Capitol Records sued ReDigi—which “invites users to ‘sell their legally acquired digital music files, and buy used digital music from others at a fraction of the price currently available on iTunes'”—for direct and secondary copyright infringement. In March 2013, the United States District Court for the Southern District of New York ruled in favor of Capitol Records, finding ReDigi liable for direct, vicarious, and contributory infringement for its unauthorized reproduction and distribution of Capitol Records’ copyrighted sound recordings. ReDigi appealed to the Second Circuit.
On December 12, 2018, the Second Circuit affirmed the district court’s decision, holding that ReDigi infringed the reproduction right of Plaintiffs and was not protected by the first sale doctrine or fair use.
In an opinion written by Judge Leval:
The court affirmed the holding that Redigi’s service created a new copy of a sound recording, and the reproduction right is not subject to the first sale doctrine, which applies solely to a particular phonorecord.
The court declined to weigh in on whether Redigi engaged in a distribution of a phonorecord through its service.
The court rejected Redigi’s argument that its technical process of deleting the original copy of the file in the course of reselling a sound recording does not constitute a reproduction, holding that the deletion does not nullify the fact that a reproduction has been made.
The court rejected ReDigi’s fair use argument, finding
(1) under the first fair use factor, the reproduction is not transformative or add nothing new, and that, given the total absense of transformative purpose, the commercial motivation weighs against a finding of fair use under this factor;
(2) the second fair use factor plays no role here;
(3) the copying of the entire digital file disfavors fair use under the third factor; and
(4) “Factor Four weighs powerfully against fair use”, in particular because, unlike used physical copies, “used” digital files are identical to “new” digital files, and thus Redigi’s marketplace directly competes with Plaintiff’s primary market.
Weighing the factors together, and relying heavily on the Second Circuit’s TVEyes decision, the court concluded there was no justification for fair use here, saying “Even if ReDigi is credited with some faint showing of a transformative purpose, that purpose is overwhelmed by the substantial harm ReDigi inflicts on the value of Plaintiff’s copyrights through its direct competition in the rights holders’ legitimate market, offering consumers a substitute for purchasing from the rights holders.”
Finally, the court rejected the policy-based arguments made by copyright law professors in an amicus brief supporting ReDigi that the first sale doctrine should be applied broadly to protect ReDigi “to vindicate purchasers’ ability to alienate digital copyrighted works under the first sale doctrine—emphasizing that §109(a) is styled as an entitlement rather than a defense to infringement—without regard to technological medium.” The court concluded, “If ReDigi and its champions have persuasive arguments in support of the change of law they advocate, it is Congress they should persuade. We reject the invitation to substitute our judgment for that of Congress.”