New York Court Finds that Digital Resale of Music Constitutes Copyright Infringement

ReDigi, Inc. markets itself as an online marketplace for digital used music. Visitors to its website can sell their legally acquired digital music files and buy used digital music from others at a fraction of the price found at iTunes. A user must first download ReDigi’s “Media Manager” which analyzes the user’s computer to build a list of digital music files eligible for sale. A file is eligible only if it was purchased on ITunes or from another ReDigi user. Files downloaded from a CD or another file-sharing website are ineligible. In a typical transaction, a user may upload an eligible file to a remote server after which the file n longer exists on the user’s server. ReDigi asserted the process involved the “migration” of the user’s files to the server. While access for the user can still exist, once the user decides to sell the music, access to the file is terminated.

Capitol Records, the holder of copyrights in a number of recordings on ReDigi’s website sued for copyright infringement. Although it failed to obtain a preliminary injunction, Capitol’s motion for summary judgment was granted with the Court finding that ReDigi infringed the reproduction rights as well as the distribution rights of Capitol. As to the reproduction rights, the Court rejected ReDigi’s “migration” claim and found that that a reproduction of the file occurs, that is the creation of a new material object. Similarly, Capitol’s distribution rights were infringed by the distribution of the copyrighted music on ReDigi’s website. The Court found that there was no fair use defense as ReDigi profited from the sale copyrighted commercial recordings, transferred them in their entirety with a likely detrimental impact on primary market go these goods. Similarly, though with some added comment, the court denied the application of the first sale doctrine. Initially, the Court noted that the first sale doctrine applies only to assertions of the distribution right, not the reproduction rights also being asserted. Secondly, it found that it would not protect the distribution in any event as this was an unlawful reproduction, so it would not be “lawfully made” as required under the Copyright Act. The Court goes on to state that the first sale doctrine is limited to material items and, indeed, it would be impossible for the user to sell the “particular” phonorecord on the hard drive since all the user can do is reproduce a new one on the ReDigi server. The court conceded that it was for Congress, not it, to address the limitations that ReDigi claimed would result. Nonetheless, in effect, it concluded that the first sale doctrine is inapplicable to the “sale” of any such “used” digital files.

Capitol Records v. ReDigi, Inc.
U.S. District Court, Southern District of New York
March 2013