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 Bos-
ton, 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 Depart-
ment of Justice, of Washington, DC, argued for defendant-
appellee. With him on the brief were TONY WEST, Assis-
tant 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 Service’s copyright infringement of
his statues. Because the trial court incorrectly limited
Mr. Gaylord’s damages to the Postal Service’s highest
past license payment and denied prejudgment interest,
we vacate and remand for a determination of the market
value of the Postal Service’s infringing use and an award
of prejudgment interest.
BACKGROUND
Mr. Gaylord is the creator of “The Column,” a group of
nineteen stainless steel sculptures representing a platoon
of soldiers. The Column is the centerpiece of the Korean
War Veterans’ Memorial on the National Mall in Wash-
ington, D.C. In 2002, the United States Postal Service
issued a 37-cent stamp commemorating the 50th anniver-
sary 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. Gaylord’s 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. § 1498(b) for copyright infringement. In Gaylord v.
United States, we held that Mr. Gaylord owned the copy-
right 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 featur-
ing 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.
Gaylord’s claim for a 10% royalty on about $30.2 million
in revenue allegedly generated by the Postal Service’s
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.
§ 1498(b), which waives the United States’ sovereign
immunity for copyright infringement, nor the copyright
infringement statute, 17 U.S.C. § 504, authorizes a roy-
alty-based award for copyright infringement. Id. at 392.
Instead, the court concluded that the proper measure of
damages is “the approach in Steve Altman Photography of
employing a ‘zone of reasonableness’ to determine the
copyright owner’s actual damages.” 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 “zone of reasonableness” for the
value of a license on Mr. Gaylord’s 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 testi-
mony by Mr. McCaffrey, the Postal Service’s Manager of
Stamp Development, that the Postal Service had never
1 On remand, the parties relied on the original trial
record to support their damages arguments and did not
submit any new damages evidence.
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 “reasonable and just compensation” for
the government’s infringement. Id. The court explained
that it was awarding Mr. Gaylord the highest amount
within the “zone of reasonableness” because he was
deprived of the opportunity to negotiate. Id.
The court also held that, even if reasonable royalties
were allowed, Mr. Gaylord’s request for a 10% royalty was
unreasonable because $3 million is outside the zone of
reasonableness. The court based this conclusion on the
Postal Service’s assertion that it had a policy against
paying a royalty for stamp designs. Id. The trial court
rejected Mr. Gaylord’s claim for prejudgment interest
because it found no explicit waiver of sovereign immunity
allowing such a recovery. Id. Mr. Gaylord appeals the
court’s decision that he is not entitled to a reasonable
royalty or prejudgment interest. We have jurisdiction
under 28 U.S.C. § 1295(a)(3).
DISCUSSION
“On appeal from the Court of Federal Claims, this
court reviews legal conclusions de novo and fact findings
for clear error.” Columbia Gas Sys., Inc. v. United States,
70 F.3d 1244, 1246 (Fed. Cir. 1995). “We review a dam-
ages award by the Court of Federal Claims for an abuse of
discretion.” 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 presump-
tive award under 28 U.S.C. § 1498(a), they should also be
the presumptive award under § 1498(b). Mr. Gaylord
argues that the Postal Service’s internal policies should
not foreclose his request for a royalty-based award. He
also contends that using the Postal Service’s highest past
payment as the maximum amount recoverable was erro-
neous because the court should have considered real-
world 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 “the highest lost license fee supported by the
evidence” and “correctly 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 ‘amount he would have received as a one-time fee
in negotiations with the Postal Service.’” Appellee’s Br.
12 (citing Gaylord, 98 Fed. Cl. at 392). It argues that
making royalty damages presumptive in copyright cases
would make § 1498(b)’s allowance of minimum statutory
damages superfluous. The Postal Service calls Mr. Gay-
lord’s request for $3 million based on a 10% license specu-
lative, 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 re-
tained commemorative stamp issued around the same
time. The Postal Service argues that the $5,000 award is
an accurate measure of “just compensation” because it
GAYLORD v. US 6
represents “the market value of the property at the time
of the taking.” Id. at 12, 19.
Section 1498(b), which waives the United States’ sov-
ereign immunity for copyright infringement, states:
whenever the copyright in any work protected un-
der the copyright laws of the United States shall
be infringed by the United States . . . the exclusive
action which may be brought for such infringe-
ment 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 en-
tire compensation as damages for such infringe-
ment, including the minimum statutory damages
as set forth in [17 U.S.C. § 504(c)] . . . .
28 U.S.C. § 1498(b) (emphasis added). In Leesona Corp. v.
United States, our predecessor court interpreted “reason-
able and entire compensation” in the context of § 1498(a),
which waives the United States’ sovereign immunity for
patent infringement. 599 F.2d 958 (Ct. Cl. 1979). The
Leesona court found “no clear indication that the govern-
ment intended to assume responsibility for any payment
other than the just compensation required by the fifth
amendment.” Id. at 968. The Leesona court thus limited
“reasonable and entire compensation” under § 1498(a) 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 pat-
ent.” Id. Punitive damages that may be available in a
suit under Title 35, such as enhanced damages and attor-
neys’ fees, were excluded because they grant more than
“just compensation.” Id. at 968. The court explained that
“the proper measure . . . is what the owner has lost, not
what the taker has gained.” Id. at 969.
7 GAYLORD v. US
This analysis applies with equal force in the § 1498(b)
context, where courts must determine just compensation
for the plaintiff’s loss when the government takes what is
essentially a compulsory, non-exclusive license on the
plaintiff’s copyright. “Reasonable and entire compensa-
tion” entitles copyright owners to compensatory damages,
including the minimum statutory damages, but not to
non-compensatory damages. We conclude that the meth-
ods used to determine “actual damages” under the copy-
right damages statute, 17 U.S.C. § 504, are appropriate
for measuring the copyright owner’s loss. When, as in
this case, the plaintiff cannot show “lost sales, lost oppor-
tunities 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 defen-
dant’s use.” See On Davis v. The Gap, Inc., 246 F.3d 152,
164, 172 (2d Cir. 2001); see also Thoroughbred Software
Int’l, 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 (“[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 plaintiffs’ work.”).
It is incorrect in a hypothetical negotiation inquiry for
a court to limit its analysis to only one side of the negoti-
ating table because the court’s task is to determine the
“reasonable license fee on which a willing buyer and a
willing seller would have agreed for the use taken by the
infringer.” 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
Service’s 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 “policies” 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) (“[W]hat
an infringer would prefer to pay is not the test for dam-
ages.”). 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 approxi-
mately 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 “zone of reason-
ableness” test, the court improperly limited its inquiry to
the Postal Service’s past licenses and, as a result, errone-
ously capped Mr. Gaylord’s maximum damages without
considering other evidence supporting a higher award.
Moreover, the court gave undue weight to the Postal
Service’s 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
Service’s infringing use based on a hypothetical negotia-
tion 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 Service’s past licenses for
different works or to the Postal Service’s internal poli-
cies. 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 collecti-
bles, such as miniatures and t-shirts. In one such agree-
ment, 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 Veterans’ 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 cer-
tainly relevant to a hypothetical negotiation analysis.
The trial court’s analysis of a hypothetical negotiation
between Mr. Gaylord and the Postal Service may lead it
2 Because the determination of the license’s 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. Gaylord’s previous li-
censes to the hypothetical license in this case.
3 Mr. Gaylord sued Mr. Alli for copyright infringe-
ment 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 ex-
change for 10% of Mr. Alli’s future sales of his photograph
and 25% of any compensation Mr. Alli received by licens-
ing the photograph.
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) commer-
cial merchandise featuring an image of the stamp. Gay-
lord, 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 stamp’s value is primarily attrib-
utable 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 attribut-
able to the Postal Service’s use of Mr. Gaylord’s 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 perti-
nent 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 one-
time, 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 differ-
ent 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. Gaylord’s 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. Gaylord’s recovery is not limited to the
Postal Service’s actual profits. See Golight, Inc. v. Wal-
Mart 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 § 1498 because “reasonable and entire com-
pensation” 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 § 1498. The Postal Service
argues, however, that prejudgment interest should be
denied in this case because Mr. Gaylord “cited no law or
facts” in support of his request at trial. The Postal Ser-
vice’s 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
court’s decision denying prejudgment interest and re-
mand.
VACATED AND REMANDED.
COSTS
Costs to Plaintiff-Appellant.