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.