IP Alerts

IP Alert
IP Alert: Federal Circuit Endorses Copyright Damages Based on Fair Market Value

May 30, 2012

In Gaylord v. United States, decided on May 14, 2012, the U.S. Court of Appeals for the Federal Circuit issued a significant ruling relating to the determination of copyright damages. The court held that determination of the market value of the infringing use of a copyright may be based on evidence from both parties about their negotiating positions in the hypothetical negotiation of a license agreement. The Gaylord decision also established an important holding for claimants against the U.S. government in copyright cases.

Mr. Gaylord is the creator of “The Column,” which is a group of stainless steel sculptures that represent a platoon of soldiers. The Column is the centerpiece of the Korean War Veterans Memorial along the National Mall in Washington, D.C. In 2002, the U.S. Postal Service issued a stamp that featured a photograph of The Column. 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. Although the Postal Service obtained a license from the photographer who had photographed The Column, it did not seek or obtain Mr. Gaylord’s permission to depict The Column on the stamp or on the related merchandise. 

Mr. Gaylord brought a claim against the Postal Service in the Court of Federal Claims, claiming approximately $3 million in damages. This damages claim was based on a 10% royalty applied to about $30 million in revenue allegedly generated by the Postal Service’s infringing use. The court rejected this claim, holding that neither the statute authorizing claims against the government nor the copyright infringement statute authorized a royalty-based award for copyright infringement. Based on evidence introduced by the Postal Service that it had never paid more than $5,000 to license an image for other stamps, the court awarded Mr. Gaylord $5,000 in damages.

On appeal, the Federal Circuit vacated the damages award. The court first held that the statute that authorized suits against the government did not limit Mr. Gaylord’s damages claim. Analogizing the matter to patent damages available to federal claimants, the court concluded “that the methods used to determine ‘actual damages’ under the copyright damages statute . . . are appropriate for measuring the copyright owner’s loss.”

The court next turned to the measure of damages available under the copyright statute. This statute, 17 U.S.C. § 504(a), provides that a copyright infringer is liable for “the copyright owner’s actual damages and any additional profits of the infringer . . .” or “any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages,” among other available remedies. 

Significantly, the court held that “actual damages” under § 504 includes the fair market value of a license covering the defendant’s use. The court further held that the value of this license should be calculated based on a hypothetical arms-length negotiation between the parties. 

Remanding the case to the Court of Claims, the Federal Circuit instructed that the damages calculation must not be “one-sided,” such that court should not take only the Postal Service’s views into consideration: “Defendants 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 noted that evidence of Mr. Gaylord’s past license agreements for the work in question, including the structure of the agreements and the amount of the payments therein, is relevant to a hypothetical negotiation analysis, and that different royalties may be appropriate for the different types of infringing goods (e.g., stamps used to send mail, stamps purchased by collectors, commercial merchandise featuring the image of the stamp). Finally, the court observed that the Court of Claims might permissibly conclude that a lump sum license is an appropriate damages award.

The Gaylord case is broadly significant in copyright cases because it represents a clear appellate statement that copyright damages may be available under a reasonable royalty analysis, predicated on the hypothetical negotiation of a royalty rate between the parties. 

For more information on this decision, please contact Fitch Even partner Alison Aubry Richards, the author of this alert.

Hosted on the FirmWisesm Platform | Designed by Charette Design