ReDigi Loses: You Can't Resell Your MP3s (Unless You Sell Your Whole Hard Drive)

from the a-big-first-sale-loss dept

This is hardly a surprise at all. In fact, we expected this kind of ruling all along. ReDigi, the company that was trying to build a "market" around "used MP3s" has lost at the district court. As you may recall, ReDigi tried to set up a system that monitors your own files, so that if you "sell" a used MP3, you have to make sure it's been removed from your own system. As you might imagine, that system is not foolproof, but some effort has been made (and it's only allowed for reselling MP3s ReDigi can prove you've purchased, such as via iTunes, and not for files just ripped from CDs). While I fully expected ReDigi to lose, the ruling is still fairly distressing in just how badly it distorts other parts of the law, which may harm other, even more reasonable uses. Hopefully, ReDigi will appeal and fight back against the more extreme interpretation from the district court here.

First, the court looks into the question of whether or not a transfer of a copyrighted file, where only one file remains at the end, still violates the "reproduction" right. That is, if Bob transfers a file to Alice, and Bob's copy of the file is immediately deleted, is that still a reproduction under the Copyright Act? The court says yes:

...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 the transfer – constitutes reproduction within the meaning of the Copyright Act. The Court holds that it does.

The Copyright Act provides that a copyright owner has the exclusive right “to reproduce the copyrighted work in . . . phonorecords.” Copyrighted works are defined to include, inter alia, “sound recordings,” which are “works that result from the fixation of a series of musical, spoken, or other sounds.” Such works are distinguished from their material embodiments. These include phonorecords, which are the “material objects in which sounds . . . are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” Thus, the plain text of the Copyright Act makes clear that reproduction occurs when a copyrighted work is fixed in a new material object.

Of course, that same bit of the Copyright Act also makes clear that "copying" does not apply to purely digital files, but the court tap dances around that argument. Basically, it says whether or not there are more in the world is meaningless. All that matters is if a copy was made, even if the original was destroyed.

Simply put, it is the creation of a new material object and not an additional material object that defines the reproduction right. The dictionary defines “reproduction” to mean, inter alia, “to produce again” or “to cause to exist again or anew.” See Merriam-Webster Collegiate Edition 994 (10th ed. 1998) (emphasis added). Significantly, it is not defined as “to produce again while the original exists.” Thus, the right “to reproduce the copyrighted work in . . . phonorecords” is implicated whenever a sound recording is fixed in a new material object, regardless of whether the sound recording remains fixed in the original material object.

Basically, under this interpretation, you can never "transfer" a digital file. You can only make a reproduction under copyright law. And, yes, computers transfer files by making copies of them, but it seems a bit ridiculous that the whole concept of a transfer can be wiped out because of that. In fact, by this interpretation, even streaming (which still involves all the data being temporarily copied to your local computer) would count as reproduction. ReDigi pointed this out, noting the possibility of merely cleaning up your own hard drive being considered infringing, but the court buys Capitol Records's (EMI) argument that such uses are protected under other theories.

Moving on to the question of distribution, ReDigi doesn't deny that it's distributing files, but says that it's protected by fair use and (more importantly), first sale. Again, however, the court doesn't buy it. Part of the issue may be that ReDigi "abandoned" an argument it made earlier that merely transferring a file to a cloud locker for personal use is fair use, so it's left arguing that other aspects of its service are covered by fair use, but that's much more difficult under the basic four factors test. On this part, it's not that surprising that ReDigi failed to convince the court, as I'm not sure I see the fair use argument either.

The first sale part is where it gets more troubling. Effectively, the court wipes out first sale for digital goods, arguing that because (as above) each transfer is not really a "transfer" but a "copy," first sale doesn't apply. That is, first sale only applies to the initial "copy" "made under this title." But, the court argues, because the sale involves making a new copy, it's not covered by first sale.

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.” ... Moreover, the statute protects only distribution by “the owner of a particular copy or phonorecord . . . of that copy or phonorecord.” 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.

That seems silly. Selling a legally purchased MP3 is absolutely nothing like selling a cassette recording of a vinyl record. When ReDigi points out that, under this interpretation, digital files have no first sale rights, the court hits back that this is not true. After all, it argues, you can still sell your hard drive with the original file on it. No, seriously. That's the court's response.

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.

The court argues that if such an interpretation is ridiculous (though it argues it is not) then it's up to Congress to fix it.

With that out of the way, the court says that ReDigi is guilty of direct infringement, contributory infringement ("the court finally concludes that ReDigi's service is not capable of substantial noninfringing uses"), and vicarious infringement. Basically, a triple play and ReDigi is completely out of the inning. While I'm still not convinced about the fair use argument, the court basically killing off first sale for digital goods is a pretty big problem, and hopefully higher courts (or, dare we dream, Congress?) will fix such an obviously nutty ruling.

Filed Under: copyright, distribution, fair use, first sale, mp3s, reproduction, transfer, used mp3s
Companies: columbia records, emi, redigi

Once Again: Just Because You Can Go Indie, Doesn't Mean You Need To

from the details-matter dept

For years and years we've argued that there still is a role for labels -- even major labels, if they are able to do more reasonable deals that embrace new opportunities, rather than shun them. In fact, we've pointed to many different examples of pop stars on major labels doing creative things to connect with fans and give them a reason to buy. Nothing in that says that major labels have no place any more. What we have noted is that the overall market has changed and there are a lot more options. We've also noted that, historically, being used to their gatekeeper position, the major labels have treated many artists badly, signing them to questionable contracts, where very, very few of them end up making out well.

The reality today is that you don't need to go that route if you don't want to. That doesn't mean that there is no need for major labels at all -- even if some will confuse those two statements. It just means if you want to be a successful musician, it's now a choice, rather than a requirement. In short: major labels can and do play a role in helping some artists. Historically, I think they've done a pretty bad job of it (mostly representing their own interests much more than the artists'), but that doesn't mean they don't do certain things well. And for artists who need those certain things -- with radio play being a big one -- it may be reasonable to do a deal with a major, though, preferably with eyes wide open and (if possible) on their own terms, rather than the labels'. The point of what I've said all along is that you can now succeed without the labels if you want to. But for those who wish to use the labels, that should be an option to. It's just that the rise of alternatives should mean that the labels become more willing to change their terms to be less artist-unfriendly. It also likely means that we'll see more overall competition and that many artists will find alternatives appealing. As such, the majors will be forced to adjust over time, even doing more reasonable deals.

I bring up all of this again, because there's a lot of attention this week over the news that Trent Reznor has signed some sort of deal with Columbia Records (owned by Sony Music) for his new(ish) band, How to Destroy Angels, leading a bunch of people to claim that he's "abandoning the DIY" market. You can see everything there is to know in the statement Reznor released last week, which doesn't go into many details, but it certainly hints at the idea that this is not a standard-issue major label deal:

Regarding our decision to sign with Columbia, we've really spent a long time thinking about things and it makes sense for a lot of reasons, including a chance to work with our old friend Mark Williams. There's a much more granular and rambling answer I could give (and likely will in an interview someplace) but it really comes down to us experimenting and trying new things to see what best serves our needs. Complete independent releasing has its great points but also comes with shortcomings.

I'll be interested to hear about the details eventually, because that certainly hints to there being much more to this than just "signing with a major." And there's nothing I disagree with in what he says. Being completely independent does have its great points, but it also makes certain things much more difficult. I don't think anyone's denied that. Of course there are also well known shortcomings when working with a major label. So, it's a case of tradeoffs, and when you have someone in a position to negotiate a more favorable deal that can hopefully minimize the bad side of a label deal, and get the good part, that seems like a perfectly reasonable strategy for those who want it. I think that Reznor likely would have been fine staying indie for this release, but depending on what he's doing, there may be perfectly reasonable arguments for doing this deal.

I know that there are some people who think that everyone absolutely should go indie, but I've never said any such thing, nor do I believe it. I think that going indie is now a much more viable option than it's been in the past, but going to a major label certainly does not preclude being innovative. In many ways, I think of it similarly to the way I view startups as well. It's less and less necessary to raise venture capital to do a startup -- but that doesn't mean that raising venture capital is necessarily a bad thing. There are certain opportunities that really require it. If you go in with your eyes wide open and can negotiate a favorable deal that lets you do what you need to do, more power to you. In the long run, I think that there are much bigger opportunities in focusing on better connecting with your fans, and historically major labels have sometimes made that more difficult. But if an artist sees good reason to work with a major, there's nothing inherently wrong with it.

Filed Under: business models, diy, how to destroy angels, major labels, trent reznor
Companies: columbia records, sony

How The Record Labels Are Only Ten Years Behind In Their Thinking About Business Models

from the eventually-they'll-get-there dept

The NY Times Magazine is running an interesting profile of Rick Rubin, the well-known producer who had tremendous success over the past twenty years producing all sorts of successful musical acts -- from the Beastie Boys to Slayer to Johnny Cash -- and who took over as the co-head of Columbia Records back in May. While the story itself is interesting and focused on some of Rubin's peculiarities and his key focus on finding and producing good music -- there are a few other interesting tidbits that come out. The first is how Rubin was completely pissed off at Columbia prior to joining the company because the Sony rootkit debacle hit just as a Neil Diamond album Rubin produced had come out to great fanfare. It was apparently number 4 on the charts -- the highest ever for a Diamond opening. Except, Columbia is a subsidiary of Sony BMG and so the Neil Diamond album was included among those that had the rootkit -- and the furor over that got it pulled from the shelves, and that basically killed its commercial prospects. So, at least we know that Rubin won't be a fan of such things.

However, the article suggests that Rubin and others in the industry are much more interested in setting up some sort of universal subscription system that would allow any subscribers access to any music on any platform. What's most amusing about this is that this is exactly the proposal the EFF suggested many, many years ago, which recording industry executives insisted would never work. What's even funnier is they might be right now, after managing to screw up all sorts of goodwill from customers. Back when the EFF suggested it, it probably still could have worked. However, Rubin is exactly right on where the industry is headed if it doesn't figure out these new business models quickly: "The future technology companies will either wait for the record companies to smarten up, or they'll let them sink until they can buy them for 10 cents on the dollar and own the whole thing." That's why I've always figured that things would work out in the end. If the RIAA members keep shooting themselves in their collective feet, then the problem will eventually take care of itself. Of course, the labels could avoid a lot of the problems if they learned how to actually embrace certain aspects of file sharing. It's not clear that Rubin (or anyone else in the industry) has gone that far yet. They're just still working through the ancient EFF plan they derided when it first came out. In fact, one of Rubin's other questionable ideas is setting up a fake word-of-mouth marketing organization, where Columbia has hired a bunch of young adults to promote their music online on blogs and in forums and such. Hasn't anyone explained to them that word-of-mouth is about people who legitimately enjoy the music -- not those who are paid to promote it? File sharing was legitimate word-of-mouth marketing. Hiring young adults to spam forums is not.

Filed Under: business model, columbia, music, riaa, rootkits
Companies: columbia records, riaa, sony