Gaylord v. United States
Justia.com Opinion Summary: Gaylord created βThe Column,β sculptures representing soldiers that are the centerpiece of the Korean War Veterans' Memorial on the National Mall. The Postal Service issued a stamp commemorating the 50th anniversary of the armistice, with a photograph of The Column, licensed from a photographer. USPS issued roughly 86.8 million of the stamps, sold retail goods with the image, and licensed the image to retailers, without seeking Gaylord's permission. In 2006, Gaylord sued under 28 U.S.C. 1498(b) for copyright infringement. The Federal Circuit held that Gaylord owned the copyright and that USPS was liable for infringement, but remanded for determination of damages. The Court of Federal Claims rejected a claim for a 10 percent royalty on about $30.2 million in revenue allegedly generated by the infringing use, as well as a claim for prejudgment interest, finding that neither 28 U.S.C. 1498(b), which waives sovereign immunity for copyright infringement, nor the copyright infringement statute, 17 U.S.C. 504, authorizes a royalty-based award for copyright infringement and that the proper measure of damages was the reasonable value of a license, between $1,500 and $5,000. The Federal Circuit vacated and remanded for determination of market value of the infringing use and award of prejudgment interest.
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United States Court of Appeals for the Federal Circuit __________________________ FRANK GAYLORD, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee. __________________________ 2011-5097 __________________________ Appeal from the United States Court of Federal Claims in case no. 06-CV-539, Judge Thomas C. Wheeler ___________________________ Decided: May 14, 2012 ___________________________ FRANK P. PORCELLI, Fish & Richardson, P.C., of Boston, Massachusetts, argued for plaintiff-appellant. With him on the brief was HEIDI E. HARVEY. SCOTT BOLDEN, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendantappellee. With him on the brief were TONY WEST, Assistant Attorney General, and JOHN J. FARGO, Director. Of counsel on the brief were GARY L. HAUSKEN, Assistant Director, DAVID C. BELT, and MICHAEL F. KIELY, United States Postal Service, of Washington, DC. GAYLORD v. US 2 __________________________ Before BRYSON, MAYER and MOORE, Circuit Judges. MOORE, Circuit Judge. Frank Gaylord appeals from the judgment of the Court of Federal Claims awarding him $5,000 for the United States Postal Serviceâs copyright infringement of his statues. Because the trial court incorrectly limited Mr. Gaylordâs damages to the Postal Serviceâs highest past license payment and denied prejudgment interest, we vacate and remand for a determination of the market value of the Postal Serviceâs infringing use and an award of prejudgment interest. BACKGROUND Mr. Gaylord is the creator of âThe Column,â a group of nineteen stainless steel sculptures representing a platoon of soldiers. The Column is the centerpiece of the Korean War Veteransâ Memorial on the National Mall in Washington, D.C. In 2002, the United States Postal Service issued a 37-cent stamp commemorating the 50th anniversary of the armistice of the Korean War. The stamp featured a photograph of The Column, which the Postal Service licensed from photographer John Alli. 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. The Postal Service did not seek or obtain Mr. Gaylordâs permission to depict The Column on the stamp or the related merchandise. In 2006, Mr. Gaylord sued the United States under 28 U.S.C. Â§ 1498(b) for copyright infringement. In Gaylord v. United States, we held that Mr. Gaylord owned the copyright to The Column and that the Postal Service was liable for infringement. 595 F.3d 1364, 1381 (Fed. Cir. 3 GAYLORD v. US 2011). We identified 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. Id. at 1371. We remanded for a determination of damages. 1 Id. On remand, the Court of Federal Claims rejected Mr. Gaylordâs claim for a 10% royalty on about $30.2 million in revenue allegedly generated by the Postal Serviceâs infringing use, as well as his claim for prejudgment interest. Gaylord v. United States, 98 Fed. Cl. 389, 390, 392-93 (2011). The court reasoned that neither 28 U.S.C. Â§ 1498(b), which waives the United Statesâ sovereign immunity for copyright infringement, nor the copyright infringement statute, 17 U.S.C. Â§ 504, authorizes a royalty-based award for copyright infringement. Id. at 392. Instead, the court concluded that the proper measure of damages is âthe approach in Steve Altman Photography of employing a âzone of reasonablenessâ to determine the copyright ownerâs actual damages.â Id. at 391 (citing Steve Altman Photography v. United States, 18 Cl. Ct. 267, 279 (1989)). Applying this framework, the Court of Federal Claims determined that the âzone of reasonablenessâ for the value of a license on Mr. Gaylordâs copyright was between $1,500 and $5,000. Id. at 391-92. To set the lower bound, the court relied on the fact that the Postal Service paid photographer John Alli $1,500 to license the photo he took of The Column. Id. To set the maximum amount of available damages, the court relied exclusively on testimony by Mr. McCaffrey, the Postal Serviceâs Manager of Stamp Development, that the Postal Service had never On remand, the parties relied on the original trial record to support their damages arguments and did not submit any new damages evidence. 1 GAYLORD v. US 4 paid more than $5,000 to license an existing image for use on a stamp. Id. at 392. Based on these facts, the court awarded Mr. Gaylord a one-time royalty of $5,000, which it determined was âreasonable and just compensationâ for the governmentâs infringement. Id. The court explained that it was awarding Mr. Gaylord the highest amount within the âzone of reasonablenessâ because he was deprived of the opportunity to negotiate. Id. The court also held that, even if reasonable royalties were allowed, Mr. Gaylordâs request for a 10% royalty was unreasonable because $3 million is outside the zone of reasonableness. The court based this conclusion on the Postal Serviceâs assertion that it had a policy against paying a royalty for stamp designs. Id. The trial court rejected Mr. Gaylordâs claim for prejudgment interest because it found no explicit waiver of sovereign immunity allowing such a recovery. Id. Mr. Gaylord appeals the courtâs decision that he is not entitled to a reasonable royalty or prejudgment interest. We have jurisdiction under 28 U.S.C. Â§ 1295(a)(3). DISCUSSION âOn appeal from the Court of Federal Claims, this court reviews legal conclusions de novo and fact findings for clear error.â Columbia Gas Sys., Inc. v. United States, 70 F.3d 1244, 1246 (Fed. Cir. 1995). âWe review a damages award by the Court of Federal Claims for an abuse of discretion.â Hi-Shear Tech. Corp. v. United States, 356 F.3d 1372, 1377 (Fed. Cir. 2004). I. Damages Mr. Gaylord argues that the trial court erred as a matter of law by holding that royalty damages are not available in copyright cases. He argues that other circuits allow hypothetical licenses as a measure of actual dam- 5 GAYLORD v. US ages, and because reasonable royalties are the presumptive award under 28 U.S.C. Â§ 1498(a), they should also be the presumptive award under Â§ 1498(b). Mr. Gaylord argues that the Postal Serviceâs internal policies should not foreclose his request for a royalty-based award. He also contends that using the Postal Serviceâs highest past payment as the maximum amount recoverable was erroneous because the court should have considered realworld evidence of a reasonable royalty. For example, at trial Mr. Gaylord introduced evidence of his past licenses of The Column for various collectibles, such as t-shirts and miniature statues. He argues that the 10% royalty he typically received under such agreements accurately represents the fair market value of a license to his work. Mr. Gaylord also argues that his stamp was more popular than others, and thus warrants a higher license fee than the trial court awarded. The Postal Service argues that the court awarded Mr. Gaylord âthe highest lost license fee supported by the evidenceâ and âcorrectly employed a willing buyer/willing seller analysis and awarded Mr. Gaylord a lost license fee in the form of a $5,000 one-time lump-sum royalty, the highest âamount he would have received as a one-time fee in negotiations with the Postal Service.ââ Appelleeâs Br. 12 (citing Gaylord, 98 Fed. Cl. at 392). It argues that making royalty damages presumptive in copyright cases would make Â§ 1498(b)âs allowance of minimum statutory damages superfluous. The Postal Service calls Mr. Gaylordâs request for $3 million based on a 10% license speculative, arguing that Mr. Gaylord relies upon licenses that are not comparable to the infringing use. It also argues that the Korean War stamp was actually the least retained commemorative stamp issued around the same time. The Postal Service argues that the $5,000 award is an accurate measure of âjust compensationâ because it GAYLORD v. US 6 represents âthe market value of the property at the time of the taking.â Id. at 12, 19. Section 1498(b), which waives the United Statesâ sovereign immunity for copyright infringement, states: whenever the copyright in any work protected under the copyright laws of the United States shall be infringed by the United States . . . the exclusive action which may be brought for such infringement shall be an action by the copyright owner against the United States in the Court of Federal Claims for the recovery of his reasonable and entire compensation as damages for such infringement, including the minimum statutory damages as set forth in [17 U.S.C. Â§ 504(c)] . . . . 28 U.S.C. Â§ 1498(b) (emphasis added). In Leesona Corp. v. United States, our predecessor court interpreted âreasonable and entire compensationâ in the context of Â§ 1498(a), which waives the United Statesâ sovereign immunity for patent infringement. 599 F.2d 958 (Ct. Cl. 1979). The Leesona court found âno clear indication that the government intended to assume responsibility for any payment other than the just compensation required by the fifth amendment.â Id. at 968. The Leesona court thus limited âreasonable and entire compensationâ under Â§ 1498(a) to a reasonable royalty for âa compulsory compensable license in the patentâ or, when that âcannot be ascertained, another method of estimating the value of the lost patent.â Id. Punitive damages that may be available in a suit under Title 35, such as enhanced damages and attorneysâ fees, were excluded because they grant more than âjust compensation.â Id. at 968. The court explained that âthe proper measure . . . is what the owner has lost, not what the taker has gained.â Id. at 969. 7 GAYLORD v. US This analysis applies with equal force in the Â§ 1498(b) context, where courts must determine just compensation for the plaintiffâs loss when the government takes what is essentially a compulsory, non-exclusive license on the plaintiffâs copyright. âReasonable and entire compensationâ entitles copyright owners to compensatory damages, including the minimum statutory damages, but not to non-compensatory damages. We conclude that the methods used to determine âactual damagesâ under the copyright damages statute, 17 U.S.C. Â§ 504, are appropriate for measuring the copyright ownerâs loss. When, as in this case, the plaintiff cannot show âlost sales, lost opportunities to license, or diminution in the value of the copyright,â many circuits award actual damages based on âthe fair market value of a license covering the defendantâs use.â See On Davis v. The Gap, Inc., 246 F.3d 152, 164, 172 (2d Cir. 2001); see also Thoroughbred Software Intâl, Inc. v. Dice Corp., 488 F.3d 353, 359-60 (6th Cir. 2007); Jarvis v. K2 Inc., 486 F.3d 526, 533-34 (9th Cir. 2007); McRoberts Software, Inc. v. Media 100, Inc., 329 F.3d 557, 566 (7th Cir. 2003). The value of this license should be calculated based on a hypothetical, arms-length negotiation between the parties. See, e.g., Jarvis, 486 F.3d at 533 (â[I]n situations where the infringer could have bargained with the copyright owner to purchase the right to use the work, actual damages are what a willing buyer would have been reasonably required to pay to a willing seller for plaintiffsâ work.â). It is incorrect in a hypothetical negotiation inquiry for a court to limit its analysis to only one side of the negotiating table because the courtâs task is to determine the âreasonable license fee on which a willing buyer and a willing seller would have agreed for the use taken by the infringer.â See On Davis, 246 F.3d at 167. The trial court erred in this case by restricting its focus to the Postal GAYLORD v. US 8 Serviceâs past payments: $1,500-$5,000. Defendants cannot insulate themselves from paying for the damages they caused by resting on their past agreements and by creating internal âpoliciesâ that shield them from paying fair market value for what they took. See Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1555 (Fed. Cir. 1995) (â[W]hat an infringer would prefer to pay is not the test for damages.â). Instead, the trial court must look at the evidence presented by both sides to determine the fair market value of a license to which the parties would have agreed. Hence, while the evidence may indicate that the Postal Service has not paid more than $5,000, it is equally clear that Mr. Gaylord has consistently licensed images of The Column for retail and commemorative items at approximately 10%. See, e.g., J.A. 1180-81, 1201, 1721. The trial court legally erred in this case by failing to calculate the fair market value of a license based on a hypothetical negotiation between Mr. Gaylord and the Postal Service. In applying the so-called âzone of reasonablenessâ test, the court improperly limited its inquiry to the Postal Serviceâs past licenses and, as a result, erroneously capped Mr. Gaylordâs maximum damages without considering other evidence supporting a higher award. Moreover, the court gave undue weight to the Postal Serviceâs self-serving testimony that it is prohibited from paying an ongoing royalty on stamps, and as a result failed to consider whether the fair market value of a license would include an ongoing royalty rather than a one-time fee. See Gaylord, 98 Fed. Cl. at 392. We thus vacate and remand for the court to determine the fair market value of a license for the full scope of the Postal Serviceâs infringing use based on a hypothetical negotiation with Mr. Gaylord. On remand, the trial court must consider all evidence relevant to a hypothetical negotiation rather than limit- 9 GAYLORD v. US ing its analysis to the Postal Serviceâs past licenses for different works or to the Postal Serviceâs internal policies. 2 For example, Mr. Gaylord presented evidence that he typically agreed to a royalty rate of 8-10% in past agreements licensing his work for use on various collectibles, such as miniatures and t-shirts. In one such agreement, Mr. Gaylord earned $16,666.66 up front and a 10% royalty on all sales. The record also shows that Mr. Alli entered a license agreement with the architects of the Korean War Veteransâ Memorial, who he incorrectly believed held the copyright on The Column. Mr. Alli agreed to pay a 10% royalty to the architects for his sales and licensing of his photograph of The Column, which totaled $31,766.50 up to the date of the agreement. 3 Finally, the Postal Service itself licensed the stamp image to third parties for use on retail goods in exchange for a royalty of 8% of sales. The Postal Service earned $17,831.93 under those agreements. Such evidence of past license agreements for the work in question is certainly relevant to a hypothetical negotiation analysis. The trial courtâs analysis of a hypothetical negotiation between Mr. Gaylord and the Postal Service may lead it 2 Because the determination of the licenseâs fair market value is a fact-dependent inquiry, the parties and the court may find it necessary to reopen the record. For example, the court may find it useful to have testimony explaining how to compare Mr. Gaylordâs previous licenses to the hypothetical license in this case. Mr. Gaylord sued Mr. Alli for copyright infringement for sales of the photograph, and in a settlement agreement Mr. Gaylord agreed to pay Mr. Alli 10% of any recovery from his suit against the government in exchange for 10% of Mr. Alliâs future sales of his photograph and 25% of any compensation Mr. Alli received by licensing the photograph. 3 GAYLORD v. US 10 to conclude that different license fees are appropriate for the three categories of infringing goods we identified in our previous opinion: (1) stamps used to send mail; (2) unused stamps purchased by collectors; and (3) commercial merchandise featuring an image of the stamp. Gaylord, 595 F.3d at 1371. For stamps used as postage, the trial court must determine whether an ongoing royalty or a one-time fee more accurately captures the fair market value of a license. For example, the court may consider evidence regarding whether people used the stamp at issue specifically because it featured an image of The Column or whether the stampâs value is primarily attributable to its ability to send mail rather than to the image it depicts. While it is certainly permissible for the court to conclude that a lump sum license might be appropriate, the court should not arbitrarily cap this award at $5,000 simply because the Postal Service claims it has never paid more to license a copyright for use on a stamp. The analysis likely will differ for the value attributable to the Postal Serviceâs use of Mr. Gaylordâs work on the estimated $5.4 million of sold but unused stamps, including those retained by collectors, which represent nearly pure profit for the Postal Service. It may be pertinent to examine whether the number of unused stamps is greater for this stamp than for the average stamp issued by the Postal Service. Collectors may retain stamps for any number of reasons, including a preference for the image itself or a desire to obtain a particular stamp to complete a collection. See, e.g., J.A. 1217, 1262-63. The court should thus consider whether the evidence supports an ongoing royalty for unused stamps, and at what rate. We, however, do not rule out the possibility that a onetime, paid-up license accurately reflects the fair market value of a license for both the used and unused stamps. 11 GAYLORD v. US The commercial merchandise seems distinctly different from the stamps. The Postal Service itself licensed the stamp image to third parties to be used on various retail goods for an 8% royalty, and it earned $17,831.93 in royalty payments. This is completely consistent with the 8-10% royalty rate Mr. Gaylord typically earned for licensing his work to third parties to be used on retail goods. It is also similar to the 10% royalty Mr. Alli agreed to pay for selling prints of his photograph of The Column. Based on these facts, an ongoing royalty appears to be appropriate for retail goods depicting Mr. Gaylordâs work, particularly those on which the Postal Service earned an 8% ongoing royalty. The trial court should also consider whether the evidence similarly supports an ongoing royalty for the $330,000 in revenue the Postal Service made from direct sales of pins, postcards, magnets, framed art, cancellation keepsakes, and other philatelic collectibles depicting the stamp. The court should keep in mind that Mr. Gaylordâs recovery is not limited to the Postal Serviceâs actual profits. See Golight, Inc. v. WalMart Stores, Inc., 355 F.3d 1327, 1338 (Fed. Cir. 2004). Indeed, the court may find that a hypothetical negotiation between the parties would result in a higher ongoing royalty than the rate earned by Mr. Gaylord or the Postal Service under past agreements. II. Prejudgment Interest Mr. Gaylord argues that he is entitled to prejudgment interest. He cites Waite v. United States, in which the Supreme Court held that sovereign immunity does not prevent the award of prejudgment interest under the precursor to Â§ 1498 because âreasonable and entire compensationâ includes delay compensation. 282 U.S. 508, 508-09 (1931). The Postal Service concedes that the trial court failed to consider Waite, and thus that it erred by holding that sovereign immunity bars the award of pre- GAYLORD v. US 12 judgment interest under Â§ 1498. The Postal Service argues, however, that prejudgment interest should be denied in this case because Mr. Gaylord âcited no law or factsâ in support of his request at trial. The Postal Serviceâs waiver argument is incorrect. Mr. Gaylord twice explicitly cited Waite to the trial court when arguing his entitlement to prejudgment interest. Mr. Gaylord is entitled to prejudgment interest because it is necessary to make his compensation complete. We vacate the trial courtâs decision denying prejudgment interest and remand. VACATED AND REMANDED. COSTS Costs to Plaintiff-Appellant.