The Legality of Selling "Used" Digital Songs and Movies Headed to Appeals Court

ReDigi strikes a deal to avoid facing Capitol Records at trial next week, but now, it gets really interesting.
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For those who have amassed an extensive iTunes collection of songs and movies, is there any hope of reselling these works?

Back in 2011, a company called ReDigi attempted to give consumers just such a pipe dream. The idea was to take advantage of the "first sale" doctrine, which gives those who purchase copies of copyrighted work the right to sell, display or otherwise dispose of that particular copy notwithstanding the interests of the copyright holder. ReDigi provided cloud storage and a market for "used" songs bought off of iTunes. Naturally, the record industry wasn't happy, which led to a lawsuit and a big ruling in April 2013.

The federal judge in the case concluded that "the first-sale defense is limited to material items, like records, that the copyright owner put into the stream of commerce," further examining what happens when digital copies get transferred over the Internet, and deeming ReDigi's system not to be a transfer of the same "material object" but rather a "reproduction."

Since the decision, this case has quietly trekked along towards a damages trial. In fact, ReDigi was scheduled to go before a jury on April 11 with the prospect of paying millions to Capitol Records.

But this week, the parties informed the court they had reached a deal.

According to those involved in the case, ReDigi has agreed to a stipulated judgment that avoids a trial. The financial consideration involved has not been made public. 

Amazingly, though, this just ends phase one of the fight.

That's because the deal reached isn't a full settlement, but one that only takes care of the issue of damages. ReDigi is still contesting its liability in the case — and the resolution of penalties allows the company to make an appeal to the 2nd Circuit. (Previously, the company asked the judge for permission for an interlocutory appeal, but the judge wanted the case to proceed to trial first.) As such, this four-year-old case will finally reach a higher authority on the question of the possibility of legal second-hand digital works.

That's good news for folks like Bruce Willis — who once expressed the desire to leave his extensive iTunes music collection in his will — though it does leave certain other issues open.

One in particular that was being fought over by the two sides in the days leading up to the aborted trial pertained to iTunes works bought by consumers, then uploaded to ReDigi's cloud locker for purposes of sale, but never actually sold. ReDigi was arguing that the vast majority of works by ReDigi users was never re-sold, and so these purchasers either had fair use or that iTunes had given them an express or implied license to store their music in multiple locations.

The record company responded this made no sense, asking in a legal brief last week, "Would Defendants have the Court enjoin only actual consummated sales, but permit Defendants to continue to offer illegal reproductions of Plaintiffs' sound recordings? Such a distinction leads to absurd consequences, whereby merchants could try to sell pirated copies but could never actually consummate those sales."

Perhaps for another day, another case.

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