A Flawed Decision Costs ReDigi the First Round of Court Case Over Reselling Digital Music

5069265780_3c7be147e1_mReDigi, a startup that in 2011 launched an online marketplace where users could buy and sell second-hand digital music, violates the copyrights of Capitol Records.

US District Court Judge Richard Sullivan handed down a ruling on Saturday that pretty much ended the case with a decision in favor of Capitol Records. The judge was responding to the summary judgement filings that the 2 parties made last year and it seems he thought that Capitol Records presented a compelling argument.

You can find the ruling here. It give Capitol Records everything they wanted.  ReDigi committed copyright infringement, fair use and the first sale doctrine don’t apply, and ReDigi is liable for direct, secondary, and contributory infringement.

The ruling is 18 pages long and quite technical, but there is one point I wanted to call out. Judge Sullivan pins down exactly why the first sale doctrine does not apply, only his explanation is problematic.

According to the ruling, the song you buy from iTunes cannot be resold unless you want to sell the specific chunk of the hard disk it was sitting on when you first downloaded it (I’m paraphrasing page 6). The judge goes on to exclude situations where users might make copies for themselves and limits the infringement to making a copy on someone else’s hard disk.

This raises some interesting possibilities.  First, it leaves open the possibility that you might burn the music to a CD and sell that. This could be legal. This part of the ruling also leaves a loophole open for a shared streaming service. So long as I still control the music file I uploaded, it could be legal for me to let others stream the music. And then there’s the probability that one can have multiple legal copies of a piece of content; which is is the original?

So is this the end of selling used digital content? Nope. Today’s ruling is a blow to ReDigi’s case but not a fatal one. There are always appeals to higher courts, including the US Supreme Court, so today’s loss is merely a midpoint and not the end of case. This case could go on for years, though I’m not sure ReDigi can afford to litigate endlessly.

Nor does this ruling end any chance that Amazon or Apple might open a used content market.  As I explained back in February, Amazon is going to need to get permission from the copyright holders before they start allowing customers to resell Kindle ebooks.  Today’s ruling does not change that.

ReDigi was committing copyright infringement because they didn’t have the approval of the copyright holder.  That is what I said Amazon would have to get before reselling used Kindle ebooks, and I am still not wrong.

It is a shame that ReDigi might not have the funds to pursue this case to the US Supreme Court. There are several serious issues with the ruling that I suspect the USSC might overturn.

While I will agree that this ruling looks to be technically correct, it is also backward looking. It correctly applies current law to this case but it ignores the fact that the existing law and previous court decisions did not envision the market situation we find ourselves in today.

Thanks to this ruling, there is a significant difference in the rights you might have over the content you purchase. A significant amount of content was sold in digital form in 2012, including over 40% of the music sold in the US and about 21% of the book market. The sales that make up these market segments come with far fewer rights than if, for example, you bought physical media.

My question is whether that is fair to the consumer. Is it reasonable that the content should come with fewer rights just because it was sold in digital form?

Folks, this question needs to be answered by the US Supreme Court. We are at a watershed moment in the history of copyright, the likes of which has not been seen since Sony vs Universal (the Betamax case).

I want this before the US Supreme Court because a strong argument can be made that a customer should have the same rights over the content they purchase no matter the form it was sold in.

Yes, that goes against the accepted interpretation of current copyright law. But is the intent of the law to block resale of legally purchased content or to allow it?  I say that the precedent points to allowing the resale of content that is legally purchased; that has been clear for over 100 years – for physical media. I think it is time to extend that precedent to digital content as well.

image geetarchurchy

17 thoughts on “A Flawed Decision Costs ReDigi the First Round of Court Case Over Reselling Digital Music

  1. Absolutely. I don’t think people realize the dangers apparent in allowing digital goods to exist w/ few rights to the consumer. His notions of what constitutes copying seems very outdated to me, and potentially extemely dangerous in a digital world. It even struck me as absurd to apply a standard for “phonorecords” to digital goods in any case. It seems like the media companies want all the strengths of copyright law with regards to physical goods to carry over to their digital sales with the consumer stuck with all the sacrificing of rights and value. Bring on the appeal!

  2. CDs, DVDs and Blu-Rays are sold in digital form, they’re just distributed on a physical platform. The physical carrier has no bearing on the content or the ability to play the content. You can pull an exact copy of the content off of these carriers.

    With a phonograph record, the physical and the content are intertwined, and inseparable. You cannot pull an exact copy of the content off.

  3. “While I will agree that this ruling looks to be technically correct, it is also backward looking. It correctly applies current law to this case but it ignores the fact that the existing law and previous court decisions did no envision the market situation we find ourselves in today.”

    If what you say is true then this issue does not belong in court at *any* level, but rather in Congress.

    The courts exist to apply and interpret *current* law not to legislate new law. Things get messy when they try. (Note the recent First Sale decision by SCOTUS overturning the lower Courts and returning the status quo ante.)

    As you point out, litigation all too often goes to the deepest pockets.
    Legislation can also go to the side that buys the most politicians but is also can on ocassion go to the side of the public good.

    To everybdy who objects to this decision: Write your Local Congressional representative. Petition for redress; that is your Constitutional right and you have the responsibility to exercise it.
    Separation of powers exists for a reason.

    1. It is easier to convince 9 minds than it is to buy 400 plus. Also, had the Betamax case been handled by the US Congress the MPAA’s lobbyists would have gotten VCRs declared illegal.

      1. The Betamax case was decided on existing law.
        So was the Redigi case.
        And don’t be so sure the current SCOTUS is going to legislate from the bench. Their track record of Congressional deference is pretty consistent,, to the point of being over backwards.
        Again: separation of powers.
        The system works best when the different branchees don’t try to usurp the prerrogatives of the others. Witness the mess at the NLRB with a year’s worth of rulings up in the air.
        Doing it right, even if it is harder leads to settled matters.
        Take shortcuts and you end up with 40 years of culture war.

          1. Not exactly. The BetaMax case was not about timeshifting but about piracy, copyright violation.
            The court found that since recording TV shows for latter viewing was non-commercial it fell under existing fair use. Thus, the device itself had a legal use and the fact that it coud *also* be use to create bootlegs for sale was irrelevant.
            The relevant fact that persuaded the court in this case was that ReDigi cannot ensure that the seller of a music file is not retaining added copies. And they can’t. It really is that simple.
            On the other hand, a resale system mediated by the authenticator of a DRM’ed file *might* pass that test, even without publisher consent.
            But odds are it would have to be a system that locks a file to a single storage or playback device instead of locking it to a user account.

            “How would my life be different without the Betamax decision?
            The Betamax ruling established that it was possible to record media at home, as long as it was for personal use. It made sure that companies producing recording devices couldn’t be sued, even if some people used them in illegal ways. If Betamax had gone the other way, the explosion in VCRs, rental movies, home DVDs and digital video recorders couldn’t have happened, or would likely have been slower and more expensive.

            The case also let personal computers, which can digitize and record audio and video, develop without restrictions.

            What started the fight?
            Sony released the Betamax video recorder for the United States market in 1976. Universal City Studios and Walt Disney Productions promptly sued Sony, contending that recording video at home was copyright infringement.”

            http://news.cnet.com/FAQ-Betamax–techs-favorite-ruling/2100-1027_3-5637912.html

          2. Not exactly.
            The BetaMax case was not about timeshifting but about copyright violation and piracy.
            (Timeshifting was fallout, not the issue being debated.)

            The court found that since recording video for personal use (and remember those early VCRs had camera accessories) was non-commercial it fell under existing fair use law. Thus, the device itself had a legal use beyond recording copyrighted material and the fact that it could *also* be use to create bootlegs for sale or for time-shifting was irrelevant. (In fact, if time-shifting were an explicit legal right, HD content couldn’t be flagged non-copyable as a ot of pay-TV is.)

            The relevant fact that persuaded the court in this case was that ReDigi cannot ensure that the seller of a music file is not retaining added copies. And they can’t. It really is that simple.
            On the other hand, a resale system mediated by the authenticator of a DRM’ed file *might* pass that test, even without publisher consent.
            But odds are it would have to be a system that locks a file to a single storage or playback device instead of locking it to a user account.

            “How would my life be different without the Betamax decision?
            The Betamax ruling established that it was possible to record media at home, as long as it was for personal use. It made sure that companies producing recording devices couldn’t be sued, even if some people used them in illegal ways. If Betamax had gone the other way, the explosion in VCRs, rental movies, home DVDs and digital video recorders couldn’t have happened, or would likely have been slower and more expensive.

            The case also let personal computers, which can digitize and record audio and video, develop without restrictions.

            What started the fight?
            Sony released the Betamax video recorder for the United States market in 1976. Universal City Studios and Walt Disney Productions promptly sued Sony, contending that recording video at home was copyright infringement.”

            http://news.cnet.com/FAQ-Betamax–techs-favorite-ruling/2100-1027_3-5637912.html

          3. So they extended fair use to cover VCRs. Fine. I want them to extend first sale to cover digital content.

            We don’t need Congress to pass a new law; all we need is for the existing body of law that says you own and can sell legally purchased content to be extended to cover all types of legally purchased content. The Supreme Court can do that.

          4. fjtorres: “The relevant fact that persuaded the court in this case was that ReDigi cannot ensure that the seller of a music file is not retaining added copies”

            Not if you believe what the court wrote. The court said it doesn’t matter whether or not you retain a copy.

            What matters is you can’t transfer the copyrighted work independent of the material object in which it is embodied unless you fix the work in a new material object. And that fixation creates a new copy. And that is a no-no because it infringes the exclusive right of the copyright owner to make copies.

  4. Actually, I believe this was the only right and fair-minded ruling. There is no need to create an after-market of “used” goods for something that is in infinite supply. If I sell you a physical book, I no longer have it. But if I sell you a digital copy of an ebook, I could still retain a copy. I have then profited from someone else’s property. Perhaps Amazon, Apple will come up with some sort of “recall” method which removes the file from my account if I “trade it in” for cash.

  5. Once again I feel compelled to point out that the law is not consistent. The law is also not logical — inductive and deductive reasoning is of no avail, unless you’re a judge deciding a case or you’re someone handicapping what judges might decide. The reason we have judges and courts and trials is because the law can never be 100% clear in every instance — or as they say in sports, “On any given day the worst team could beat the best team; that’s why we play the games.”

    Speaking of trials, I’ll also remind that Fair Use is not a right. It is a defense that can be raised at trial. There are, by design, no specific rules as to what is and isn’t fair use — it is for the trial judge(s) to decide in each court case where Fair Use is raised as a defense.

    In the extant case, one should also bear in mind that recorded music operates under somewhat different laws than other intellectual property — different even from non-musical audio recordings such as audiobooks. In particular, the Audio Home Recording Act of 1992 (17 USC 10) provides special dispensation for consumers to make recorded copies of music for noncommercial use (17 USC 1008). The specific wording: “No action may be brought under this title alleging infringement of copyright … based on the noncommercial use by a consumer of such a [recording] device or medium for making digital musical recordings or analog musical recordings.”

  6. First, it leaves open the possibility that you might burn the music to a CD and sell that. This could be legal.

    Nope. Once you burn the music to a CD you have infringed the copyright owners exclusive right to make copies. If you do it for personal backup you may rely on fair use, a defense to infringement. Once you sell it forget fair use as a defense.

    ” This part of the ruling also leaves a loophole open for a shared streaming service. So long as I still control the music file I uploaded,”

    Wrong again. You may upload (required copying and is infringement ) to another computer hard drive for purposes of storage or streaming to yourself. This “space shifting” is fair use much like the old betamax case said when you make a copy (again, infringement) on your VHS you are OK because the “time shifting” is fair use. However, no more fair use defense once you stream the file to someone else.

    “And then there’s the probability that one can have multiple legal copies of a piece of content; which is is the original?”

    Irrelevant. The original fixation of the copyrighted work is a copy no different in nature then any subsequent copy. They are all copies. The only question is whether they are legal copies. You can in some cases make a copy because of fair use.

    “. There are always appeals to higher courts, including the US Supreme Court, so today’s loss is not merely a midpoint and not the end of case. ”

    I would not hold my breath. Damages have not been awarded yet but they will likely be large and therefore reDigi may be unable to post the bond needed to appeal.

    “Nor does this ruling end any chance that Amazon or Apple might open a used content market. ”

    I agree. And I think that that is where a secondary market will develop. But it will mean cutting the copyright owners into the proceeds. WIth a CD I pay once and I can sell or give it to you when I want. With digital I may eventually be able to sell on some approved seconday market because Amazon has the clout to set it up but the record companies will wind up getting a second chunk of my money. That’s a big difference from the older world of phsyical goods.

    “It correctly applies current law to this case but it ignores the fact that the existing law and previous court decisions did not envision the market situation we find ourselves in today.”

    As the Judge said, then rewrite the law. He can’t make it up.

    “My question is whether that is fair to the consumer. Is it reasonable that the content should come with fewer rights just because it was sold in digital form?”

    Both good questions. I think it not fair but I understand the reasons on the copyright owners side. Ultimately the consumer can express its will through the marketplace. But it appears the consumer doesn’t’ care. Digital sales rising verse physical. Me, I buy less digital goods especially books then I would if they were less locked up.

    “Folks, this question needs to be answered by the US Supreme Court. ”

    No. It’s an issue for the people and their legislature not SCOTUS. Practically the market will move first as you suggested of Amazon or Apple. And people will probably accept a cost to the resell by cutting in the copyright owners. Maybe it’s fair because it will counter balance the inevitable piracy that digital goods makes easier.

  7. Below are some excerpts from my post on whitherthebook.wordpress.com titled, E- BOOKS- “IT’S MY E-BOOK, AND I’LL SELL IF I WANT TO, RIGHT?
    (p.s. agrees with Nate.)

    “LAW AND LITERATURE
    Both the p and e versions of The Storyteller are listed for sale on Amazon, and the price is the same, $12.74. However, according to the publisher, you don’t own an e -book, you just get a license, a right to use it, but not to sell it, because you don’t own it. “Hmmm…,”you may ask, “But, it’s advertised for sale, not for rent.” And, “If I had known that, I wouldn’t have bought it.” You then ask, “Isn’t there something unfair and deceptive about this.” And, “Isn’t there a law about this?” Actually, virtually every state, and the federal government, have consumer protection laws prohibiting unfair and deceptive business practices, including unfair and deceptive advertising. Check out this article from the National Consumer Law Center (NCLC).

    The Amazon patent Abstract contains this curious provision, “When a digital object exceeds a threshold number of moves or downloads, the ability to move may be deemed impermissible and suspended or terminated.” But why, you ask, should you pay to sell something that Amazon insists you don’t own.

    The EU has decided a case against Oracle, Case C-128/11 UsedSoft v. Oracle, which says that a person in the EU has the right to sell their used software, because the software was originally first sold to them. An article post by Steven J. Vaughan-Nichols in ZDNet, July 5, 2012 titled, “Could Oracle ruling lead to used e-book, music
    sales?” stated,

    ‘The Court of Justice of the European Union (CJEU), the EU’s
    equivalent of the U.S. Supreme Court, has ruled against Oracle in a software
    copyright case. Specifcally, the CJEU ruled that “Where the copyright holder makes
    available to his customer a copy—tangible or intangible—and at the same time
    concludes, in return [for] payment of a fee, a license agreement granting the
    customer the right to use that copy for an unlimited period, that rightholder sells
    the copy to the customer and thus exhausts his exclusive distribution right.” In
    short, you can and buy sell downloaded used software in the EU… and that suggests
    that you might be able to resell used e-books, digital music, and video as well.’”

    Further Reading:
    First Sale Doctrine Upheld in Kirtsaeng Great Article Post by Nate Hoffelder and comments by “Void.”

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