Capitol Records, LLC v. ReDigi, Inc., No. 12 CIV. 95 RJS, 2013 WL 1286134 (S.D.N.Y. Mar. 30, 2013)

The Southern District of New York recently held that the first sale doctrine was not applicable to the resale of digital music files even where the original files are disposed of.

There was a lot of buzz about what impact, if any, the Supreme Court’s recent decision in Kirtsaeng would have on Capitol Records v. ReDigi. Kirtsaeng held that the first-sale doctrine applies to copyrighted goods first sold outside of the U.S. regardless of where the copies was manufactured. The first-sale doctrine is a defense to copyright infringement, which says that once an authorized copy of a copyrighted work is sold, the owner of that copy can sell it to a third party without infringing the rights of the copyright owner. Before Kirtsaeng, it was unclear whether the first-sale doctrine applied to works that were manufactured and first sold outside of the U.S. The Court held that the defense is available to such works. So, if a copyright owner manufactures copies of its works outside of the U.S. and then sells them to a foreign distributor, it is not copyright infringement (though probably a breach of the distributor’s contract) if the distributor re-sells those copies to a U.S. buyer.

ReDigi had nothing to do with foreign manufacture/sale, and importation of copyrighted goods, but because the Supreme Court’s decision changed the meaning of the first-sale doctrine in the eyes of many, there was speculation that the decision might cause the Southern District to apply a comparably broad reading of the first-sale doctrine. ReDigi’s first-sale question turned on whether a digital music file could be resold and covered by the first-sale defense.

ReDigi created a mechanism for owners of digital music to sell their files to others just as they might sell a used record. ReDigi created software that all users were required to download. After a user downloaded the software, it could specify which music files it wanted to offer for sale. At that point, the file would be deleted from the seller’s computer, and held by ReDigi in its Arizona based server and could be accessed and streamed by the seller until someone actually bought the file. Once a purchaser came along, the file would be transferred from the server to the buyer and simultaneously deleted from ReDigi’s server. ReDigi argued that since the only remaining copy at the end of the transaction was the one with the buyer, that it and the seller should be protected by the first-sale doctrine.

ReDigi did not operate quite like a used record store, however, because it is physically impossible to transfer the same digital music file from one computer to another without making a copy. The only way to invoke the first-sale doctrine would be to transfer not the digital music file, which is the work itself, but the physical embodiment of the work, which is the copy, which in this case would be the computer’s hard disc that the file was stored on. The court held that because the transferring of the file as opposed to the physical embodiment of the work was impossible to do without first making a copy, it was violating the copyright owner’s reproduction right. The first-sale doctrine is a defense only to a copyright owner’s distribution right. In essence, ReDigi was making a copy of a record for its server, making a copy of that copy to sell to a third party, and then deleting the original authorized file and its unauthorized copy. This, said the court, was not like a record store. Record stores do not need to destroy anything the last we checked. Moreover, because ReDigi was violating the reproduction right by making an unauthorized copy, it still violated the distribution right when it distributed that unauthorized copy. And of course, the first-sale doctrine could not apply to the distribution right because it was not the first copy that was being sold.

ReDigi also tried to argue that its use was protected by other defenses such as fair use, but the court did not accept ReDigi’s arguments. It held that what ReDigi was really asking the court to do was legislate from the bench, something it could not do.

ReDigi was an interesting case in that it reminded everyone about the virtual unavailability of the first-sale doctrine in the digital context. Whether Congress will ever act to ensure the first-sale doctrine or some other defense is available to encourage a secondary market of digital works remains unclear. This could create a lot of uncertainty going forward as the world becomes increasingly digital (think for example about the future of 3-D printing). In any event, for now, the first-sale doctrine does not, and seemingly cannot, apply to digital music files.