Capitol Records v. ReDigi: District Court Denies First Sale Protection to Digital Music Resales

By Evan Brown

On March 30, Judge Richard J. Sullivan of the United States District Court for the Southern District of New York issued a groundbreaking ruling denying first sale protection to resellers of digital music. Along with the Kirtsaeng case, on which the Supreme Court ruled in March, the ReDigi case was watched by many in the arts and technology spheres as a case in which the courts would determine the applicability of the first sale doctrine in the 21st-century economy. Yet, while the Supreme Court in Kirtsaeng viewed the doctrine expansively, holding that copyrighted materials purchased in foreign countries could be legally resold in the United States, the ReDigi court held that the nature of digital file transfers renders the files unfit for resale.

ReDigi burst on the scene in October 2011 with a pioneering business model based on the resale of digital music files. However, digital files are fundamentally different from physical media in that they can only be transferred through creation of a copy, leaving the original intact after the copying/transfer process. This makes it effectively impossible to resell a digital music file in the manner that one can resell a physical copy of a CD, record, or tape. ReDigi addressed this problem by requiring the use of software that would make sure that the reseller deleted the original music file from her system after putting the file up for sale. The ReDigi software scans and monitors the reseller’s computer, and if a resold file is found in the system the user is warned to delete it. Failure to heed that warning results in a ban from the ReDigi system. While not a perfect solution—for example, users could create copies of the files and store them on external memory media like hard drives or flash drives, and then delete the original while keeping the copy so long as it was not used on the same computer—this was at least an attempt to make digital files effectively resalable.

This business model relies on the first sale doctrine to avoid infringement. The doctrine, codified in §109 of the Copyright Act, allows for the resale of media containing a copyrighted work without granting any rights to the work itself. In the case of physical music media, the doctrine allows for resale by any purchaser following the first sale. This is why you can buy used CDs and records at stores, on eBay, or at garage sales. This created the fundamental problem at issue in the ReDigi case. Consumers have grown accustomed to reselling their music, and many have a sense that unwanted music should be resalable. However, before the ReDigi case, it was not at all clear whether the first sale doctrine should apply to digital files, because the language of §109 applies specifically to “a particular copy or phonorecord.”

In an order that at times appears somewhat out of touch with contemporary developments—for example, Capitol Records is described as a “recording label” known for producing “vinyls”—Judge Sullivan granted Capitol’s motion for summary judgment on its claims of copyright infringement. The judge concluded that a transfer of a digital music file produced a new phonorecord within the definition provided in §101 of the Copyright Act. This is because the phonorecord must be a “material object,” which can include a hard drive containing the digital file (which is but a series of instructions to software programs) but cannot include the digital file itself. Therefore, when the instructions are sent to a new hard drive, a new phonorecord is produced. This constitutes a breach of the copyright owner’s reproduction right. But this also means that regardless of what a reseller does with the original file—whether she keeps it or deletes it—a digital transfer is ineligible for first sale protection, as a new and distinct “phonorecord” is created by the “transfer” and the originally-purchased phonorecord is not transferred at all.

The implications of this reading of the Copyright Act may be far-reaching when it comes to a user’s legal rights to digital files. But the most immediate effect of the ruling is to cast doubt on the viability of any digital music resale business. Companies like Apple and Amazon are working on technologies that avoid creating a new copy in a digital transfer, but these technologies are untested. It also seems likely that the ReDigi ruling will be appealed, but until then, it will likely carry great weight for the affected companies. Yet the ruling, based as it is on the particular wording of Copyright Act provisions that predate the development of file-based digital music distribution, seems to be at odds with widespread consumer sentiment that music should be resalable. Until Congress, higher courts, or new technologies make digital resale viable, this opposition between law and consumer expectations will remain.