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Capitol Records Prevails in ReDigi Case April 1, 2013

Posted by Bill Rosenblatt in Law, Music, United States.
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A federal court in New York City handed down summary judgment against ReDigi over the weekend in its legal fight with Capitol Records.  In his ruling , Judge Richard Sullivan found the digital resale service liable for primary and secondary copyright infringement.   He rejected ReDigi’s arguments that its service, which enables users to resell music tracks purchased on iTunes, is legal under the doctrines of fair use and first sale.

The decision is a surprising blow to the Boston-based startup, especially given that Judge Sullivan refused Capitol’s request for a preliminary injuction early on in the case.

The central holding in Judge Sullivan’s opinion was that in order to resell a digital file, a user has to make another copy of it — even if the original copy disappears, and even if two copies never coexist simultaneously.  He based this holding on a literal interpretation of the phrase “copies are material objects” from Section 101 of the Copyright Act.

Once Judge Sullivan established that the ReDigi system causes another copy to be made as part of the resale process, the rest of his opinion flowed from there:

  • The user didn’t have a right to make that new copy, therefore it’s infringement — specifically of Capitol’s reproduction and distribution rights under copyright law.
  • ReDigi knowingly aided and abetted, and benefited from, users’ acts of infringement, therefore it’s secondary as well as primary infringement.
  • The user resold the new copy, not the original one, therefore it’s not protected under first sale (which says that a consumer can do whatever she wants with a copy of a copyrighted work that she lawfully obtains).
  • The “new” copies made in the ReDigi process don’t qualify as fair use: they are identical to the originals and thus aren’t “transformative”; they are made for commercial purposes; they undercut the originals and thus diminish the market for them.

In sum, as Judge Sullivan put it bluntly, “ReDigi, by virtue of its design, is incapable of compliance with the law.”  At the same time, he was quick to point out that his was a narrow ruling based on a literal interpretation of the law, saying that “this is a court of law and not a congressional subcommittee or technology blog[.]”  He investigated Congress’s intent regarding digital first sale and found that it hadn’t advanced since the U.S. Copyright Office — the copyright advisors to Congress — had counseled against allowing digital resale back in 2001.

I’ve always assumed that any district court decision in this case would be minimally relevant, as it would be appealed.  ReDigi has already stated that it will appeal.  And the opinion does contain patches of daylight through which an appeal could possibly be launched.

Most important is the opinion’s focus on the making of a “new copy” during the resale process.  It’s hard to see how this gibes with the many “new copies” of digital files made during normal content distribution processes, including streaming as well as downloads.

In other words, if ReDigi is making “new copies” without authorization, then so are countless other technologies.  Some such copies might be covered under fair use or the DMCA safe harbors.  Other “new copies” are considered “incidental” (not requiring permission from the copyright holder); the judge didn’t explain why copies made by the ReDigi system don’t qualify as incidental.  ReDigi did make a similar argument; the judge didn’t buy it because it didn’t involve the issues in this case, but a higher court, looking at the broader picture of digital first sale, might see things differently.

Judge Sullivan’s reliance on the Copyright Office’s 2001 report on digital first sale is also somewhat problematic.   The Copyright Office believed that a “forward-and-delete” mechanism — not unlike what ReDigi has built — could actually support digital first sale.  The Copyright Office simply concluded that such a mechanism would not be practical to implement.  This does not comport with Judge Sullivan’s assertion that “forward-and-delete” requires a new copy to be made and thus cannot qualify as first sale in the first place.

Another notable feature of Judge Sullivan’s opinion is his assertion that “a ReDigi user owns the phonorecord that was created when she purchased and downloaded a song from iTunes to her hard disk.”  The assertion that a user “owns” a digital download is itself controversial and not based on legal precedent.  Judge Sullivan found no legal precedent for digital first sale, but somehow he did find a basis for asserting that digital downloads are “owned.”

Retailers of digital goods believe that they don’t actually sell them in the way that books, CDs, or DVDs are sold; instead they license them to users under terms that may resemble sale.  The question of sale vs. licensing of copyrighted digital content is a gray area in the law, and it wasn’t up for examination here: Apple, for example, wasn’t a party to the case and remained silent throughout.  But if Apple (or another digital content retailer) ever objects to its content being “resold” through a third-party service, it will have to deal with Judge Sullivan’s language; and once again, it may be harder for a higher court to ignore this aspect of digital resale when determining its legality.

It remains to be seen whether the above issues can be forged into a legal theory that can convince the Second Circuit appeals court to reverse Judge Sullivan’s ruling.  Yet even if ReDigi throws in the towel and ceases operations, its very existence has called a lot of attention to the idea of digital resale.  The mechanisms are in place today: beyond ReDigi, there’s at least one more startup (the NYC-based ReKiosk); and Amazon was recently granted a patent for resale of digital goods.  Indie music labels and a few e-book publishers, at first, will most likely experiment with it.

This court ruling won’t eliminate digital resale; if let stand, it will simply restrict it to content that copyright owners have given permission to resell — permission that will probably include say over pricing, timing, and other factors.  This will complicate the lives of resellers, but it will ensure that digital resale doesn’t harm copyright holders.  In other words, ReDigi has let the digital resale genie out of the lamp.  It’s bound to happen, one way or another.

Comments»

1. gordon - April 2, 2013

So if i download an MP3 to my computer, I cannot then transfer it to my Phone to play it? that is 100% a copy and I don’t even delete the original.

If I download the media to a managed server then I am not even in control of how many copies are made and when. If the party managing my server take backups for me where I am now?

If my computer get old I cannot replace my hard drive and migrate my data in case there are copyrighted material on it?

So I give up and i only have my MP3 on the device that downloaded.. DAMN.. to play it I need to copy it to memory!

I feel sorry to the judges in these cases.. a file is information, once someone has said that you can sell a piece of information multiple times and each purchasers owns that information you have to appreciate that the media the information is on is irrelevant.

Bill Rosenblatt - April 2, 2013

Hi Gordon,

Actually, any of the things you mention are legally OK under fair use because they are all done for your personal, noncommercial use of the content you downloaded. This includes cloud storage services, as affirmed by the courts in cases like EMI v. MP3Tunes.

Otherwise, the law contains a patchwork of instances where permission isn’t needed to make copies of files. Apart from fair use, another example is the DMCA safe harbor for caching services. But there have got to be dozens, if not hundreds, of services that make copies that aren’t licensed and don’t fall under one of these statutory exemptions.

2. Nicholas Bentley - April 3, 2013

I believe judge Richard Sullivan is starting on the right track. Now that we are dealing more and more with information products that are only distributed in an intangible digital form copyright should move on. Copyright should fully recognize that information is intangible and deal with it in this way and stop insisting that it is linked to some physical distribution medium that can be traded from one person to another.

We should abandon first sale for digital products because once the user has consumed the information into their mind the first time they can never completely give it up.

In exchange, though, copyright should recognize that having purchased access to an intangible information product the user should always be allowed to have access to the information, in whatever format they chose, to allow them to refresh and preserve the intangible copy held in their mind.

3. Gordon - April 3, 2013

Hi Bill,

Interesting so we have “fair use” protection which covers things you would do personally – playing, moving, backing up, alternative media etc. and then these specific tested exceptions. Thanks for the explanation, The judges comments make more sense now – and are not quite as scary.

Reading your comment made me consider downloaded software, as I have heard that the right to resell windows licenses etc was pretty well tested and accepted. I found this article on Steam being sued in Germany:

http://www.geek.com/games/valve-sued-for-not-allowing-steam-users-to-resell-games-1538093/

Seems like we are quite some way of a consistent approach.. Do you think all laws are this hard to define or are these issues an indicator that we have a bigger problem? – i.e. copyright overall is going in the wrong direction (a problem that if it does exist must be nigh on impossible to address)

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5. Mark @ eBookDesignWorks - April 3, 2013

If Judge Sullivan “…somehow did find a basis for asserting that digital downloads are owned…” then how can he say someone can own something, but not sell or give it away? It all boils down to the question: do we buy or license digital content.

What remains to be seen is how this ruling will affect Apple’s and Amazon’s own used-content vehicles they are developing.

Bill Rosenblatt - April 3, 2013

Actually, what the judge said was that you can resell the file but it has to be the exact file that you bought. What I don’t believe he looked at carefully enough was: what does this actually mean? What if you, for example, have a disk storage scheme with built-in redundancy (e.g. RAID striping)? What if your disk crashed and you restored the file from a backup (which you have the right to do under fair use)?

And by the way, was the file that actually ended up on your hard drive the exact same file that the retailer had on its servers? Of all of the copies made in the normal course of getting the content to you, were *all* of them explicitly licensed by the publisher, incidental copies (not requiring a license), or protected under DMCA safe harbor? Of course the answer is no.

Bill Rosenblatt - April 3, 2013

What we have now is 17 years (since the WIPO International Copyright Treaty of 1996) of patchwork to try to deal with copyright in the digital age. I wouldn’t really say that copyright is “going in any direction” other than more patchwork.

The U.S. Register of Copyrights recently testified before Congress, saying that it’s time to contemplate a wholesale overhaul of the copyright law, which hasn’t been done since 1976. That’s easy to say but very hard to do. The last overhaul took something like 20 years…

6. Mark D'Antoni - April 4, 2013

Yes. Copies here. Copies there. Copies everywhere. Sure seems like a can of worms to me. And the Europeans seem to be going in a different direction. I would think someone could figure out a mechanism. But without proper laws… We DO need a wholesale overhaul of the copyright law.

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12. heywes - April 9, 2013

Is it already a settled matter that a music download from iTunes creates a physical copy (i.e., a phonorecord) that can be legally transferred in the first place? That is to say, if I buy an iPod (or whatever) from Apple, download a song to it (from iTunes, after agreeing to whatever terms Apple requires), and then sell that iPod to someone else, have I also transferred to them all of my rights to use that material, as well as to resell a single phonorecord of it that physically resides somewhere within the iPod? Perhaps even that single copy only falls under, say, the fair use doctrine, or some other license that does not go so far as to give me distribution rights on that physical copy. (I don’t know what terms iTunes users have agreed to with Apple.)

Unless I do already have some distribution rights in some manner, I don’t see how ReDigi can rely on the first sale doctrine in the first place. So, even if ReDigi successfully convinces the courts that a digital file transfer through their service serves, legally, as a means to transfer ownership (and, perhaps surprisingly, physical possession) of a phonorecord, could copyright holders potentially force Apple to change its agreement with iTunes users anyway, such that users clearly do not have such ownership rights on future downloads, going forward? Isn’t there already precedent for this in software license agreements? (which may be the basis for that Steam lawsuit referenced earlier)

Incidentally, I took Judge Sullivan’s comments about the protection, under the first sale doctrine, of ‘a lawful owner’s sale of a “particular” phonorecord’ as not necessarily affirming that such legal ownership is ever created via iTunes downloads, nor necessarily even allowing for the preservation of its identity across physical changes — even those such as, say, hard drive defragmentations, that arguably preserve the number of copies of the file. As I understand it, he merely said that _if_ a person has a phonorecord that she legally owns, _and_ she sells the physical object that embodies that phonorecord, then that sale falls under the first sale doctrine. But, for better or for worse, he does not accept ReDigi’s process as preserving the identity of copies of the file anyway, so such concerns are irrelevant. As he sees it. Or, am I misunderstanding this?

Bill Rosenblatt - April 9, 2013

Heywes,

If you give your iPod to someone else, according to the Terms of Use the other person isn’t entitled to the music on it. On the other hand, it’s a likely fair use (as well as totally unenforceable). The problem is that if there’s a conflict between fair use and Terms of Use (a contract), then it’s unclear which one prevails.

As I said in my article, this court decision didn’t reach the issue of conflicts between Apple’s Terms of Use for iTunes and copyright provisions such as fair use and first sale, because the retailer (Apple) was not party to the dispute.

However, I do find one thing interesting: ReDigi used to say that you could resell your files bought on Amazon as well as iTunes. Yet Amazon’s Terms of Use are more explicit that Apple’s regarding ownership vs. license. For example, Amazon’s Terms of Use for Kindle e-books say “Kindle Content is licensed, not sold, to you by the Content Provider.” You can’t get much more explicit than that. More recently, ReDigi started only mentioning iTunes as the source for music that they will let you resell. One may infer that they decided to exclude Amazon because of the potential legal issue there.

Finally, in your last paragraph, I do think Judge Sullivan asserted that the user “owns” an iTunes purchase: “Here, a ReDigi user owns the phonorecord that was created when she purchased and downloaded a song from iTunes to her hard disk.” However, once again, this was not an issue being decided in the case, so it could be said that Judge Sullivan’s statement amounts to what lawyers (with an undertone of dismissiveness) call “dictum.”


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