US District Court Shuts Down Pre-Owned Digital Music Web Site

In Capitol Records LLC v ReDigi Inc, the US District Court for the Southern District of New York (Court) ruled that an owner of a digital music file cannot lawfully re-sell the file to a buyer, even if the owner forfeits possession of the file. ReDigi Inc (ReDigi) operates a web site that allows users to buy and sell pre-owned digital music files that had been purchased on the iTunes Store. Capitol Records (Capitol), the owner of a number of recordings sold on ReDigi’s web site, sued ReDigi for copyright infringement for uploading the digital files and offering them for sale on its service. In a ruling on a summary judgment motion, Judge Richard Sullivan found ReDigi liable for infringing Capitol’s reproduction and distribution copyrights and went on to grant an injunction and damages. ReDigi asserted that it did not reproduce a user’s digital file because it ‘migrated’ the file from the user’s computer to its server, packet by packet, so that no part of the file existed on the computer and the server at the same time. The Court disagreed, finding it was a reproduction because ReDigi caused the file to be fixed on its server. The Court rejected ReDigi’s “fair use” defence, having regard to the commercial nature of ReDigi’s activities, the creative nature of the protected works, the fact that the entirety of the works were copied, and that ReDigi’s sales would likely undermine the value of copyrighted works. ReDigi also asserted a “first sale” defence, arguing it was entitled it to sell the pre-owned digital file on its web site because Capitol’s rights ended when the first owner purchased the file on iTunes. The Court rejected that argument on the basis that the first-sale defence could not apply to an unlawful reproduction of a file. The Court clarified that an owner of a digital file cannot transfer the file to a separate device without engaging the copyright holder’s reproduction right, but may rely on a fair-use or personal-use defence in appropriate circumstances. Judge Sullivan explained his rationale for excluding digital files that have been reproduced from the first-sale defence:

“While this limitation clearly presents obstacles to resale that are different from, and perhaps even more onerous than, those involved in the resale of CDs and cassettes, the limitation is hardly absurd – the first sale doctrine was enacted in a world where the ease and speed of data transfer could not have been imagined. There are many reasons, some discussed herein, for why such physical limitations may be desirable. It is left to Congress, and not this Court, to deem them outmoded.”

The Court’s ruling is seen as a setback for businesses offering pre-owned digital files, such as businesses trading in “used e-books”, for example. It will be interesting to see how the case unfolds, since ReDigi has indicated an intention to appeal. For a link to a news article, visit: http://tinyurl.com/d7qoy2e Summary by: Darren Hall