US – Rights Not Exhausted After First Sale

ReDigi, a US company, allows its customers to re-sell their digital music through its online marketplace. Users of the service can buy used digital music at a fraction of the price currently available on iTunes and other recognised sources.

Users must download ReDigi proprietary software to their computer. This software only permits legally purchased music (e.g. iTunes) to be uploaded and sold on ReDigi’s cloud based marketplace. The software detects and prompts users to delete copy music files. Legal files undergo a second verification once uploaded to the marketplace and the original music file is deleted from the user’s computer. No royalties or fees are paid to the copyright holder.

In 2012 ReDigi was sued by Capitol Records for copyright infringement of music of artists such as Katy Perry, Coldplay and Frank Sinatra. ReDigi argued that the ‘’first sale doctrine’’ under US copyright law applied i.e. the rights of the copyright holder are exhausted after the first sale of the music. The Judge disagreed, stating that the first sale defence is limited to material items, like records and that ReDigi is not distributing such material items; rather it is distributing reproduction of the copyright code embedded in new material objects.

The Court has not yet confirmed the amount of damages to be paid and ReDigi may appeal the decision.

EU – First Sale Exhausts Rights

By contrast, in July 2012 the European Court of Justice (ECJ) ruled that used Oracle software licences may be resold without Oracle’s permission.   It held that the distribution right of the copyright holder (in this case Oracle) is exhausted when the customer downloads the software and enters the licence agreement specifying the right to use the copy for an unlimited time in return for a fee.

It would be interesting to see ReDigi’s model tested before the ECJ. Applying the principle in the Oracle case, it seems likely that a court would find no infringement by ReDigi. The polar opposite positions adopted by the EU and US courts gives rise to a fascinating conflict.  It is early days yet but this promises to be a very interesting topic.