US judge strikes down ReDigi’s first-sale defence

An online digital music re-seller has failed to convince a US judge that its business should be protected by the first-sale doctrine.

ReDigi was sued by music label Capitol Records in January 2012 for copyright infringement. The marketplace relied mainly on the first-sale defence, which traditionally allows music owners to re-sell goods including CDs without seeking authorisation.

But on March 30, Judge Richard Sullivan, sitting at the US District Court for the Southern District of New York, found the online marketplace guilty of direct copyright infringement, after ruling that the first-sale defence applies only to material goods.

ReDigi, which was launched in October 2011 and claims to the first company of its kind, allows sellers to upload music files onto its servers. The sellers instantly lose access to the file when it’s sold on the site, at which point ReDigi earns a 60 percent fee.

Capitol Records owns some of the music sold on the marketplace and sued ReDigi last year, seeking $150,000 for each infringement on the marketplace.

The dispute focused mainly on whether the first sale doctrine applies to digital files, and is believed to be the first time the US courts have considered the question.

The first-sale defence applies only when distribution rights has been infringed, but Judge Sullivan said Capitol’s reproduction rights had been violated when ReDigi reproduced two copies of a file, so the defence could not apply.

“Here, ReDigi is not distributing material items; rather, it is distributing reproductions of the copyrighted code embedded in new material objects,” he said.

ReDigi argued that only one copy of a file ever existed, as the same file rotated between users’ computers and the cloud, and was never reproduced. The arguments were the first to address whether the transfer of digital files online – where only one file exists before and after – represents copyright infringement.

But the judge said: “Simply put, it is the creation of a new material object and not an additional material object that defines the reproduction right... It is beside the point that the original phonorecord no longer exists. It matters only that a new phonorecord has been created.”

After swatting aside ReDigi’s fair use defence, mainly because of the commercial nature of its operation, the judge concluded that the court “cannot, of its own accord, condone the wholesale application of the first sale defence to the digital sphere, particularly when Congress itself has declined to take that step”.

Susan Kayser, partner at Jones Day, said the ruling was very good for copyright owners and was a “plain language interpretation of the copyright statute”.

“The digital world is very different from the world in which the law was written. Yes, the laws need to address what is happening in the digital arena, as there is no question that the online world is where the sharing of ideas is moving. But Congress will need to address this issue.”

She added: “This decision means other companies with similar business models [to ReDigi] will need to note that statutes won’t necessarily apply to the digital world.”

Apple and Amazon are two companies believed to be interested in selling used digital goods, and have been granted patents for these services. Neither company has set up a system for re-selling music yet.

Judge Sullivan said because there are some undecided issues in the case, including the validity of Capitol’s performance and display rights, the parties should submit a joint letter to the court by April 12, 2013 detailing the suggested next steps.

Neither ReDigi nor Capitol replied to requests for comment.