The Stamp War - Shoot Five: Gaylord v. United States


     By The Harrison Firm, PC

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In litigation that already has lasted nearly twice as long as the war itself, volleys are still being fired over the copyright for a portion of the memorial to a war that ended in armistice and not peace. On May 14, 2012, Gaylord v. United States was remanded by the U. S. Court of Appeals for the Federal Circuit to the U. S. Court of Federal Claims for another shot at determining the amount of damages, the fifth courthouse battle in this protracted campaign.

John Alli, a very good amateur photographer, wanted to do the right thing and tried to do the right thing, but nevertheless got caught in the cross-fire of what the trial court called an “open and contentious dispute” over copyright ownership to the sculpted figures in the Korean War Memorial on the National Mall in Washington.

Wanting to give his father, a Korean War veteran, a meaningful retirement gift, Alli went to the Korean War Memorial on a winter day after a snowstorm and took numerous pictures. He settled on one. He thought it was good and decided to enter it in a photo contest. He won.

Thinking his photo might have commercial value, Alli made some inquiries. He was told by a mall vendor that the war memorial artwork was copyrighted. Mr. Alli sought to locate the copyright holder of the sculptures so that he could obtain a license to commercialize his photo of them. Through a series of referrals Alli ended up locating and talking with a Mr. Lecky of Coopers-Lecky Architects, P.C. He entered into a licensing agreement with Lecky and agreed to pay a 10-percent royalty to an entity Lecky organized for the purpose. There was no dispute that Alli is entitled to a copyright in his photograph as a derivative work. The dispute is over the copyright to the underlying work, the sculpted figures in the memorial.

When the idea of creating the Korean War Memorial arose, an independent commission was created with the responsibility of constructing the memorial. That commission sought the assistance of the Army Corp of Engineers. The Army Corp of Engineers selected Cooper-Lecky Architects (CLA) to create, construct and install the memorial. A contact was entered into between the Corp of Engineers and CLA which provided that CLA could not assert or establish a copyright claim in the project and that all designs, drawings and other works developed in the performance of the contract are the sole property of the government.

CLA entered into a sub-contract with an artist, the plaintiff, Mr. Frank Gaylord, to sculpt the human figures, a platoon of 19 soldiers he called the “Column,” which is a central component of the memorial. The contract between CLA and Gaylord did not contain the provisions regarding copyright that were in the prime contract. Instead, it provided that rights to copyright would be covered by a separate agreement.

There is no indication from the court opinions that Gaylord was aware of the copyright provisions in the prime contract between the Corp of Engineers and CLA. Perhaps Lecky hadn’t carefully read his contract with the Corp of Engineers. At one point the commission organized to create the memorial had claimed a copyright, but for unexplained reasons it withdrew all claims for copyright ownership or royalties. A dispute ensued between Lecky and Gaylord over copyrights to the memorial. Eventually, however, Gaylord and CLA entered into an agreement which acknowledged Gaylord owned the copyright to the Column. A separate agreement granted CLA a license and provided a royalty schedule; however, Gaylord terminated the licensing agreement claiming Lecky had breached it.

Although there may have been some confusion over the copyright claims , what appears from the opinions is that on one side the prime contract between CLA and the Corp of Engineers provided that CLA could not assert a copyright claim; and on the other side CLA acknowledged that Gaylord owned the copyright to the Column.

Despite this, when Alli located Lecky and inquired about copyright ownership of the underlying work, Lecky said that he, Lecky, was the “outright” owner of the copyright. That was wrong and thus the troubles began.

At about this time, the U. S. Postal service wanted to create a commemorative stamp to honor Korean War veterans. It held a competition and Alli entered his photograph of the Column. He won. The Postal Service entered into an agreement with Alli. Mr. Alli told the Postal Service that it would also need permission of the owner of the copyright to the underlying work and referred the Postal Service to Lecky. Apparently Lecky neglected to mention to either Alli or the Postal Service that Gaylord created the Column. It appears both thought that Lecky had created it. The appellate opinion indicates Lecky also did not tell Gaylord about his agreement with Alli.

The Postal Service then proceeded to produce approximately 86.8 million of the stamps from July 27, 2003 through March 31, 2005, and received over $17 million in sales. Some of the stamps were used as postage, some were held by collectors.

The stamp came to the attention of Gaylord. He took exception and filed suit against the United States for copyright infringement in the United States Court of Federal Claims. Gaylord also filed a companion suit against Alli in the U. S. District Court of Maryland, presumably where Alli lived. That suit settled.

It must be assumed the prime contract which the government had with CLA did not contain a provision which required CLA to include the copyright ownership language in its sub-contracts. It must also be assumed that neither Alli nor the Postal Service required a written representation and warranty from Lecky that he owned the copyright and provide indemnification against infringement claims. Ah, hindsight. For whatever reason, CLA and Lecky avoided having the government bring a third-party claim against either of them. There is also no mention of a direct claim by Gaylord against CLA for breach of contract.

On the issue of liability, the trial court (2008 opinion) held that Gaylord did have a valid copyright, but that the stamp fell under the “fair use” exception and thus there was no infringement by the Postal Service. The appellate court held that the fair use exception did not apply and there was infringement, and remanded for a determination of damages.

The Copyright Act provides that even if someone has a copyright in a work, another person may use the copyrighted work for purposes such as criticism, comment, news reporting, teaching, scholarship or research. Such use, which has become known as “fair use,” is not an infringement. The statute sets out four factors which must be considered in determining fair use: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes, (2) the nature of the copyrighted work, (3) the amount and substantiality of the portions used in relation to the copyrighted work as a whole, and (4) the effect of the use upon the potential market for or value of the copyrighted work.

Whether use in a particular circumstance is fair use is not always easy to determine. Cases are fact dependent. The trial court analyzed these four factors leaning heavily on the first factor. In evaluating the purpose and character of the use of the work, courts inquire whether the use is “transformative.” That is, whether the use of the copyrighted work adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.

The trial court found that the photographic image was transformative because of its gray winter colors and snow, and that the Postal Service edited the photograph image for its stamp, making it even more monochromatic in appearance.

The appellate court didn’t go for that. It held that the photographic image was not transformative, dismissing the Postal Service’s argument that it was by saying nature’s decision to snow cannot deprive Mr. Gaylord of an otherwise valid right. It analyzed the other three factors and held that the Postal Service’s use of the Column did infringe Gaylord’s copyright. It sent the case back to the U. S. Court of Federal Claims for its first attempt at determining damages.

The statute which waives sovereign immunity and allows claims of copyright infringement to proceed against the United States also sets out the remedy. It provides that the owner of the copyright may recover “reasonable and entire compensation.”

In the remand, Gaylord argued for a 10% royalty as reasonable compensation and offered evidence of other royalties he had received. Gaylord calculated such a royalty would amount to slightly over $3 million. As in other cases before it, the court looked to 17 U.S.C §504, the statute which provides remedies for copyright infringement claims. It rejected a damage calculation based upon royalties as being authorized by either 28 U.S.C §1498(b) or 17 U.S.C. §504. The Postal Service had paid Alli $1,500 to use his photographic image. The highest amount the Postal Service had ever paid for an image to use on a stamp was $5,000. The court called this range the “zone of reasonableness” and awarded Gaylord the maximum amount within that range, $5,000. That was April 22, 2011. Gaylord filed suit on July 25, 2006. His copyright was infringed. After nearly five years of litigation, he got $5,000.

Gaylord didn’t like that and so the case went back up to the U.S. Court of Appeals for the Federal Circuit. The appeals court noted favorably that when a plaintiff, such as here with Gaylord, cannot show lost sales, lost opportunities to license, or diminution in the value of the copyright, other circuits have used “the fair market value of a license covering the defendant’s use” in calculating damages. It then held that the value of this license should be calculated based upon a hypothetical arms length negotiation between the parties. It stated that it is incorrect in a hypothetical negotiation inquiry for a court to limit its analysis to only one side of the negotiating table. The trial court in this case had looked only to what the Postal Service would have paid and did not consider what Gaylord had received for royalties on other works he licensed. The appellate court went on to say that the Postal Service could not insulate itself from paying for the damages it caused by resting on its past agreements and by creating internal policies that shield it from paying fair market value for what it took.

The Federal Circuit thus joins other circuits in holding that a royalty based analysis is proper in copyright infringement claims against the United States when the plaintiff cannot show lost sales, lost opportunities to license, or diminution in the value of the copyright because of the infringement. It found that the trial court’s damage calculation was an abuse of discretion and reversed.

The Federal Circuit then provided guidance. Mr. Alli had entered into a license agreement with CLA agreeing to pay a 10% royalty thinking it owned the copyright. The Postal Service itself had licensed the stamp image to third parties for use on retail goods in exchange for a royalty of 8% of sales. The appellate court then said that on remand the trial court’s analysis of a hypothetical negotiation may lead it to conclude that difference license fees are appropriate for the three categories of infringing goods the court identified: (1) stamps used to send mail, (2) unused stamps purchased by collectors, and (3) commercial merchandise featuring an image of the stamp.

The legal significance of the case is that Federal Circuit has now held that a royalty based calculation of damages is appropriate in the circumstances of this case.

The practical lesson for businesses or individuals who want to license a copyrighted work is to retain a lawyer to (1) do a copyright search, and (2) incorporate into the license agreement a representation and warranty by the party granting the license that it is the sole owner of the copyright to the work as well as an indemnity against infringement claims. Apparently in this case neither Mr. Alli nor the Postal Service did either of those things.

It’s understandable to me that Mr. Alli wouldn’t know to do so. He is an amateur photographer who started out only wanting to create a gift for his father. But it seems he soon got in over his head. He should have consulted with a lawyer knowledgeable in such matters before entering into a license agreement with Mr. Lecky, but that mistake for an individual is not uncommon.

It is inconceivable to me, however, that the Postal Service apparently did not do so. It has been caught up in long, and undoubtedly very expensive ligation, when an ounce of prevention could have avoided it.

For an artist looking for a lesson in this case, I’m not sure there is anything Mr. Gaylord could have done differently to better protect himself. He registered five copyrights of his work at various stages of completion. A copyright search would have shown his claim.

This case is one that should have had early mediation. Perhaps they tried and couldn’t reach an agreement. It’s hard to know why the parties seemed hardened into their positions. The case is still ongoing after five years. Avoiding lengthy and costly litigation would seem a strong incentive to mediate. Ah, hindsight.

As for the outcome in the upcoming fifth battle of this campaign, in my book Mr. Gaylord deserves a hefty damage award. My prediction is it will come in at high six figures or possibly low seven figures. Too bad for the Postal Service. It’s hurting economically and I’m sure doesn’t have extra cash laying around to pay such a damage award, but it could have avoided its predicament with only a little legal work up front. If it didn’t conduct a proper due diligence investigation before entering into the transaction, or create the documents to protect it and provide it with a claim against Lecky, that’s it’s fault. Perhaps this will be the final battle and within another year the troops can come home.

ABOUT THE AUTHOR: David G. Harrison
The Harrison Firm, PC is a law firm providing business counsel and commercial litigation services with emphasis on trademark applications throughout the industrialized world, trademark licensing, franchising, trademark litigation, copyright applications and litigation, trade secrets, unfair competition, international business transactions and private equity transactions.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.



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