by Nancy Wolff, PACA Counsel
In 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.]
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, 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.” 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.
Turning to the three categories of infringing goods suggested by the Federal Circuit, the court first established 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.
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. 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 commemorative stamps sold to collectors “represents nearly pure profit for the USPS.” 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 stated 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. 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 as a measure of damages the past licensing model used by USPS- 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.
[The stamp was initially issued a decade ago, and as a side note it’s interesting to see how many millions of stamps were published. With the 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.]