American Contract Law for a Global Age, 2017a

UNITED STATES NAVAL INSTITUTE v.
CHARTER COMMUNICATIONS, INC.
United States Court of Appeals for the Second Circuit
936 F.2d 692 (2d Cir. 1991)
KEARSE, Circuit Judge
[Tom Clancy’s novel The Hunt for Red October was published in hardcover by
the Naval Institute Press in 1984. In September 1984, Naval entered into a contract
with Berkley Publishing Group to publish a paperback edition of the book, “not sooner
than October 1985.” The reason for delayed publication was to allow Naval to
maximize hardcover sales over the coming year. The book became an unexpected
best-seller, and in breach of the contract, Berkley deliberately began selling copies of
the paperback on September 15, and by October 1 the paperback was already near
the top of the best-seller lists. Naval sued on a variety of theories, including copyright
infringement and breach of contract. Naval sought to recover for its own lost sales—
the money it would have made on hardback sales between September 15 and October
1if the paperback had not been available—and also sought to recover $724,300 in
profits made by Berkley on the unauthorized paperback sales during that period. The
trial court, after a hearing, awarded $35,380.50 for breach of contract, $7,760.12 in
copyright damages, and $15,319.27 in prejudgment interest. The Second Circuit
reversed the copyright infringement claim but affirmed the breach of contract. It
turned to the damages calculation.]
Since the purpose of damages for breach of contract is to compensate the
injured party for the loss caused by the breach, those damages are generally
measured by the plaintiff’s actual loss, see, e.g., Restatement (Second) of Contracts
§ 347 (1981). While on occasion the defendant’s profits are used as the measure of
damages, this generally occurs when those profits tend to define the plaintiff’s loss,
for an award of the defendant’s profits where they greatly exceed the plaintiff’s loss
and there has been no tortious conduct on the part of the defendant would tend to be
punitive, and punitive awards are not part of the law of contract damages. See
generally id. § 356 cmt a (“The central objective behind the system of contract
remedies is compensatory, not punitive.”); id. cmt b (agreement attempting to fix
damages in amount vastly greater than what approximates actual loss would be
unenforceable as imposing a penalty); id. § 355 (punitive damages not recoverable for
breach of contract unless conduct constituting the breach is also a tort for which such
damages are recoverable).
Here, the district court found that Berkley’s alleged $724,300 profits did not
define Naval’s loss because many persons who bought the paperback in September
1985 would not have bought the book in hardcover but would merely have waited
until the paperback edition became available. This finding is not clearly erroneous,
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UNIT 23: THE EXPECTATION INTEREST 483