The sculptor of the Korean War Veterans Memorial could potentially receive millions of dollars as a result of the U.S. Postal Service’s infringement of his work on a stamp, the U.S. Court of Appeals for the Federal Circuit has ruled. He is entitled to royalties based on the market value of a license, the court determined, in a case of first impression in the circuit about copyright damages in a suit against the government.

Frank Gaylord created a group of 19 stainless steel sculptures representing a platoon of soldiers, known as “The Column” —  the centerpiece of the Korean War memorial on the National Mall in Washington. In 2002, the U.S. Postal Service issued a 37-cent stamp commemorating the 50th anniversary of the Korean War armistice that included a photograph of the sculptures. Although it licensed the photo from the photographer, John Alli, the Postal Service did not seek Gaylord’s permission to use the image.

On May 14, a unanimous panel in Gaylord v. U.S., vacated an award of $5,000 issued by U.S. Court of Federal Claims Judge Thomas Wheeler. The court held that Wheeler erred by limiting Gaylord’s damages to the Postal Service’s highest previous license payment and denying him prejudgment interest. The court remanded the case for a determination of the market value of the infringement and a prejudgment interest award.

According to the Federal Circuit opinion, the Postal Service issued about 86.8 million of the stamps, licensed the stamp image to retailers and sold retail goods with the image.

Gaylord sued the United States for copyright infringement in 2006. In its first ruling in the case, the Federal Circuit held in 2010 that the Postal Service was liable for infringing stamps used to send mail, unused stamps kept by collectors and retail goods with the stamp’s image.

In 2011, the federal claims court rejected Gaylord’s claims for a 10 percent royalty on about $30.2 million in revenue from sales of infringing items and prejudgment interest. The federal claims court held that neither the copyright infringement statute nor the law that waives the United States’ sovereign immunity for copyright infringement allows a royalty-based award.

According to the Federal Circuit ruling, a Postal Service official testified in the federal claims court case that the the Postal Service had never paid more than $5,000 to license an existing image to use on a stamp.

Based on its own prior case law calling for a “zone of reasonableness” to determine actual damages, the federal claims court held that a license on Gaylord’s copyright was worth between $1,500 and $5,000. The court held that $5,000 was the most Gaylord could get within the “zone of reasonableness” because he did not get the opportunity to negotiate with the Postal Service.

The federal claims court also denied Gaylord’s prejudgment interest claim on the ground that there was no explicit waiver of sovereign immunity for such a claim.

Judge Kimberly Moore wrote the Federal Circuit opinion, joined by Judge William Bryson and Senior Judge Haldane Robert Mayer.

In cases involving copyright infringement by the U.S. government, Moore wrote that “the methods used to determine ‘actual damages’ under the copyright damages statute…are appropriate for measuring the copyright owner’s loss.”

Moore noted that many circuit courts award damages based on the fair market value of a license that would cover the infringer’s use when the plaintiff cannot show “lost sales, lost opportunities to license, or diminution in the value of the copyright.” She cited rulings from the U.S. courts of appeals for the Second, Sixth, Seventh and Ninth circuits.

Moore wrote that the value of such a licenses “should be calculated based on a hypothetical, arms-length negotiation between the parties.”

Although the Postal Service hasn’t paid more than $5,000 to license an image for a stamp, “Gaylord has consistently licensed images of The Column for retail and commemorative items at approximately 10%,” Moore wrote.

Moore observed that the federal claims court’s analysis of a hypothetical negotiation between Gaylord and the Postal Service may generate different license fees for three types of infringing: stamps used for mail, unused stamps bought by collectors, and commercial merchandise featuring with the image.

Moore noted that a 1931 Supreme Court case, Waite v. U.S., held that sovereign immunity does not bar prejudgment interest awards under the precursor to the U.S. Code concerning patent and copyright cases. That is because “reasonable and entire compensation” includes delayed compensation: “Mr. Gaylord is entitled to prejudgment interest because it is necessary to make his compensation complete,.”

One of Gaylord’s lawyers, Heidi Harvey, a Boston of counsel to Fish & Richardson, said the ruling is significant because it sprang from a case of first impression in the Federal Circuit about available copyright damages in a suit against the government. “There’s no prior suit that discuses what the nature of the damages could be,”she said.

The ruling is also important because it’s “really the first time the court has talked about whether or not royalty damages are available as actual damages under the copyright act as other circuits have,” Harvey said: “This court is aligning itself with those circuits that have held that a royalty can be a measure of actual damages under the Copyright Act.”

Harvey said it’s also significant that the Federal Circuit ruled that hypothetical damages should be based on the commercial history of both parties. The current ruling builds on the Federal Circuit’s seminal 2010 ruling on the Gaylord case, Harvey said. That ruling was the first time the Federal Circuit tackled fair use of a copyrighted work head on and the level of contribution necessary for a joint authorship claim, Harvey said.

Frank Porcelli, a Fish & Richardson partner who co-chairs the firm’s appellate group, argued for Gaylord. The firm handled Gaylord’s case pro bono.

Moore wrote the majority opinion in the Federal Circuit’s first ruling in the case in 2010, joined by Mayer. Judge Pauline Newman filed a dissent. The majority held that the federal claims court “erred when it determined that the stamp made fair use of Mr. Gaylord’s work, but it correctly determined that the government was not a joint author” of The Column.

In response to an inquiry about the recent Federal Circuit ruling, Postal Service spokesman Dave Partenheimer said “We are reviewing the decision and have no additional comment at this time.”

Sheri Qualters can be contacted at squalters@alm.com.