(Reuters) - An 87-year-old sculptor is entitled to more money from the U.S. Postal Service after it made tens of millions of dollars from using an image of his Korean War memorial on stamps and merchandise, a federal appeals court ruled on Monday.

Frank Gaylord, who is now 87 and a World War Two veteran, won a government-sponsored contest to build a memorial to Korean War veterans in 1990, and his work, consisting of a platoon of 19 steel soldiers, became the centerpiece of the Korean War Veterans' Memorial in Washington.

In 1995, photographer John Alli captured a ghostly image of the steel soldiers after a snowstorm which the U.S. Postal Service paid $1,500 to use in a commemorative line of 37-cent postage stamps in 2002.

The postal service sold 86.8 million of the stamps and licensed the image to retailers, reaping estimated revenues of $30.2 million, but failed to request Gaylord's permission for use of the image of his sculpture.

Gaylord sued in 2006 but his request for a 10 percent royalty, plus interest, was rejected and he was instead granted $5,000 -- the most the postal service had ever paid to license an image.

In Monday's ruling, the appeals court said Gaylord consistently licensed images of the work for a 10 percent royalty and the earlier court ruling should have determined what deal he and the postal service would likely have reached.

The U.S. Postal Service did not immediately respond to a request for comment. The Justice Department declined comment.

(Reporting By Terry Baynes; Editing by David Brunnstrom)