Judge Hands Defeat to Business of Selling 'Used' Digital Music

In October 2011, a company called ReDigi launched with a bold idea: If the "first sale" doctrine in copyright law permits the reselling of acquired copyrighted material, why not an online market for "used" digital music?

On Monday, a federal judge in New York provided an answer why not -- and in a first-of-its-kind declaration ruled expressly that "the first-sale defense is limited to material items, like records, that the copyright owner put into the stream of commerce."

Unfortunately for those hoping to make a bundle selling their massive iTunes collection, this is not an April Fools joke. 

ReDigi's system allowed song files to be stored in a cloud. The company assured that it had technical measures in place to delete those files from a user's hard drive after the files were resold.

The company believed that the lawsuit that followed was one of "first impression" insofar as the plaintiff -- Capitol Records -- might wish to have it declared that the first-sale doctrine didn't apply to digital goods. Supporting ReDigi's side was Google, which unsuccessfully attempted to file an amicus brief. Other tech companies also had a stake; Amazon, for instance, has gained a patent on a market for "used" digital music and movie files.

The record industry wasn't seeking a big declaration. In its own papers, the plaintiff only said that letting users buy and sell previously purchased tracks on iTunes amounted to a "clearinghouse for copyright infringement."

Nevertheless, on Monday, U.S. District Judge Richard Sullivan went swinging for the fences; unfortunately for ReDigi and those hoping for a vibrant e-market of used song files, the judge wound up completely rejecting the company's position. He did so not only by turning to the law of copyright but also the law of physics, declaring the "impossibility" of what ReDigi was touting. "The first-sale defense," he wrote, "does not cover this any more than it covered the sale of cassette recordings of vinyl records in a bygone era."

Here's the full ruling.

In getting there, the judge first addresses a copyright owner's reproduction rights, which Sullivan said is "the exclusive right to embody, and to prevent others from embodying, the copyrighted work (or sound recording) in a new material object (or phonorecord)."

Sullivan continued by pointing to various P2P infringement cases and the fact that courts have differentiated between the copyrighted work and the material object. "Accordingly, when a user downloads a digital music file or 'digital sequence' to his 'hard disk,' the file is 'reproduce[d]' on a new phonorecord within the meaning of the Copyright Act."

"This understanding is, of course, confirmed by the laws of physics," the judge wrote. "It is simply impossible that the same 'material object' can be transferred over the Internet. … Because the reproduction right is necessarily implicated when a copyrighted work is embodied in a new material object, and because digital music files must be embodied in a new material object following their transfer over the Internet, the Court determines that the embodiment of a digital music file on a new hard disk is a reproduction within the meaning of the Copyright Act."

In short, the judge isn't buying the fact that ReDigi's users are transferring the same files. One digital copy of Frank Sinatra's "Come Fly With Me" might sound exactly like a second digital copy of Frank Sinatra's "Come Fly With Me," but that doesn't mean they aren't copies.

Or, as the judge put it: "ReDigi stresses that it 'migrates' a file from a user’s computer to its Cloud Locker, so that the same file is transferred to the ReDigi server and no copying occurs. However, even if that were the case, the fact that a file has moved from one material object -- the user’s computer -- to another -- the ReDigi server -- means that a reproduction has occurred. Similarly, when a ReDigi user downloads a new purchase from the ReDigi website to her computer, yet another reproduction is created. It is beside the point that the original phonorecord no longer exists. It matters only that a new phonorecord has been created."

Sullivan declared that, absent any affirmative defenses, the sale of digital music on ReDigi violates Capitol Records' exclusive rights of reproduction and distribution.

In looking at the possible affirmative defenses, the judge first ruled out any finding that it's "fair use" to upload and download from a cloud locker for purely commercial reasons.

Getting to the big first-sale doctrine, Sullivan rejected it for a similar reason as described before. Moving stuff from digital site to another necessitates reproduction in the judge's eyes, and ReDigi can't get around that.

'Here, a ReDigi user owns the phonorecord that was created when she purchased and downloaded a song from iTunes to her hard disk," the judge wrote. "But to sell that song on ReDigi, she must produce a new phonorecord on the ReDigi server. Because it is therefore impossible for the user to sell her 'particular' phonorecord on ReDigi, the first-sale statute cannot provide a defense."

In a statement, ReDigi emphasizes how their business has changed: 

For those who are unaware, ReDigi 1.0 was the original beta launch technology, which has been superseded by ReDigi 2.0. The updated service incorporates patent pending 'Direct to Cloud Technology' and 'Atomic Transfer Technology' that the court stated are not affected by its recent ruling.  Judge Sullivan specifically stated that, referring to ReDigi 2.0, 'the court will not consider it in this action,' and  'while ReDigi 2.0, 3.0, or 4.0 may ultimately be deemed to comply with copyright law - a finding that the Court need not and does not now make.'"

Email: eriq.gardner@thr.com; Twitter: @eriqgardner