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Gaylord v. United States, Fed. Cir., No. 2011-5097, 5/14/12
Case Summary:The Federal Circuit vacates an award of $5,000 against the government for unauthorized use of an image of the Korean War memorial on postage stamps.
Key Takeaway:The federal claims court, in considering only what the Postal Service had paid in the past for such uses, did not adequately calculate the fair market value of a hypothetical license.
• Case Summary:The Federal Circuit vacates an award of $5,000 against the government for unauthorized use of an image of the Korean War memorial on postage stamps.
• Key Takeaway:The federal claims court, in considering only what the Postal Service had paid in the past for such uses, did not adequately calculate the fair market value of a hypothetical license.
In calculating appropriate damages for the unauthorized use of an image of the Korean War memorial on postage stamps, a trial court erred by considering only the government's position in any hypothetical negotiation, the U.S. Court of Appeals for the Federal Circuit ruled May 14 (Gaylord v. United States, Fed. Cir., No. 2011-5097, 5/14/12).
Vacating a $5,000 flat fee damage award, the court said that the lower court erred by failing to take into account evidence of the plaintiff's past licensing practices in order to calculate fair market value of the use of the image.
In 1986, the American Battle Monuments Commission was authorized to establish a memorial for veterans of the Korean War. A group from Pennsylvania State University won a contest for a design of the memorial, but the group withdrew from the project. To complete the memorial, the Army Corps of Engineers engaged Cooper-Lecky Architects P.C. as the principal contractor.
Frank Gaylord was eventually selected as the sculptor of the “Column” portion of the memorial after a contest conducted by Cooper-Lecky. Gaylord used the Penn State design as a starting point to complete the memorial, but made significant changes, such as reducing the number of soldiers depicted from 38 to 19 and using stainless steel casts instead of granite sculptures. Gaylord registered copyright interests in five works related to the Korean War Veterans Memorial, completed in 1995.
In 1996, photographer John Alli took a picture of the memorial and obtained permission from Cooper-Lecky to sell prints of the photograph in exchange for royalties. In 2002, the U.S. Postal Service designed and issued a stamp to commemorate the armistice ending the Korean War and paid Alli for use of the photograph on the stamps. Through March 2005, the Postal Service issued 86.8 million of the stamps. The Postal Service also sold framed art and other items incorporating the picture.
In 2006, Gaylord sued the government pursuant to 28 U.S.C. §1498(b), alleging copyright infringement. The government argued that it was a joint author of the memorial and thus held an unlimited license. Furthermore, the government argued that the memorial was an architectural work and under the Architectural Works Copyright Protection Act of 1990, photographs of architectural works were not protected by copyright law.
Judge Thomas C. Wheeler of the U.S. Court of Federal Claims ruled that Gaylord was the sole author of the statues and that they were not excluded from full copyright protection under the statute. However, the court ruled that the Postal Service's use constituted a fair use and thus was not infringing.
On appeal, the U.S. Court of Appeals for the Federal Circuit ruled that the use of the photograph on the stamps did not constitute a transformative fair use of the statues, and it reversed the fair use finding. The appeals court also said that the statues did not constitute an architectural work. Gaylord v. United States, 595 F.3d 1364, 94 USPQ2d 1116 (Fed. Cir. 2010).
On remand, the claims court rejected the application of the “royalty rate” method for calculating damages and awarded Gaylord $5,000 in damages. Gaylord v. United States, 98 USPQ2d 1853 (Fed. Cir. 2011).
Gaylord appealed the damages award.
whenever the copyright in any work … shall be infringed by the United States … the exclusive action which may be brought … shall be an action … for the recovery of [the copyright owner's] reasonable and entire compensation as damages for such infringement, including the minimum statutory damages as set forth in [17 U.S.C. §504(c)] ….
According to the court, Leesona Corp. v. United States, 599 F.2d 958, 202 USPQ 424 (Ct. Cl. 1979), interpreted similar language with regard to patent infringement to mean that damages were limited “to a reasonable royalty for a 'compulsory compensable license in the patent' or, when that 'cannot be ascertained, another method of estimating the value of the lost patent.' ”
Enhanced damages and attorneys' fees were outside the scope of the provision of “reasonable and entire compensation,” under this reading, the court said.
Applying this principle to copyright cases, Gaylord would be entitled to compensatory damages, and that would include minimum statutory damages, but not to non-compensatory damages.
Thus, the appropriate method for ascertaining such damages would be actual damages as provided for under 17 U.S.C. §504, the court said.
“When, as in this case, the plaintiff cannot show 'lost sales, lost opportunities to license, or diminution in the value of the copyright,' many circuits award actual damages based on 'the fair market value of a license covering the defendant's use,' ” the court noted. “The value of this license should be calculated based on a hypothetical, arms-length negotiation between the parties.”
This meant that the lower court was correct in taking into consideration the fact that in the past, the Postal Service had paid between $1,500 and $5,000 in such situations, the court said. However, in addressing such a hypothetical negotiation, the lower court erred in considering only the Postal Service's bargaining preferences.
The government “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 court said.
Thus, the lower court should also have taken into consideration that Gaylord routinely charged a 10 percent royalty rate for similar uses of licensed images, the court said.
It constituted legal error for the lower court to cap Gaylord's damages based solely on the Postal Service's past practices in similar circumstances without taking into consideration Gaylord's bargaining position and other evidence of fair market value and thus whether an ongoing royalty would be appropriate.
The court vacated the damages award and directed the lower court to reconsider the damages, this time taking into account evidence such as Gaylord's own past licensing practices.
Such an analysis might lead to the conclusion that different licensing fees would be fair for different categories of infringement, such as stamps that had been used for mail, stamps purchased by collectors, and goods that featured images of the stamp.
Furthermore, the court said that Gaylord's damages might not be limited to the Postal Service's actual profits from the sale of such goods.
Finally, the court ruled that Gaylord had not waived any opportunity to seek an award of prejudgment interest.
The court's opinion was joined by Judges William Curtis Bryson and Haldane Robert Mayer.
Gaylord was represented by Frank P. Porcelli of Fish & Richardson, Boston. The government was represented by Scott Bolden of the U.S. Department of Justice, Washington, D.C.
Opinion at http://pub.bna.com/ptcj/115097May14.pdf
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