Capital Records v ReDigi: resale of digital music copyright infringement

ReDigi runs a digital music resale business. Buyers of tracks from iTunes or ReDigi can sell them using ReDigi’s service. The service scans hard drives of users and transmits copies of tracks to its cloud. Buyers wanting the music can acquire copies at a discount from iTune’s price from ReDigi. ReDigi was sued for copyright infringement. The novel question was whether a digital music file, lawfully made and purchased, may be resold by its owner through ReDigi under the first sale doctrine. In Capitol Records, LLC v. ReDigi Inc., 2013 WL 1286134, (S.D.N.Y., March 30, 2013) a US District Court found ReDigi’s service infringing on just about every asserted ground.

Not surprisingly, the upload to ReDigi’s cloud and the transmission to each buyer infringed the US reproduction right. According to the Court:

Given this finding, the Court concludes that ReDigi’s service infringes Capitol’s reproduction rights under any description of the technology. ReDigi stresses that it “migrates” a file from a user’s computer to its Cloud Locker, so that the same file is transferred to the ReDigi server and no copying occurs. However, even if that were the case, the fact that a file has moved from one material object – the user’s computer – to another – the ReDigi server – means that a reproduction has occurred. Similarly, when a ReDigi user downloads a new purchase from the ReDigi website to her computer, yet another reproduction is created. It is beside the point that the original phonorecord no longer exists. It matters only that a new phonorecord has been created.

The transmission of copies to users also infringed the distribution right and neither of these infringing acts met the criteria to be a fair use.

ReDigi had argued that it could not be liable for direct infringement because it lacked the necessary volition required by US copyright law. Essentially, it contended that the acts of copying and distribution associated with its service were performed automatically by its pre-programmed computers and that it could not be held liable for the very acts it intended its machines to perform. If there was liability it was the users of the service who used its equipment to engage in acts of direct infringement.

Some US cases such as Cartoon Network LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir.2008) and Costar Group, Incorporated v. Loopnet, Inc., 373 F.3d 544 (4th. Cir. 2004) have suggested that service providers may lack the necessary volition to satisfy causation-based liability doctrines when the relevant acts of infringement are carried out by pre-programmed machines at the request of users of a service. Other cases have either implicitly rejected the doctrine or limited its application. A recent decision of the Full Court of the Federal Court of Australia rejected the doctrine. See, National Rugby League Investments Pty Limited v Singtel Optus Pty Ltd [2012] FCAFC 59 (April 2012). A prior decision in Singapore expressed the view that this doctrine could be anticipated to have “absurd results”. See, RecordTV Pte Ltd v MediaCorp TV Singapore Pte Ltd and Others [2009] SGHC 287 (21 December 2009), affirmed in part, rev’d in part in RecordTV Pte Ltd v TV Singapore Pte Ltd, [2010] SGCA 43 (1 December 2010).

District Court Judge Richard Sullivan in ReDigi, rejected the “volitional conduct” defense stating:

On the record before it, the Court concludes that, if such a case could ever occur, it has occurred with ReDigi. ReDigi’s founders built a service where only copyrighted work could be sold. Unlike Cablevision’s programming, which offered a mix of protected and public television, ReDigi’s Media Manager scans a user’s computer to build a list of eligible files that consists solely of protected music purchased on iTunes. While that process is itself automated, absolving ReDigi of direct liability on that ground alone would be a distinction without a difference. The fact that ReDigi’s founders programmed their software to choose copyrighted content satisfies the volitional conduct requirement and renders ReDigi’s case indistinguishable from those where human review of content gave rise to direct liability. See, 633 F. Supp. 2d at 148; Playboy Enters., Inc. v. Russ Hardenburgh, Inc., 982 F. Supp. 503, 512-13 (N.D. Ohio 1997). Moreover, unlike Cablevision, ReDigi infringed both Capitol’s reproduction and distribution rights. ReDigi provided the infrastructure for its users’ infringing sales and affirmatively brokered sales by connecting users who are seeking unavailable songs with potential sellers. Given this fundamental and deliberate role, the Court concludes that ReDigi’s conduct “transform[ed] [it] from [a] passive provider[] of a space in which infringing activities happened to occur to [an] active participant[] in the process of copyright infringement.”, 633 F. Supp. 2d at 148.

ReDigi also contended that its service was legal under the US first sale doctrine. This too was rejected by the District Court on several grounds. First, the doctrine only applies to exempt liability for unauthorized distributions, not making new copies. Second, the doctrine is limited to distributing lawfully acquired copies, not the distribution of infringing reproductions made by users and ReDigi.

As an initial matter, it should be noted that the [first sale] defense is, by its own terms, limited to assertions of the distribution right. 17 U.S.C. § 109 (referencing Section 106(3)); see Nimmer on Copyright § 8.12. Because the Court has concluded that ReDigi’s service violates Capitol’s reproduction right, the first sale defense does not apply to ReDigi’s infringement of those rights. See Design Options v. BellePointe, Inc., 940 F. Supp. 86, 91 (S.D.N.Y. 1996).

In addition, the first sale doctrine does not protect ReDigi’s distribution of Capitol’s copyrighted works. This is because, as an unlawful reproduction, a digital music file sold on ReDigi is not “lawfully made under this title.” 17 U.S.C. § 109(a). Moreover, the statute protects only distribution by “the owner of a particular copy or phonorecord . . . of that copy or phonorecord.” Id. 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. Put another way, the first sale defense is limited to material items, like records, that the copyright owner put into the stream of commerce. Here, ReDigi is not distributing such material items; rather, it is distributing reproductions of the copyrighted code embedded in new material objects, namely, the ReDigi server in Arizona and its users’ hard drives. The first sale defense does not cover this any more than it covered the sale of cassette recordings of vinyl records in a bygone era.

ReDigi also argued that the limitations of the US first sale doctrine should be extended to cover digital resales. The Court rejected this argument both because it did not have the jurisdiction to broaden the first sale doctrine and because good policy reasons existed not to do so.

The Court disagrees. ReDigi effectively requests that the Court amend the statute to achieve ReDigi’s broader policy goals – goals that happen to advance ReDigi’s economic interests. However, ReDigi’s argument fails for two reasons. First, while technological change may have rendered Section 109(a) unsatisfactory to many contemporary observers and consumers, it has not rendered it ambiguous. The statute plainly applies to the lawful owner’s “particular” phonorecord, a phonorecord that by definition cannot be uploaded and sold on ReDigi’s website. Second, amendment of the Copyright Act in line with ReDigi’s proposal is a legislative prerogative that courts are unauthorized and ill suited to attempt.

Nor are the policy arguments as straightforward or uncontested as ReDigi suggests. Indeed, when confronting this precise subject in its report on the Digital Millenium Copyright Act, 17 U.S.C. § 512, the United States Copyright Office (the “USCO”) rejected extension of the first sale doctrine to the distribution of digital works, noting that the justifications for the first sale doctrine in the physical world could not be imported into the digital domain…

Finally, ReDigi feebly argues that the Court’s reading of Section 109(a) would in effect exclude digital works from the meaning of the statute. (ReDigi Mem. 21.) That is not the case. Section 109(a) still protects a lawful owner’s sale of her “particular” phonorecord, be it a computer hard disk, iPod, or other memory device onto which the file was originally downloaded. While this limitation clearly presents obstacles to resale that are different from, and perhaps even more onerous than, those involved in the resale of CDs and cassettes, the limitation is hardly absurd – the first sale doctrine was enacted in a world where the ease and speed of data transfer could not have been imagined. There are many reasons, some discussed herein, for why such physical limitations may be desirable. It is left to Congress, and not this Court, to deem them outmo



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