Digital re-seller loses round one

Whilst Kirtsaeng v John Wiley & Sons grabbed all the 'first sale' headlines last week, its not proved quite so useful this week. In a case brought by  CapitolRecords against digital re-seller ReDigi, U.S. District Judge Richard Sullivan in Manhattan has ruled that the  'first sale' doctrine does not apply to digital goods, in a decision which might also come as a blow to comes to other online retailers such as Amazon and Apple who have been developing platforms to re-sell used digital goods such as books, music, videos and apps. 

Judge Sullivan said “The novel question presented in this action is whether a digital music file, lawfully made and purchased, may be resold by its owner through ReDigi under the first sale doctrine. The court determines that it cannot”.  The reason, the judge ruled, is because copying, or an illegal “reproduction” of a music file, must take place, despite ReDigi’s claims to the contrary.  

Judge Sullivan added “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. The judge agreed with the Capitol’s claims that the service was guilty of direct, contributory, and vicarious infringement of Capitol’s reproduction rights, and said ReDigi had no fair-use defense to the infringement as the service was not "capable of substantial non infringing use"s.

ReDigi said its customers had a right to upload their legally purchased MP3 tracks onto ReDigi’s cloud. ReDigi said that customers could 'migrate' their used files to ReDigi's service and claimed no copy of the file was made. ReDigi also said that their technology meant that the original uploaded file that was sold could no longer be accessed by the seller. The judge did not agree and was of the opinion that ReDigi’s technology cannot stop customers from file sharing or copying iTunes music purchases before they had uploaded them to the service, and ruled against the digital start up.

ReDigi, which claims to be "the world's first, real legal alternative to expensive online music retailers and to illegal file sharing" issued a statement saying it was "disappointed" with Judge Sullivan's ruling, but pointed out that the ruling only pertains to the earlier version of ReDigi's service, dubbed "ReDigi 1.0."  explaining that the new 2.0 version is based on different, patent-pending technology, adding "ReDigi will continue to keep its ReDigi 2.0 service running and will appeal the ReDigi 1.0 decision, while supporting the fundamental rights of lawful digital consumers".

Capitol is expected to seek both damages and an injunction to force ReDigi to cease operating its resale website.

You can access the decision here: http://ia600800.us.archive.org/30/items/gov.uscourts.nysd.390216/gov.uscourts.nysd.390216.109.0.pdf

http://www.wired.com/threatlevel/2013/04/reselling-digital-goods/

http://the1709blog.blogspot.co.uk/2011/10/rumble-in-digital-jungle.html

EMI v ReDigi: US digital music resale hearing begins

On Friday the district court in Manhattan, New York, heard opening arguments by EMI that ReDigi's resale of second-hand MP3s infringes copyright.

Readers may remember that back in October 2011, US company ReDigi was launched. ReDigi's business model is based on the resale of digital content, and it bills itself as being the first legal online marketplace for second-hand digital material. At the time Ben commented on the legal issues that arise from the concept in the US, and sure enough the music industry decided to question those issues in court: in January of this year Capitol Records (a subset of EMI) sued ReDigi for copyright infringement.

In February EMI failed to get summary judgment, meaning that the case has proceeded to a full court hearing, which began on Friday. ReDigi is relying on the "first sale doctrine" (which is similar to the principle of exhaustion in Europe) which it argues applies to digital files in the same way that it applies to CDs and cassettes.

EMI claims that the first sale doctrine does not apply to digital files as the only way to move those files is to make duplicates, and there is no guarantee that the original file has been deleted on resale. EMI says that it owns the "exclusive rights" to manufacture, reproduce, distribute and sell digital versions of the copyright protected works of its artists, and refers to agreements signed with authorised services such as Apple's iTunes and Amazon's MP3 in support of its argument.

ReDigi says that EMI's distribution rights are limited to material objects, and if digital files are judged to be material objects it can invoke the first sale doctrine which permits resales.

A secondary claim by EMI is that 30 second clips of songs offered by ReDigi and stored on users' hard drives constitute another act of unauthorised copying. It will be interesting to see what (if any) impact the Supreme Court of Canada's ruling in SOCAN v Bell will have. In that case the Canadian Supreme Court held that 30 to 90 second music clips offered by online music stores such as Apple constituted fair dealing, which is a more narrow exception than fair use in the US.

ReDigi also argues that the songs are only loaded into a computer's RAM memory so that they "disappear" after the track has stopped playing. That sounds to this blogger like an argument that the copies are temporary; an argument which would not succeed in the UK following the Court of Appeal's judgment in NLA v Meltwater (although the Supreme Court may yet find otherwise).

EMI says that given the widespread piracy of sound recordings it is questionable whether ReDigi can effectively determine that digital files have been legally obtained in the first place. To this ReDigi responds that the only files eligible for resale are those originally downloaded from iTunes and that it excludes from its service tracks which have been ripped from CDs or taken from other stores. This method, it says, allows it to use software to validate ownership.

Finally EMI notes that ReDigi has acknowledged that there is no way to ensure that users do not retain copies of the files they upload. Even though ReDigi's software is designed to run "continuously" in the background to detect songs on any device attached to the user's computers at a later date, users could presumably back content up on an external hard drive or other device.

It is not clear what the outcome of the case would be in Europe. The CJEU's recently held, in UsedSoft, that an author of software cannot oppose the resale of his "used" licences allowing the use of his programs downloaded from the internet. The exclusive right of distribution of a copy of a computer program covered by such a licence is exhausted on its first sale.

Indeed, one 1709 blog reader commented at the time: "Very interesting, I expect software companies will respond by simply moving some of the functionality server-side, but it does hold out the intriguing possibility of re-selling used MP3 files in the EU."

Prior to the CJEU's ruling in UsedSoft, downloading digital content was seen as a service and therefore the principle of exhaustion did not apply. Whether UsedSoft changes that analysis, given that MP3 files are not the same as computer programs, remains to be seen.

Google has written a letter to the New York judge making public its "specific and vital interest" in the outcome of the EMI v ReDigi case, which will set an important precedent in the music industry.