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Court Rules Against Digital Music Resale Site

A federal judge ruled in favor of the record industry’s contention that a reseller of digital music infringed on copyright, rejecting startup ReDigi’s contention that such virtual transactions were protected by the “first-sale” doctrine.

The unusually lively ruling  was handed down in New York’s Southern District Court on Monday, backing Capitol Records’ contention that the sale of “pre-owned” digital music was different from the resale of physical CDs in a used record store.

Consumers have the right to resell physical goods after the initial purchase without the permission of the copyright owner. But ReDigi, launched in 2011, is challenging whether it applies to virtual goods, as a first-of-its-kind retailer of “pre-owned” digital music. Per the company, a user can sell a legally acquired digital music file through its site, with ReDigi’s technology deleting the track from the seller’s iTunes and storing a copy in its cloud locker to resell to another user.

Even though the process necessarily involves making a reproduction of a copyrighted work, the company claimed that its policies were protected by the “first sale” doctrine because the original track is deleted, and the site would not be creating a cumulative increase in the number of copies of that track. Capitol Records filed suit for copyright infringement nonetheless, arguing that the transfer involved an unauthorized reproduction of copyrighted material.

Calling the case a “fundamental clash over culture, policy and copyright law,” U.S. District Judge Richard J. Sullivan acknowledged the case’s novelty. He wrote that “courts have not previously addressed whether the unauthorized transfer of a digital music file over the Internet – where only one file exists before and after transfer – constitutes reproduction within the meaning of the Copyright Act.  The Court holds that it does.”

RiDigi is expected to appeal.

If pursued far enough, the implications of the case start to plumb metaphysical quandaries whose complexity seems almost disproportionate considering the uncertainty over whether ReDigi’s service even constitutes a functional business model. Nonetheless, Sullivan cited an earlier case involving P2P sharing which held that the transfer of a copyrighted digital sequence onto physical disc space entails a “material object” in which the information would be embodied following a transfer, making that transfer subject to Copyright Act parameters, as “confirmed by the laws of physics.”

In conclusion, however, Sullivan somewhat punted the larger issues at play toward Congress, noting that “the Court cannot of its own accord condone the wholesale application of the first sale defense to the digital sphere, particularly when Congress has declined to take that step.”

Earlier this month, U.S. Register of Copyrights Maria Pallante called for a reevaluation of the Copyright Act, and suggested that such issues are ripe for consideration.

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