Gaylord v. United States, 777 F.3d 1363

Background

Frank Gaylord sculpted "The Column" for the Korean War Veterans Memorial; he retained copyright and was paid $775,000 for the work and materials.
In 2002–03 the USPS chose an amateur photograph by John Alli of The Column for a commemorative stamp, paid Alli $1,500, but did not obtain Gaylord’s permission; Gaylord sued for copyright infringement.
This court previously held the government liable for infringement and remanded to determine damages based on a hypothetical license negotiation under 28 U.S.C. § 1498(b) and copyright-damages principles.
On remand the Court of Federal Claims conducted a damages trial, dividing infringing uses into: (1) stamps used to send mail (no damages awarded), (2) commercial merchandise (10% of revenue, uncontested), and (3) unused stamps sold to collectors (disputed).
The trial court found the USPS received $5.4 million in revenue from unused (retained) stamps and awarded Gaylord a 10% per-unit royalty ($540,000) for those stamps, treating the royalty as a 90/10 profit split.
The government appealed only the unused-stamp award; the Federal Circuit affirmed, finding no clear error or abuse of discretion in the trial court’s factual and methodological choices.

Issues

Issue	Plaintiff's Argument (Gaylord)	Defendant's Argument (United States)	Held
Whether a per-unit royalty (not lump sum) is the appropriate hypothetical-license form	Per-unit ties payment to market success and is consistent with past licenses and USPS ability to track sales	USPS practice historically favored lump-sum fees; past practice shows it wouldn’t accept per-unit royalties	Affirmed per-unit royalty reasonable; court found no clear error in selecting per-unit form
Proper royalty rate for unused stamps	10% of revenue is consistent with Gaylord’s other licenses and industry practice for merchandise	10% is excessive given USPS alternatives and past lower royalties for similar works	Affirmed 10% royalty as within range of reasonable outcomes; no clear error
Whether $5.4 million is a reliable revenue base for retained stamps	USPS’s longstanding survey methodology supports $5.4M as revenue estimate	A later study showed prior methodology overstated retention for some stamps, so $5.4M is unreliable	Affirmed use of $5.4M; later study concerned "forever" stamps and USPS did not apply it to non-forever issues like this one
Whether the hypothetical negotiation should account for alternative images/subjects	Limited viable alternatives because the committee focused on The Column; unique symbolic value reduced substitute effect	Availability of alternatives and USPS past licensing practice would reduce license value	Held alternatives were not sufficiently analogous; court could discount them given uniqueness of The Column

Key Cases Cited

Gaylord v. United States, 595 F.3d 1364 (Fed. Cir. 2010) (holding government liable for copyright infringement)
Gaylord v. United States, 678 F.3d 1339 (Fed. Cir. 2012) (vacating damages award and remanding for hypothetical-license valuation)
On Davis v. The Gap, Inc., 246 F.3d 152 (2d Cir. 2001) (reasonable royalty as fair market value of license)
Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641 (1915) (reasonable approximation acceptable for royalty damages)
Oracle Corp. v. SAP AG, 765 F.3d 1081 (9th Cir. 2014) (use objective considerations and beware unconstrained license demands)
Jarvis v. K2 Inc., 486 F.3d 526 (9th Cir. 2007) (use objective evidence in market-value assessments)
Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201 (Fed. Cir. 2014) (tie royalty base realistically to accused component)
VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308 (Fed. Cir. 2014) (patent-law limits on apportionment of multi-component products)
LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012) (royalty base and apportionment principles)
United States v. U.S. Gypsum Co., 333 U.S. 364 (1948) (standard for clear-error review of factual findings)