n the most recent ruling in Gaylord v. United States, the United States Court of Federal Claims determined the proper amount of damages due Frank Gaylord, (“Gaylord”) the sculptor who created “The Column” portion of the Korean War Memorial, from the United States Postal Service (USPS) for its unauthorized depiction of “The Column” on a commemorative stamp issued in 2003. This case has been the subject of much litigation, as the District Court found that the stamp was a fair use of the underlying sculpture; the decision was then reversed on appeal and the stamp use found to be infringing of the Memorial; the initial amount of damages was capped at $5000, or reasonable license fee; this determination was reversed and set back to the lower court to determine the appropriate amount of actual damages under the Copyright Act. Statutory damages were not available in this case. You can find our previous blog on the case here.
Specifically, the United States Court of Appeals for the Federal Circuit vacated the award of $5,000, as it failed to adequately calculate the fair market value of a hypothetical license because it only considered what the USPS had previously paid for similar licenses. To properly calculate the fair market value (i.e. “the amount Mr. Gaylord would have received if the Postal Service had paid Mr. Gaylord to use his copyright, instead of using it without his permission”), it directed that the Claims Court examine whether different license fees were appropriate for three categories of infringing goods identified in the 2010 opinion: (a) stamps used to send mail, (b) unused stamps purchased by collectors, and (c) commercial merchandise featuring an image of the stamp.
The Claims Court determined that Gaylord was entitled to total compensation of $684,844.94, concluding that a 10% running royalty rate “accurately captures the fair market value of a license to Gaylord’s copyright.” Noting that the Government’s infringement “deprived Mr. Gaylord of the opportunity to negotiate with the Postal Service for compensation,” the court based its calculation according to the likely terms assuming Gaylord and the USPS had negotiated a price for a license on July 27, 2003—the date on which the stamp was released. The court conceded, however, that determining such likely terms based on the legal fiction of a hypothetical negotiation involves “more the talents of a conjurer than those of a judge.”
Turning to the three categories of infringing goods suggested by the Federal Circuit, the court first confirmed that no damages were awarded for stamps used to send mail because of the difficulty involved in determining whether consumers purchased the commemorative stamps because it featured an image of “The Column” or simply because they needed stamps. Gaylord did not seek damages in connection with stamps used to send mail.
Next, the Court determined that Gaylord was entitled to a 10% running royalty on revenues collected by the USPS for unused stamps purchased by stamp collectors. The court arrived at this figure because Gaylord demonstrated at trial that he collected a 10% royalty for past licenses of “The Column” for various collectibles including t-shirts and miniature statues. The court further noted that calculation of Gaylord’s damage award should consider the fact that the USPS had “strong financial incentive to enter into a license with Gaylord,” noting that stamps sold to collectors “represent nearly pure profit for the USPS” and that military themed stamps sell especially well. The court referred to a survey produced by the USPS that showed the Korean War Memorial stamp was in the “top 25% of its class of a 37-cent commemorative stamp with respect to projected retention value.” The court also noted that the USPS decided to print 86 million Korean War Memorial stamps, when the average print-run for commemorative stamps is 50-60 million stamps – thus suggesting that the USPS anticipated Gaylord’s stamps to be particularly valuable at the time of the hypothetical negotiation with Gaylord. Applying the 10% royalty rate to the USPS’s profits of $5.4 million, the court determined that Gaylord was entitled to $540,000.
The court also awarded Gaylord a 10% running royalty rate applied to the $330,919.49 the USPS received on merchandise featuring images of the Korean War Memorial stamp, determining that he was entitled to $33,092.
Finally, the court awarded Gaylord an additional prejudgment interest of $111,752.94 (based on a delay compensation interest factor of 19.5%), which was to be added to any damages assessed by the court.
In sum, Gaylord’s combined damages—which included $540,000 from USPS profits on unused stamps, $33,092 on USPS profits on merchandise, as well as a prejudgment interest of $111,752.94—totaled $684,844.94. The calculation was based on what the price of a license would have been had the USPS negotiated with Gaylord for use of “The Column,” a 10% running royalty rate, applied to unsent stamps purchased by collectors and on merchandise sold containing the image.
This case is interesting as the court rejected the past licensing model used by USPS as a measure of damages – a flat license fee- for material that was equivalent to merchandise. A royalty model is more customary when licensing artwork for products such as puzzle, posters and paper goods and was consistent with the artist’s licensing model. In other words, the court did not limit damages to the way in which the infringing party previously licensed work but looked to how the artist would have licensed the artwork if he had negotiated with USPS in 2003. While retroactively determining the position of the parties in a hypothetical negotiation is an inexact science, the Gaylord decision provides some insight into how courts make such an analysis.
Additionally, it’s worth noting that Gaylord’s stamp was initially issued a decade ago, when the USPS anticipated printing some 86 million stamps. With the rise in electronic and mobile communication and corresponding decrease in regular mail, it is unlikely that any artist would see royalties this high on the use of a contemporary stamp absent extreme popularity of the subject. Conversely, however, a reduced print run today for commemorative stamps such as Gaylord’s may generate a higher resale value on the secondary market for such stamps due to their relative scarcity.
Filed in: Legal Blog
October 30, 2013