Addressing for the issue of the reasonable royalty from a hypothetical negotiation for copyrights, the U.S. Court of Appeals for the Federal Circuit upheld a 10 percent per unit reasonable royalty for the U.S. Postal Services use, on a stamp, of a photographic depiction of a sculpture.  Gaylord v. United States, Case No. 14-5020 (Fed. Cir., Feb. 4, 2015) (Taranto, J).

Frank Gaylord is a World War II veteran and renowned sculptor.  Gaylord won a contest seeking designs for the Korean War Veterans Memorial in Washington, D.C., and created a sculpture design (The Column) featuring 19 stainless steel statues representing a platoon of foot soldiers in formation.  Gaylord was paid $775,000 for his work. 

In 1995 a photographer, John Alli, took photographs of the memorial as a gift for this father.  Mr. Alli also sold prints of his photographs.  In 2002 the U.S. Postal Service issued a commemorative stamp featuring Mr. Alli’s photograph.  The USPS issued the stamp featuring Mr. Alli’s photograph and produced approximately 86.8 million stamps before retiring it on March 31, 2005.  The USPS paid Mr. Alli $1,500.  The USPS received over $17 million for sale of the stamps.  The USPS also sold retail goods featuring Mr. Alli’s photograph.  The USPS did not seek Gaylord’s consent to use the photograph of The Column. 

Gaylord sued the United States for copyright infringement in 2006.  Following a trial, the court awarded Gaylord $5,000 as “reasonable and entire compensation.” Mr. Gaylord appealed and the Federal Circuit remanded the award ordering the court to determine the “fair market value of a license for Mr. Gaylord’s work based on a hypothetical negotiation with the government.”  On remand and following a two-day damages trial, the court awarded Gaylord $540,000 representing a 10 percent royalty for stamps purchased by collectors and not used to send mail.  This time the government appealed.

Actual damages for copyright infringement may be based on a reasonable royalty representing the fair market value of a license covering the defendants’ use.  In copyright damages, a court may use the hypothetical negotiation familiar in patent law “without necessarily following every aspect of patent law’s use of that tool.”  Determining royalties does not ‘require mathematical exactness, but a reasonable approximation under the circumstances of a given case.”  The Federal Circuit went on to find that the “hypothetical negotiation determination must be tied to the particular work at issue and its marketplace value.”  The Court also stated that that “unique features of a particular work (including recognized stature and symbolic value) may be important in assessing the ultimate significance of past practices in licensing other works.”  Indeed it stated “[t]he basic premise of the hypothetical negotiation in this case would have been the opportunity for making substantial profits if the two sides were willing to join forces, which we must assume they were.”  In this case, the district court determined that a 90/10 split of profits was within the reasonable range of findings from the evidence.  The trial court could have reasonably found that a per-unit royalty rather than a one-time lump sum may have been the outcome of the hypothetical negotiation.  The Federal Circuit found that a 10 percent royalty was a proper per-unit royalty rate.