It was recently announced that ReDigi, an online marketplace facilitating the sale and purchase of second-hand digital music (purchased from platforms like iTunes), will soon be launching in the UK. ReDigi works by transferring a file from the seller’s computer, verifying it has been deleted, and then selling it on. Tracks on ReDigi reportedly retail at a typical discount of around two-thirds of the price of a track on iTunes.
ReDigi’s UK launch comes while it is in the midst of a copyright infringement case in the USA. Capitol Records LLC v ReDigi has seen ReDigi accused of copyright infringement by the major record company and producer Capitol Records, which acts for various famous artists such as Coldplay, Norah Jones, Katy Perry and Lily Allen.
While judgment is awaited in the US, ReDigi’s UK operation should be afforded comfort from last year’s European Court of Justice (“ECJ”) decision in Oracle International Corp v Usedsoft GMBH (C128/11) (“Oracle”). In that case the ECJ held that the exhaustion of rights principle under Article 4(2) of the Software Directive (2009/24/EC) (which states that when an intellectual property rights holder sells a copy of program, it ‘exhausts’ its rights and cannot interfere with the subsequent re-sale or distribution of that program) meant that Oracle could not legally prevent Usedsoft from re-selling used licences to its product (even if the original licence contract purported to prohibit such actions) at a significant discount to the original retail price.
However, in Oracle the ECJ also laid down certain conditions that must be met for the legitimate sale of second-hand software. For example, multiple licences cannot be divided, and the seller must be unable to continue to use the software following the sale. The ECJ also made it clear that the exhaustion principle did not apply to continuing services, such as updates and patches, or software as a service, thus meaning copyright holders did not lose their monopoly entirely.
Oracle should provide some protection for ReDigi’s European operations when it launches. However, exactly how this protection will be reconciled with iTunes’ copyright protection system and restrictions on interfering with digital rights management (“DRM”) protection remains to be seen. It is also unclear at this stage if and how the use of second-hand digital music obtained from ReDigi (or any similar service) will operate alongside the continuing services iTunes offers its users, for example in the form the cloud based streaming service iTunes Match, which might fall within the exceptions to the exhaustion principle accepted by the ECJ in Oracle.