complete."
The case cite is Gaylord v. United States, No. 2011-5097 (Fed. Cir. May 14, 2012).