United States Naval Institute v. Charter Communications, Inc

Brief Fact Summary. D breached an exclusive licensing agreement with P when D shipped a book to retail outlets prior to the agreed upon date.

Synopsis of Rule of Law. Damages for breach of contract are calculated by the actual loss sustained and uncertainties are generally resolved against the wrongdoer.

Facts. Naval (P) entered into a licensing agreement with Berkley (D), granting D the exclusive license to publish a paperback edition of the book, The Hunt for Red October not sooner than October 1985. D shipped the book to retail outlets early and retail sales of the book began on September 15, 1985. P claims it was entitled to recovery for copyright infringement and sought judgment in the amount of D’s profit from pre-October 1985 sales, estimated at $724,000. D contended that it could not be liable for copyright infringement. The district court awarded P actual damages in the amount of $35,380.50, representing the profits P would have earned from the hardback edition of the book but for D’s early release of the competing paperback edition. The district court also awarded P $7,760.12 as profits wrongfully received by Berkley from displaced hardcover sales attributable to the infringement. P appealed, seeking a greater amount as profits. D cross-appealed to the judgment as a whole.

Issue. Are damages for breach of contract calculated by the actual loss sustained by the non-breaching party?

Held. Yes. Judgment affirmed in respect to the $35,380.50 in actual damages sustained by P. Judgment reversed in respect to the $7,760.12 granted to P as an award of D’s profits.
The court rejected P’s claim of copyright infringement because an exclusive licensee cannot be liable for infringing the copyright conveyed to it, even though it is liable for breach of contract
The purpose of damages for breach of contract is to compensate the injured party. Thus, damages are generally measured by the plaintiff’s actual loss. The district court found that D’s profit from pre-October 1985 sales, estimated at $724,000, did not define P’s loss because many persons who bought the book in paperback in September 1985 would not have bought the book in hardcover but would merely have waited until the paper back edition became available. Here, the court stated that this finding is not clearly erroneous.
Uncertainties in damages are generally resolved against the wrongdoer. In calculating the $35,380.50 in actual damages, the district court operated on the premise that but for the breach by D, P would have sold the same number of hardcover copies in September as it sold in August. Here, the court stated that it was not erroneous for the district court to find D’s early shipment of the paperback edition caused P the loss of some hardcover sales prior to October 1985. Although the district court’s decision to use the August 1985 sales as a benchmark was generous, it is not error to lay the normal uncertainty in damages at the door of the wrongdoer, instead of at the door of the injured party.

Discussion. In calculating the amount of damages in a breach of contract case, focus on the P’s loss, not on the D’s gain and remember that the central objective behind the system of contract remedies is compensatory, not punitive.