Resale Of Legal Digital Music Downloads Not Covered Under First Sale Copyright Doctrine

The U.S. District Court for the Southern District of New York held that digital music files lawfully made and purchased cannot be resold under the first sale doctrine of the Copyright Act.  Capitol Records, LLC v. ReDigi Inc., Case No. 12 Civ. 95 (RJS) (S.D. N.Y., March 30, 2013) (available here).  Capitol Records (“Capitol”) sued ReDigi, a virtual marketplace for pre-owned digital music, for copyright infringement.  The Court granted Capitol’s motion for partial summary judgment on the claims that ReDigi directly and secondarily infringed Capitol’s reproduction and distribution rights under the Copyright Act, 17 U.S.C. § 106

ReDigi’s website is the first of its kind, offering a market place for used digital music.  The website allows users to buy and sell legally downloaded music online.  ReDigi’s software analyzes the user’s computer and compiles a list of digital music files eligible for sale based on where the music file original source.  ReDigi’s software constantly runs on the user’s computer to ensure that the user does not retain a copy of a music file previously sold or uploaded for sale.  While the software cannot detect copies stored elsewhere, if a copy is detected, the software prompts the user to delete the file.  If the user does not delete the file, the user’s account is suspended.  ReDigi sends its users to YouTube or iTunes to listen and view promotional material of the songs.  ReDigi also has several incentives to encourage marketplace activity, such as offering credits for users who post files.  ReDigi earns 60% of from each digital music file sale on its website.

Under the Copyright Act, 17 U.S.C. § 106, the owner of a copyright has the exclusive right to reproduce and distribute copies of the copyrighted work.  However, these rights are limited by the “first sale doctrine” of § 109, which states that “the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled,
without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”  17 U.S.C. § 109.

“Because the reproduction right is necessarily implicated when a copyrighted work is embodied in a new material object, and because digital music files must be embodied in a new material object following their transfer over the Internet, the Court determines that the embodiment of a digital music file on a new hard disk is a reproduction within the meaning of the Copyright Act.”  ReDigi, Slip Op. P. 6.  As a result, the Court concluded that ReDigi’s services infringed on Capitol’s right to reproduction because the process of moving the digital music file from a seller’s computer to ReDigi’s virtual storage locker, and then to the buyer’s computer, constitutes two instances of reproduction.

Capitol also has the exclusive right “to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership.” 17 U. S. C. § 106(3).  ReDigi did not dispute that sales (distribution) occurred on its website.  ReDigi’s argument was that the distribution falls under the fair use and first sale defenses of the Copyright Act.  The Court concluded that ReDigi’s website infringed Capitol’s exclusive right to distribution.

ReDigi argued that its use fell under the first sale doctrine of the Copyright Act.  Under the first sale defense, “once the copyright owner places a copyrighted item [here, a phonorecord] in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution.”  ReDigi, Slip Op. P. 11 (internal citations removed).  The Court held that ReDigi’s distribution of Capitol’s copyrighted works was not protected by the first sale doctrine because the distribution was not “lawfully made” under the Copyright Act.  Further, the first sale doctrine only protects the owner of a particular copy’s distribution of that copy.  “Here, a ReDigi user owns the phonorecord that was created when she purchased and downloaded a song from iTunes to her hard disk. But to sell that song on ReDigi, she must produce a new phonorecord on the ReDigi server. Because it is therefore impossible for the user to sell her ‘particular’ phonorecord on ReDigi, the first sale statute cannot provide a defense.”  ReDigi, Slip Op. P. 12.  The Court rejected ReDigi’s contention that the first sale doctrine was ambiguous given the changes in technology since its enactment, stating that the term “phonorecord” cannot, by definition, be uploaded and sold on ReDigi’s website.

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