## Facts

- A copyright owner (hardcover publisher) granted an exclusive license to a paperback publisher to publish a paperback edition “not sooner than October 1985.”
- The paperback publisher shipped early to retailers, enabling retail sales to begin in mid-September 1985, with substantial pre-October sales.
- The copyright owner claimed the early release both breached the license agreement and infringed copyright, and sought the paperback publisher’s pre-October profits.
- In an earlier appeal, the court held the early release violated the contract and remanded for relief.
- On remand, the district court awarded the copyright owner (1) lost hardcover profits as actual damages, (2) a small amount characterized as the paperback publisher’s “wrongfully received” profits attributable to displaced hardcover sales, and (3) prejudgment interest on the damages award; it denied attorney’s fees.
- The copyright owner appealed seeking greater profit recovery, prejudgment interest on profits, and attorney’s fees; the paperback publisher cross-appealed challenging the monetary awards.

## Issues

1. Whether an exclusive licensee’s publication outside a contractual timing restriction constitutes copyright infringement, permitting recovery of the licensee’s profits under the Copyright Act.
2. Whether contract remedies for the early-release breach include disgorgement of the breaching licensee’s profits, rather than being limited to the non-breaching party’s proven expectation damages.
3. Whether prejudgment interest and attorney’s fees were available on the theories advanced.

## Decision

- The court held the early release created contract liability, not copyright infringement, because the paperback publisher acted under an exclusive license to exploit the work in paperback.
- The court affirmed the award of actual damages measured by the copyright owner’s proven lost hardcover profits caused by early paperback competition.
- The court reversed the award of the paperback publisher’s profits, rejecting disgorgement as an improper measure of contract damages on these facts.
- The court affirmed prejudgment interest on the contract damages award.
- The court affirmed denial of attorney’s fees.

## Legal Principles

- A dispute over an exclusive licensee’s failure to comply with license conditions governing the manner or timing of exploitation may sound in contract rather than copyright infringement, depending on the nature of the violated term and the rights granted.
- Contract damages are generally compensatory and measured by the injured party’s actual loss (expectation interest), not by the breaching party’s overall gains.
- Disgorgement of a breaching party’s profits is not an ordinary contract remedy absent a separate legal basis; profits are not recoverable merely because they are large or because breach is clear.
- Prejudgment interest may be awarded on contract damages to fully compensate for the time value of money.
- Attorney’s fees under the Copyright Act are not available where the claim does not establish copyright infringement and recovery rests on contract.

## Conclusion

The court treated the early paperback release as a breach of the exclusive license agreement rather than copyright infringement, limited recovery to the licensor’s proven lost hardcover profits plus prejudgment interest on those damages, and rejected profit disgorgement and copyright-based attorney’s fees.


United States Naval Inst. v. Charter Commc’ns, Inc., 936 F.2d 692 (2d Cir. 1991)