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ReDigi Gets RIAA Nastygram November 15, 2011

Posted by Bill Rosenblatt in Economics, Law, Music, Services, United States.
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Last week the RIAA issued a cease-and-desist letter to a music startup called ReDigi, which has been attempting to create a market for “used” digital music files.  It allows users to sell their music files for prices below those of “new” files on iTunes or Amazon, and gives a portion of the proceeds to record labels.  (It does not have licenses from the labels to do this.)

I had been paying attention to ReDigi since it had gotten some attention on the tech blogs when it issued a beta release a month ago, and I consulted a couple of copyright law experts about the legality of what they are doing.  Based on the results of my research, the RIAA’s actions towards ReDigi were about as surprising to me as an announcement that the sun will rise tomorrow morning.

Who were the “legal experts” that ReDigi claims told it that what it does is within the law?  What investors were credulous or rash enough to finance this venture?  Or did everyone involved do this just to try to make a point?  Regardless of the motivation, ReDigi’s legally embattled state has been a foregone conclusion.

ReDigi purports to implement something called Digital First Sale.  The First Sale Doctrine (a/k/a Section 109 of the U.S. copyright law, and known as Exhaustion in most other countries) says that if you obtain a copy of a copyrighted work legally, you can do as you wish with it – keep it, lend it, sell it, give it away, use it to line a birdcage – as long as you obtained it legally and you don’t do anything with it that infringes copyright law, such as make unauthorized copies.

The issue is that this law was designed to apply to physical goods; no one is quite sure about its applicability to piles of bits.  The U.S. Copyright Office was asked for an opinion on Digital First Sale a decade ago.  The Office stated that Digital First Sale would require a complex technical mechanism that ensured that once you gave  your copy of a file to someone else (whether for money or not; whether permanently or not), you had no further access to the file.  The technical shorthand for such a mechanism is “forward and delete.”  The Office opined that such a mechanism might be feasible at some point in the future but wasn’t then, so it declined to endorse the concept of Digital First Sale.

ReDigi claims to have implemented a robust forward-and-delete mechanism.    It uses acoustic fingerprinting from Gracenote to ensure that once a user has sold a file, the same song no longer exists on the user’s PC or iPod.  There are ways to hack the system, but that’s somewhat beside the point.

Digital First Sale remains very much unsettled law, even according to copyleft legal scholars, such as Jason Schultz of Berkeley (formerly of the Electronic Frontier Foundation), who would generally like to see Digital First Sale become reality.

Even putting First Sale aside, there’s another legal issue with ReDigi’s model.  ReDigi only lets users sell files that they bought on sites such as iTunes and Amazon, in order to ensure that users are only reselling legally-obtained files.  (The source of a file can be determined by examining metadata or watermarks.)  There’s just one little problem with that: these sites have Terms of Use that expressly forbid resale of purchased digital files.  (Here are Amazon’s and iTunes’s.) In other words, users who sell files on ReDigi may or may not be infringing copyrights, but they are certainly running afoul of iTunes or Amazon’s Terms of Use, which are contracts between the retailer and the user.

But wait a minute: if the Terms of Service forbid users from doing something that copyright law allows, which one prevails?  Apparently that’s an unsettled question as well, according to both a senior legal authority at the Copyright Office and one of America’s leading copyright litigators.  The latter told me “the ink is not dry” on this area of copyright law.

Yet one thing is very clear: Digital First Sale scares the media industry to death.  Think about it: if anyone could resell their digital content at any price, then ReDigi would only be the beginning.  There would be many competing content-resale marketplaces.  People could auction their “used” files on eBay.  People could “donate” them to public libraries with virtually no cost or effort – and get a tax deduction for a charitable donation.   All perfectly legal.  The result of this would be a rapid acceleration of what I have called the race to the bottom: the price of legal content would drop to near its cost of coping and distribution, i.e., virtually nothing.  Furthermore, the major copyright owners would lose a lot of control over distribution; for example, Hollywood studios’ release windows would become virtually meaningless.

It’s also evident that the media industry would much rather nip this trend in the bud than endure years of litigation with uncertain outcomes.  Even attempting to negotiate a license with a service like ReDigi would imply some comfort with Digital First Sale at a conceptual level, which is something that the media industry would surely want to avoid.  Thus the RIAA’s actions against ReDigi come as no surprise.

The RIAA’s “nastygram” points to file copying that must take place in order for ReDigi’s system to work as evidence of copyright infringement, even though, of course, that’s not the real issue here.   Other litigation concerning Digital First Sale, such as Vernor v. Autodesk (commercial software), is working its way through the courts.  Whatever happens with Digital First Sale, the law will take years to reach clarity — and until then, services like ReDigi will continue to be in limbo.

Incidentally, Digital First Sale is going to be a topic at our Copyright and Technology conference week after next (Wednesday November 30).  We will have legal experts on this topic as well as Paul Sweazey of the IEEE 1817 standards initiative, which is another attempt to implement something approximating Digital First Sale.  The discounted registration offer I made last week still stands.

Comments»

1. Bradley Dilger - November 22, 2011

Why shouldn’t end users be allowed to resell legally purchased digital content licenses at any price? I don’t see how that results in a race to the bottom, unless you assume end users are seeking to break copyright law. In that case, why bother to make the legal purchase in the first place?

2. Copyright and the Cloud « Judeumeh's Blog - December 7, 2011

[...] initiatives, just click on IEEE P1817 and/or Redigi (the latter is already embroiled in legal tussles with the RIAA, but then that is not surprising!). I’d be very interested to hear about any other DPP projects [...]

3. Copyright and the Cloud - December 7, 2011

[...] initiatives, just click on IEEE P1817 and/or Redigi (the latter is already embroiled in legal tussles with the RIAA, but then that is not surprising!). I’d be very interested to hear about any other DPP projects [...]

4. BCN-U - January 7, 2012

“But wait a minute: if the Terms of Service forbid users from doing something that copyright law allows, which one prevails?”

At this point it is perfectly legal to enforce contract terms that are more strict than statutory copyright law. For instance, you can be charged money to view works that are clearly in the public domain and agree not to make any other copies. Violation would be a breach of contract but perfectly legal under copyright law.

It used to be a copyright infringement to make a backup copy of computer software until Congress added 17 USC s. 117 to make it legal, IF YOU OWN A COPY. However, that statute still doesn’t mean the licensor must allow you to make a backup of a copy you do not own.

5. BCN-U - January 7, 2012

Just to quibble over 17 USC s 109, you say it “says that if you obtain a copy of a copyrighted work legally, you can do as you wish with it – keep it, lend it, sell it, give it away, use it to line a birdcage…”

In fact, under 109(b), lending a sound recording (or computer software) copy for free is okay, but you cannot legally charge money for lending, renting or leasing it. That would be a copyright infringement.

Bill Rosenblatt - January 8, 2012

Sorry, I don’t believe this is true. You are correct in that there are many examples of “contracts” that enforce conditions that are more restrictive than the user’s rights to content under copyright law, such as countless EULAs for digital content services. For example, I haven’t looked but I bet the TOS of iTunes and Amazon MP3 have various provisions that are more restrictive than contract law, especially when it comes to 107 (Fair Use). But that’s not the issue. The issue is whether those contracts are enforceable because they are more restrictive than copyright. That’s what Vernor v. Autodesk was all about (with regard to 109, First Sale). You have to litigate those issues to (maybe) get an answer.

6. BCN-U - January 8, 2012

Sure, why not litigate the obvious? Maybe we’ll all get to revisit the improperly decided ProCD v Zeidenburg, where “copyright law does not trump contract law” in shrink-wrap, even though Zeidenburg agreed to the license, but only after purchasing a shrink-wrapped copy.

Nobody knows how many thousands of license cases have NOT been litigated because everyone agrees on what was meant in the contract.

If the ill-fated Autodesk case of “finders keepers” continues, I’m willing to bet that “unauthorized distribution of copies” is the answer.

Bill Rosenblatt - January 8, 2012

OK, well, if ProCD was “improperly decided” then perhaps there is room for ambiguity (which is what my sources tell me). But:

  • It’s possible that a court could decide that First Sale applies to digital content (e.g. through the Vernor appeal chain) without a decision that sales of pure digital content are to be treated as sales of copyright. In that case, we’re in ambiguous territory with respect to Terms of Service like iTunes’ and Amazon’s.
  • If it’s decided that sales of digital downloads are to be treated as sales of copyrighted material, and the ProCD decision stands, then Digital First Sale becomes a worthless concept: any digital retailer that doesn’t want its sales undercut by a secondary market in used bits — that is, any digital retailer with half a brain — will put a term in its TOS forbidding resale.

Yet what I don’t understand is, if copyright law does trump contract law in all cases, and this decision came out in 1996, why don’t post-ProCD media products have EULAs forbidding resale? For example: Blu-ray discs were first released to the market ten years after ProCD, yet apparently there is no shrinkwrap term forbidding resale. Indeed, a search of used Blu-ray discs on eBay turns up over 10,000 used discs for sale — and if this were illegal, eBay would certainly not allow it.

Therefore, though I am not the ultimate copyright expert, I must still conclude that there still has to be some ambiguity in this legal area, ProCD or not.


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