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In copyright infringement action against U.S. Postal Service, Federal Circuit holds that plaintiff is entitled to collect as damages reasonable royalties and prejudgment interest, and that damages are not strictly limited by government policies respecting maximum licensing fees or policies against payment of royalties.
Plaintiff Frank Gaylord is the creator of “The Column,” a group of nineteen stainless steel columns that form the centerpiece of the Korean War Memorial on the National Mall in Washington, D.C. Gaylord typically licenses his work for retail purposes in exchange for a 10 percent royalty fee. In 2002, the U.S. Postal Service issued a 37-cent stamp depicting The Column commemorating the 50thanniversary of the signing of the armistice ending the war. The Postal Service licensed the photograph from photographer John Alli for $1,500. Alli had, in turn, licensed the image from the architects of the Korean War Memorial and had agreed to pay the architects a 10 percent royalty. Gaylord was not consulted and never consented to the use of The Column by the Postal Service. The Postal Service issued roughly 86.8 million of the stamps, sold retail goods carrying the stamp image, and licensed the stamp image to retailers in exchange for an 8 percent royalty.
In 2006, Gaylord sued the Postal Service for copyright infringement, claiming that he owned the copyright to The Column and that the Postal Service used the image without his consent. The Federal Circuit agreed that Gaylord owned the copyright and that the Postal Service had infringed Gaylord’s copyright in three general classes of infringing items: (1) stamps that were used to send mail; (2) unused stamps retained by collectors; and (3) retail goods featuring an image of the stamp.
On remand on the issue of damages, the Court of Federal Claims limited Gaylord’s damages to $5,000, finding that this was the upper limit in the “zone of reasonableness” around Gaylord’s actual damages. The court denied reasonable royalties as the measure of damages, finding that neither 28 U.S.C. § 1498(b), which waives the United States’ sovereign immunity for copyright infringement, nor the Copyright Act authorized a royalty-based award for copyright infringement. Instead, the court concluded that the proper measure of damages was the “zone of reasonableness” approach employed by the Court of Federal Claims in Steve Altman Photography v. United States. The court set the $5,000 limit because Postal Service argued that it had never paid more than $5,000 to license an image and had a policy against paying royalties. The court further denied Gaylord prejudgment interest, finding that, although the government had waived sovereign immunity for copyright infringement, it had not done so to the extent of allowing recovery of prejudgment interest. Plaintiff appealed the damages determination.
The Federal Circuit reversed, finding that the lower court should not have relied only on the Postal Service’s self-serving statements of its internal policies in determining the “zone of reasonableness” for the plaintiff’s damages. The court should have considered Gaylord’s typical royalty rate of 8-10 percent, the 8 percent royalty rate charged by Postal Service to retailers for use of The Column, and the various ways in which the Postal Service used the image. The court also held that the lower court erred in denying prejudgment interest. Section 1498(b), which waives sovereign immunity in copyright infringement cases, permits recovery of a plaintiff’s “reasonable and entire compensation,” which includes compensatory, but not punitive damages. As the Supreme Court has previously held, compensation includes “delay compensation,” and thus sovereign immunity does not preclude recovery of prejudgment interest under Section 1498.