IP/Entertainment Law Weekly Case Update for Motion Picture Studios and Television Networks - May 24, 2012


Table of Contents:

Gaylord v. United States, USCA Federal Circuit, May 14, 2012
 Click here for a copy of the full decision.

  • In copyright infringement action against U.S. Postal Service, Federal Circuit holds that plaintiff is entitled to collect as damages reasonable royalties and prejudgment interest, and that damages are not strictly limited by government policies respecting maximum licensing fees or policies against payment of royalties.

Plaintiff Frank Gaylord is the creator of “The Column,” a group of nineteen stainless steel columns that form the centerpiece of the Korean War Memorial on the National Mall in Washington, D.C. Gaylord typically licenses his work for retail purposes in exchange for a 10 percent royalty fee. In 2002, the U.S. Postal Service issued a 37-cent stamp depicting The Column commemorating the 50thanniversary of the signing of the armistice ending the war. The Postal Service licensed the photograph from photographer John Alli for $1,500. Alli had, in turn, licensed the image from the architects of the Korean War Memorial and had agreed to pay the architects a 10 percent royalty. Gaylord was not consulted and never consented to the use of The Column by the Postal Service. 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 in exchange for an 8 percent royalty.

In 2006, Gaylord sued the Postal Service for copyright infringement, claiming that he owned the copyright to The Column and that the Postal Service used the image without his consent. The Federal Circuit agreed that Gaylord owned the copyright and that the Postal Service had infringed Gaylord’s copyright in three general classes of infringing items: (1) stamps that were used to send mail; (2) unused stamps retained by collectors; and (3) retail goods featuring an image of the stamp.

On remand on the issue of damages, the Court of Federal Claims limited Gaylord’s damages to $5,000, finding that this was the upper limit in the “zone of reasonableness” around Gaylord’s actual damages. The court denied reasonable royalties as the measure of damages, finding that neither 28 U.S.C. § 1498(b), which waives the United States’ sovereign immunity for copyright infringement, nor the Copyright Act authorized a royalty-based award for copyright infringement. Instead, the court concluded that the proper measure of damages was the “zone of reasonableness” approach employed by the Court of Federal Claims in Steve Altman Photography v. United States. The court set the $5,000 limit because Postal Service argued that it had never paid more than $5,000 to license an image and had a policy against paying royalties. The court further denied Gaylord prejudgment interest, finding that, although the government had waived sovereign immunity for copyright infringement, it had not done so to the extent of allowing recovery of prejudgment interest. Plaintiff appealed the damages determination.

The Federal Circuit reversed, finding that the lower court should not have relied only on the Postal Service’s self-serving statements of its internal policies in determining the “zone of reasonableness” for the plaintiff’s damages. The court should have considered Gaylord’s typical royalty rate of 8-10 percent, the 8 percent royalty rate charged by Postal Service to retailers for use of The Column, and the various ways in which the Postal Service used the image. The court also held that the lower court erred in denying prejudgment interest. Section 1498(b), which waives sovereign immunity in copyright infringement cases, permits recovery of a plaintiff’s “reasonable and entire compensation,” which includes compensatory, but not punitive damages. As the Supreme Court has previously held, compensation includes “delay compensation,” and thus sovereign immunity does not preclude recovery of prejudgment interest under Section 1498.

Design Basics, LLC v. Roersma & Wurn Builders, Inc., USDC W.D. Michigan, May 18, 2012
 Click here for a copy of the full decision.

  • District court grants partial summary judgment to plaintiff and strikes defendants’ affirmative defense based on statute of limitations, holding that Copyright Act’s three-year statute of limitations applies from time that plaintiff discovers alleged infringing acts.

Plaintiff, Design Basics, LLC, brought suit against defendants alleging copyright infringement based on defendants’ alleged use of plaintiff’s home building designs. On cross-motions for partial summary judgment on the issue of whether plaintiff had timely filed its action within the Copyright Act’s three-year statute of limitations, the magistrate judge concluded that plaintiff’s claims accrued at the time it first knew of the alleged infringement or was chargeable with knowledge of the infringement (the so-called “discovery rule”). Because plaintiff filed suit within three years of discovering the defendants’ alleged use of its designs, the magistrate judge granted plaintiff’s motion for partial summary judgment, denied defendants’ motion, and struck defendants’ affirmative statute of limitations defense. On defendants’ objections the district court approved and adopted the magistrate’s report, finding it “factually sound and legally correct.”

The Copyright Act’s statute of limitations provision states that “[n]o civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.” At the heart of the issue, according to the court, is the word “accrued.” Defendants objected to the magistrate judge’s recommendation, arguing that the Sixth Circuit had not explicitly adopted the discovery rule and that plaintiff’s claim accrued, not when it discovered the alleged infringement, but rather when the alleged injury occurred (the “injury rule”), even if plaintiff were unaware of the alleged infringement.

The district court disagreed, finding that “the overwhelming weight of authority applies the discovery rule of accrual in copyright actions such as this,” and that even if the Sixth Circuit had not previously adopted the discovery rule, it had, without question, previously endorsed the concept in Roger Miller Music, Inc. v. Sony/ATV Publishing LLC. In a footnote, the court both disagreed with and distinguished the district court’s 2008 decision in Goldman v. Healthcare Management Systems, noting that Goldman involved a different issue (an expert report on damages calculations, not summary judgment) and was ultimately decided on other grounds.

The court also noted that nearly all the U.S. circuit courts had adopted the discovery rule, and that the rule made for better public policy. It was more likely to protect copyright owners, while the three-year statute of limitations and the duty to use due diligence would protect against the filing of stale claims. In contrast, the use a rule of accrual that did not depend on actual or constructive discovery “would have the perverse effect of rewarding infringers who were cunning enough to conceal their infringement as long as possible.”
The district court also rejected defendants’ argument that the magistrate judge should have found a question of fact concerning when plaintiff should reasonably have known of the alleged infringement. It noted that defendants failed to present any argument, much less evidence, establishing that plaintiff should have discovered the alleged infringements sooner than it did.

For more information, please contact Jonathan Zavin at jzavin@loeb.com or at 212.407.4161.

Westlaw decisions are reprinted with permission of Thomson/West. If you wish to check the currency of these cases, you may do so using KeyCite on Westlaw by visiting http://www.westlaw.com/.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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