U.S. Court Holds First Sale Doctrine Does Not Apply to "Used" Digital Music

Internet startup Redigi founded its business model on the idea that digital music lawfully purchased through iTunes could then be lawfully resold online.  Essentially, Redigi set out to be the used record store of the digital age.  Redigi users sell their lawfully purchased songs by uploading them to Redigi's server, where other users then purchase these songs for less than the cost of buying the song "new" from iTunes.  When a user uploads a song for sale, Redigi's software runs on the user's computer to confirm that no copy of the uploaded song remains behind on the user's computer or personal devices.

Capitol Records, however, disagreed with the lawfulness of Redigi's business model and sued for copyright infringement in January 2012.   

On March 30, 2013 the U.S. District Court of the Southern District of New York ruled on the parties' cross motions for summary judgment and found that first sale doctrine--an affirmative defense to copyright infringement that allows for lawfully obtained copies of copyright protected items to be resold (think used book and record stores)--did not apply to the resale of "used" digital music.  The court's ruling necessarily hinges on the idea that the file is not transported from the original buyer's computer to the Redigi server, but instead that the song is "reproduced" onto Redigi's server.  The court thus found that each and every upload to Redigi's website constituted an unlawful reproduction of the song.  The fact that the original file on the user's computer was deleted was of no consequence because the court considered the file Redigi offers up for sale to be an unlawful copy.  Based upon this conclusion, the court found Redigi liable for infringement of Capitol's reproduction and distribution rights, holding Redigi liable for direct, contributory, and vicarious copyright infringement.  Basically, this means that Redigi was found liable not just for damages attributable to its own infringing activities, but that it was also accountable for facilitating the infringing activities of others.

In a case that, in the court's words, created a "fundamental clash over culture, policy, and copyright law," is there any hope left for Redigi?  As this ruling issued from the district court, appellate review before the Second Circuit Court of Appeals is available.  In addition, the court makes a footnote referencing Redigi's 2.0 version in which users' new iTunes purchases are never actually downloaded to their own devices and instead are directed straight to Redigi's servers.  This way a song is never "reproduced" between the user and the Redigi server.  Because the updated version of Redigi was launched well after the start of the case, the court declined to address whether this new model also constituted copyright infringement.  

Also noteworthy in this opinion are the court's frequent calls for Congress to update U.S. copyright law to better address the quandaries of the digital age, the court opining that it could not condone wholesale application of the first sale doctrine to the digital sphere when Congress has declined to do so.