Nowadays there are several services that allow people to resell used goods quickly and efficiently online. And while platforms like eBay, Amazon, and LetGo are popular sites for selling everything from used furniture and clothing to electronics, another site—ReDigi—wants to allow users to resell gently used digital music files over the internet. The problem? That business model runs counter to the law.
Under U.S. law, a copyright owner has the exclusive right to copy or distribute their protected work, such as a sound recording. But here, ReDigi users were distributing and copying music without permission, since reproduction is an inherent part of any digital transmission. (That’s why when you send an email to your grandparents with your vacation photos attached, the original photos remain on your hard drive. You’re not physically moving the original file that exists on your computer, you’re transmitting a copy via email.)
In 2013, Capitol Records filed suit against ReDigi for copyright infringement based on its service purportedly providing a marketplace for selling “used” music files, calling it “a clearinghouse for copyright infringement.” ReDigi has since moved away from this business model, but the case is ongoing, and ReDigi continues to argue that its former conduct was excused by fair use and the first sale doctrine—a doctrine that allows owners of tangible goods like books and CDs to distribute or resell those items. Judge Sullivan in the United States District Court for the Southern District of New York didn’t buy the fair use or first sale arguments and, rightfully so, found ReDigi liable for copyright infringement. The court explained that ReDigi, by providing “the infrastructure for its users’ infringing sales and…connecting users who are seeking unavailable songs with potential sellers” became an “active participant in the process of copyright infringement.”
Another issue, one that did not come up at the district court level, is one of ownership vs. licensing. The court was correct in its holding that the first sale doctrine is not a defense where the alleged infringement involves distribution of a copy of the work, but there’s another reason why the first sale doctrine is an inappropriate defense in this context. The doctrine states that “the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” However, there is no transfer of ownership involved in the “purchase” of digital music files. Many people don’t realize that when we “purchase” digital music, what we’re paying for is a license to listen to the music, not ownership of the music itself. Take iTunes for example. Its terms and conditions, which we must all agree to (and read, of course) before accessing the service, state that “you agree not to modify, rent, loan, sell, or distribute” the music you purchase on iTunes. Amazon Music’s terms state that “We grant you a non-exclusive, non-transferable right to use” the music you purchase, but you may not “redistribute, transmit, assign, sell, broadcast, rent, share, lend, modify, adapt, edit, license or otherwise transfer” it. In other words, services like iTunes and Amazon grant us a license to listen to the music. Selling something you merely have a license to use is like selling the car your friend let you borrow, or selling the house you’re renting. Of course, that wasn’t the case back when people still bought LPs, CDs, and cassette tapes. Those days, in addition to purchasing the right to listen to the music as many times as you wished, you became the owner of a circular (or rectangular) piece of plastic or vinyl. And ownership, unlike a license, implies the right to alienate—or get rid of—the object in whichever way the owner chooses. That can mean selling the item, renting it, giving it away for free, or even throwing it in the trash. That’s why you can legally resell a CD but not a digital music file.
Besides it being the law of the land, there’s good reason for allowing a secondary market for tangible goods like furniture, clothing, and electronics, but not for digital music. A primary and secondary market for furniture, for example, can coexist because people are willing to pay full market value for new furniture even in the presence of a secondary market for discounted, pre-owned furniture. The reason is that we recognize a difference in value between a couch sold directly by a brand we trust, and that same couch sold by a previous owner. In some instances, for example when a good is sold in the secondary market as “like new” and in original packaging, the primary and secondary markets may compete, but the secondary market does not usurp the primary market. The same cannot be said of digital files. There is no discernable difference between a “used” digital music file and a “new” one—remember, these files are identical copies of the originals, and no matter how many times you listen to a music file, it remains as good as new. So a secondary market where people resell the same exact music for a lesser price will certainly usurp the primary market for that music—i.e., the market created by the copyright owner.
The danger of business models like the one at issue in this case is that by violating the exclusive rights of the copyright owner and stifling their ability to exploit the market they’ve created for the work, both the creators and fans of the music lose. Today, music is primarily distributed digitally, which affords consumers the ability to enjoy it in ways that before would not have possible. For instance, digital distribution allows you to store thousands of digital music files on a device that fits in your pocket and access them across multiple devices, whereas in the past, no one carried around thousands of CDs in their pocket, and their ability to listen to a given CD depended on the physical presence of that CD. If entities like ReDigi are permitted to usurp these markets, digital distribution as we know it today will become financially unfeasible, and everyone loses. And that threat doesn’t just affect markets for music, it extends to any market where a copyrighted work takes the form of a digital file—think eBooks, computer software, photographs, movies, etc.
After losing at the district court level, ReDigi appealed to the Second Circuit, where oral arguments were heard earlier this week. The arguments focused primarily on the first sale doctrine, whether digital files constitute “material objects” as is required for the doctrine to apply, and whether a reproduction of the sound recording is made through the process of distribution on ReDigi’s platform. Judge Leval also opined that there is a high likelihood that the Supreme Court would take this case.
ReDigi’s counsel, Robert Welsh of BakerHostetler, spoke first, arguing that ReDigi’s technology does not cause “the creation of a… second copy of the copyrighted sound recording” even for a fraction of a second. Instead, he argued that the technology “moves” the digital file—which he said in itself amounts to a material object—from one computer to the next.
When pressed on the issue of materiality, Welsh referenced the London-Sire Records case, in which the court stated that “electronic files are material objects.” However, as one of the judges promptly pointed out, the London-Sire court specifically says “the electronic file (or, perhaps more accurately, the appropriate segment of the hard disk)” is a material object.
Jason Shultz, law professor and Director of NYU’s Technology Law & Policy Clinic, representing amici copyright law scholars and arguing in favor of ReDigi spoke next, stating that Congress intended the common-law first sale doctrine to apply to digital files, despite having never legislated such an exception to the exclusive distribution right.
Capitol Record’s counsel, Richard Mandel of Cowan, Liebowitz & Latman, closed out the arguments, first making clear that “it’s not possible to transfer a copyrighted work from one computer to another…without making a reproduction” and that Congress not only recognized that the first sale doctrine did not apply in this context, but also specifically declined to enact a first sale right that would apply to digital files. “The first sale doctrine has never, under any circumstance, been interpreted to allow a reproduction…The idea of the first sale doctrine,” he explained “is to draw a distinction between physical tangible property that you own and have the right to sell, and the intangible copyrighted intellectual property that’s the copyright owner’s.”
It could be months before a decision is made in this case, (ReDigi is literally counting the days here) but it is our hope that the appeals court will affirm the lower court’s ruling in favor of Capitol Records, holding ReDigi liable for direct, vicarious, and contributory infringement for its unauthorized reproduction and distribution of Capitol Records’ copyrighted sound recordings, and affirming the absence of a right of first sale in the context of intangible digital files. We filed an amicus brief in this case, which is available here.