In what could turn out to be one of the most expensive copyright mistakes ever, the U.S. Postal Service will pay a sculptor more than $3.5 million in royalties after accidentally using an image of his art on a popular stamp.

In 2011, the USPS released a new Forever Stamp featuring the image of the Statue of Liberty. To select the picture, the manager of stamp development had a contractor help him find different images of Lady Liberty, with an eye toward something “different and unique.” USPS paid Getty Images $1,500 for a nonexclusive three-year license for the photograph selected for the stamp.

Within months, however, the USPS learned the picture was not of the actual Statue of Liberty but of Robert S. Davidson’s replica, made for the New York-New York Hotel & Casino in Las Vegas. Davidson sued, arguing that his sculpture was a piece of unique art subject to copyright protection.

After a two-week trial, the Court of Federal Claims agreed, finding the USPS liable for copyright infringement and ordering millions of dollars in damages.

“We are satisfied that plaintiff succeeded in making the statue his own creation, particularly the face,” Judge Eric G. Bruggink wrote. “A comparison of the two faces unmistakably shows that they are different.”

The court disagreed with USPS’s assertion that the statue was a replica and contained no truly original work. Davidson testified that his intent was not to merely copy the Statue of Liberty, but to give her a “fresh” updated look and making her appearance more feminine. He used pictures of his mother-in-law as a guide, he told the court, an effort memorialized with a plaque at the base of his statue.

“The differences are plainly visually observable, can be articulated, and are not merely ‘ideas,’” the court said. “The eyes are different, the jaw line is less massive and the whole face is more rounded. It was these characteristics that drew [the manager of stamp development] to the image.”

Judge Bruggink also considered whether the stamp constituted a fair use of Davidson’s sculpture but answered in the negative. “On balance, we find that defendant has not proven its use to have been fair,” the court said. “The Postal Service’s use of the image on its ‘ship of the line’ or workhorse stamp, printing billions of copies and selling them to the public as part of a business enterprise—whether for use to send mail or to be retained in collections—so overwhelmingly favors a finding of infringement that no fair use can be found.”

Damages for the copyright infringement proved tricky, but the court arrived at a combination of a mixed license with a flat fee for the stamps used to send mail and a running royalty for retained stamps and philatelic products. Relying on testimony from USPS employees, the court set the flat rate for the use of the image at $5,000 and applied a 5 percent running royalty.

The total: $3,554,946.95, plus interest.

To read the opinion in Davidson v. United States, click here.

Why it matters: Talk about mailing it in. The USPS must now pay more than $3.5 million for accidentally using an image of a replica of the Statue of Liberty instead of the real thing on billions of stamps—a costly lesson in copyright infringement.