For Digital First Sale, It’s Still 2001

Seventeen years ago, the U.S. Copyright Office — Congress’s official advisor on copyright issues — published an opinion for Congress on whether there should be a first sale right for digital content: a right for consumers to alienate (sell, lend, rent, or give away) digital files, like the one that exists for physical items like books, CDs, and DVDs. In the so-called Section 104 Report, the Copyright Office considered the idea that digital first sale could be supported with a “forward-and-delete” mechanism that ensures that if you send a digital file to someone, the file no longer exists on your device.

The Copyright Office said:

… unless a ‘forward-and-delete’ technology is employed, transfer of a copy by transmission requires an additional affirmative act by the sender. In applying a digital first sale doctrine as a defense to infringement it would be difficult to prove or disprove whether that act had taken place, thereby complicating enforcement. … Even the use of ‘forward-and-delete’ technology … is not a silver bullet. Technological measures can be hacked; they are expensive; and they often encounter resist[a]nce in the marketplace. … At present such technology does not appear to be available. Even assuming that it is developed in the future, the technology would have to be robust, persistent, and fairly easy to use. As such, it would likely be expensive – an expense that would have to be borne by the copyright owner or passed on to the consumer. Even so, the technology would probably not be 100 percent effective.

Since the Section 104 Report, there had been a few court cases, such as Vernor v. Autodesk, that shed narrow shafts of light on this area, but the case history had neither established nor foreclosed a first sale right for digital content; and of course there hasn’t been any relevant legislation. Thus, that report from 2001 is the closest thing we have to Congress’s last word on the subject of digital resale rights.

And after last week’s hotly anticipated Second Circuit Appeals Court’s ruling in Capitol Records v. ReDigi, the Section 104 Report continues to be the last word on the subject. The appeal’s court’s narrow ruling affirms the lower court ruling — more than five years ago — that a digital resale service that tried diligently to implement a forward-and-delete mechanism was liable for contributory copyright infringement.

ReDigi is a Boston-based startup that had a marketplace for “used” music files. If you bought music files from Apple iTunes for 99 cents, you could register them in the ReDigi marketplace for resale. When you sold one of your files (for less than 99 cents), ReDigi took a cut of your proceeds, and its software deleted your copy from your PC or other device. ReDigi’s technology was carefully designed to make sure that two copies of the file (one on the seller’s device, the other on the buyer’s) never existed simultaneously, but instead that the buyer’s copy was built up while the seller’s copy was being erased.

The ReDigi system took various steps to curb abuses. It tried to ensure that you weren’t keeping copies of files after resale by monitoring your device’s hard drive. It also checked to make sure that the files you wanted to resell were legitimately purchased on iTunes. If ReDigi found that you were trying to circumvent the system, it would suspend your account. ReDigi limited its service to files purchased on iTunes, presumably because they believed that iTunes’ end user license agreement (unlike Amazon’s) gave just enough wiggle room to allow users to resell their files. (Apple never weighed in on this one way or another during the course of the litigation.)

In other words, ReDigi tried hard to implement a forward-and-delete system of the type contemplated in the Section 104 Report. It even tried claiming that the Section 104 Report was obsolete because of various new Internet technologies that have been developed since 2001; the appeals court didn’t find that argument relevant to the ReDigi case.

In fact, the Copyright Office’s predictions on forward-and-delete turned out to be right in many respects. ReDigi’s mechanism had two flaws that turned out to be fatal, despite what the appeals court found to be a “good faith [effort] to achieve a goal generally favored by the law of copyright.” First, the abuse detection apparatus wasn’t foolproof: for example, a user could make copies of her files and store them offline (such as on a USB thumb drive) before reselling them, or could restore the files after resale from an Apple iCloud account. And there were probably ways for users to create fake file header metadata designed to fool the system into thinking that (for example) a track from a ripped CD was purchased on iTunes.

Second — and most fatal in terms of the legal argument — was that the file had to be copied at all in the process. The nuance that the Second Circuit seized on in its opinion — written by Judge Pierre Leval, a highly respected authority on copyright law — was that the first sale right (Section 109 of the copyright law) applies to distribution, not reproduction. Under first sale, a consumer has the right to redistribute a copy of a legally-obtained work with no involvement from the publisher, but not the right to reproduce it. (When you alienate a book or DVD, you don’t make a copy of it.) Yet the way ReDigi’s system was designed, it couldn’t avoid making reproductions (copies) of users’ files, and those copies weren’t authorized.

The court also considered the question of whether digital data can be said to be a copyrighted work separately from the physical device it’s on. In this, the appeals court affirmed the holding of the lower court that a copyrighted work must be a physical object — in this case, whatever section(s) of the device’s memory hold(s) the file at a given time. The court reasoned that it’s permissible to resell digital files by selling the devices they reside on (e.g., a USB thumb drive full of MP3s), but that files can’t be copyrighted works in and of themselves.

The court also ruled that the copies made in the ReDigi system weren’t fair use, after an analysis that was more extensive than that done by the lower court. Unsurprisingly, its analysis leaned heavily on the fact that ReDigi offers a commercial market for resale of digital music files that are identical to those sold in the “new” marketplace at higher prices and “do not deteriorate the way printed books and physical records deteriorate.” The appeals court’s fair use analysis seemed intended to support the court’s holding — mainly in a lengthy footnote on p. 19 of the opinion — that while digital content technologies make many “innocuous copies” in the course of their normal operation, the copies made in the ReDigi system are different because the former are fair use while ReDigi’s aren’t.

The detailed fair use analysis also seemed directed at the pro-fair-use arguments in amicus briefs filed on behalf of libraries and by a group of two dozen law professors (two of many amicus briefs filed in the case). Those amicus briefs argued that digital resale ought to be recognized in law for the sake of consistency and to ensure that things like libraries and secondary markets (e.g., used book and record stores) continue to exist in the digital age. The appeals court rejected that argument, saying that “[t]he copyright statute is a patchwork, sometimes varying from clause to clause” and that arguments for digital first sale should be directed at Congress, not the courts.

ReDigi is still alive as a company; it developed a “2.0” version of its technology with a different architecture that it hopes will survive legal challenges. But — as is often the case with technology vis-a-vis the legal system — the market has largely moved on. Resale of music files is in the process of becoming irrelevant. Interest in downloaded music files is in sharp decline with the rise of streaming; there have even been rumors that Apple is planning to drop sales of music downloads on iTunes next year. ReDigi has looked into the possibility of moving into the e-book market, but the DRM used on most e-books in the U.S. makes that technologically much more difficult than with DRM-free music.

Yet as recently as last Saturday (December 15, 2018), the only thing on ReDigi’s website was a timer that showed how many weeks, days, hours, minutes, and seconds had gone by since the oral argument in the appeal. It was in August 2017, well over a year ago. Meanwhile, in Congress, as far as digital first sale is concerned, it’s still 2001.

 

 

 

5 comments

  1. I always thought ReDigi’s marketplace failed because the sale price earned by the seller just wasn’t enough to make it worth the effort of listing their MP3s.

  2. Actually we don’t know whether ReDigi succeeded or failed from a business perspective. It certainly had users — even after it got hit by the lawsuit — but didn’t stick around enough for the novelty aspect to fade away.

    I file this under “technologies that try to get digital to emulate physical ownership,” along with blockchain-based systems like BookChain and Publica and the attempts in the music industry to provide digital multimedia packages for sale on iTunes or on BitTorrent.com. It remains to be seen whether enough users care — or care enough to put up with whatever technologies are required, be they processes that crawl your hard drive for duplicates (ReDigi) or third-party e-book reader apps (BookChain and Publica).

    Apart from that, as I said, the music industry is now learning that people aren’t interested in paying 99 cents for music files anymore (download revenues are now less than 1/3 of streaming), let alone earning 59 cents (or whatever it was) for reselling them. It may be different when the money is an order of magnitude bigger, as it would be for e-books.

  3. […] What does the ReDigi appeal mean for digital first sale? […]

  4. Glinda Harrison · ·

    Reblogged this on The eBook Evangelist and commented:
    Great post on this topic! This is why, unfortunately, I can’t foresee a used ebook or music market evolving.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: