Just weeks after bemoaning the outcome in Kirtsaeng vs. Wiley, (a Supreme Court decision involving the doctrine of first sale that could dramatically alter the territorial rights trade), publishers were bolstered this week by a district court decision in Capitol Records vs. ReDigi, in which federal judge Richard Sullivan strongly rejected the expansion of first sale to cover digital files.
“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," Sullivan wrote. "The Court determines that it cannot.”
In his 17-page decision, Sullivan granted Capitol's motion for Summary Judgment, and denied Boston-based ReDigi the right to resell users’ digital music files. ReDigi had dubbed itself “the world’s first pre-owned digital marketplace,” and on its Web site touted the legality of the service. Sullivan, however, dubbed ReDigi a “clearinghouse for copyright infringement.” He requested both sides submit a letter by April 12 about the next step. The case has been closely watched by the book industry, since ReDigi had expressed interest in enabling the sale of used e-books. In addition, Amazon has received a patent for a process to sell used digital items, and Apple has applied for one.
In a statement, ReDigi said it will continue to operate the company's beta Web site while it appeals the decision. “The case has wide ranging, disturbing implications that affect how we as a society will be able to use digital goods," company officials noted.
Notably, the ReDigi case turned in large part on the same phrase at issue in Kirtsaeng—whether the copies at issue were “lawfully made” under [the Copyright Act]. In ReDigi, the court held they were not. “The first sale doctrine does not protect ReDigi’s distribution of Capitol’s copyrighted works,” Sullivan held, because the files at issue are “unlawful reproductions” and therefore not “lawfully made.” And, also like Kirtsaeng, the court said the proper venue to decide the core issue—whether buyers of digital products can resell them—is Congress.
“ReDigi effectively requests that the Court amend the [the Copyright Act] to achieve ReDigi’s broader policy goals—goals that happen to advance ReDigi’s economic interests,” Sullivan observed, adding that “amendment of the Copyright Act in line with ReDigi’s proposal is a legislative prerogative that courts are unauthorized and ill-suited to attempt.”
ReDigi’s model was fairly simple. Users could upload their old iTunes tracks to ReDigi's servers, a process which removed the tracks from the user’s computer, and offered them for sale. ReDigi priced the used tracks at a discount, keeping 20% of the final sale price, with the seller getting 60%, and 20% earmarked for the copyright holder (funds currently held in escrow). But in his ruling, Sullivan never got past a key element of the ReDigi system—that it creates new copies.
“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 a reproduction has occurred,” Sullivan explained. “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.”
ReDigi and its supporters had argued that the service fulfilled the intent of first sale, respecting the rights of content owners and copyright holders, and that a ruling against the service would only serve to exclude digital files from resale rights owners have long enjoyed in other mediums.
“According to the court, when it comes to music, you may have bought it, but you don't own it, at least if the ‘it’ is an mp3 file rather than a CD,” observed the EFF’s Corynne McSherry, in a post shortly after the ruling. “Many of us ‘buy’ music, movies, books, games etc. in purely digital form, and this is likely to be increasingly true going forward. But under this ruling the laws we count on to protect our right to dispose of that content could soon be as obsolete as the VHS tape.”
But just as the Supreme Court in Kirtsaeng acknowledged that its ruling could frustrate the ability of owners to exploit territorial rights, Sullivan acknowledged that his ruling would impact the ability of consumers to dispose of their their digital files. But, also like the Supreme Court in Kirtsaeng, he stressed the court could only interpret the law as written, and that it was Congress’ role to change the law if they so desired.
To make his point, Sullivan stressed that the first sale doctrine does still protect the ability to resell digital music—you can still sell your “computer hard disk, iPod, or other memory device” onto which the file was originally downloaded, he wrote. While conceding that practice might prove to be “onerous," he suggested there may also be reasons why such "physical limitations" are desirable. “It is left to Congress, and not this Court," he concluded "to deem them outmoded.”