Appeals Court Hands ReDigi Another Loss; Says Reselling Mp3s Violates Copyright Law

from the copies-of-copies dept

Things were never going to turn out well for mp3 remarketer ReDigi. Its business model -- facilitating third party sales of digital files -- worked better as a rhetorical device. It attempted -- perhaps inadvertently -- to obtain an answer to the eternal question: do you own the stuff you buy? When it comes to digital goods, the answer is almost always "no." Platforms shut down. Rightsholders dissolve contracts. File formats lose support. And DRM is all over everything, frequently making pirated goods superior to those people pay for.

ReDigi claimed it could harness this untapped market, somehow providing a sales platform for infinite goods that wouldn't allow sellers to sell the same goods infinitely. It claimed it could verify the destruction of the "original" files -- something that could be easily circumvented by storing additional copies where ReDigi couldn't "see" them.

Obviously, ReDigi was sued almost immediately. Records labels sought -- but didn't get -- a permanent injunction blocking ReDigi from getting into the used mp3 business. But they did get a win in court roughly a year later. Five years ago, a federal court ruled in favor of record labels, finding that ReDigi's business resulted in the production of new copies of files -- something not allowed under copyright law. If ReDigi just allowed for the swap of physical media (hard drives, thumb drives with mp3s on them), perhaps it might be lawful. But even then, the court seemed unwilling to entertain the hardware option as anything but rhetorical

ReDigi appealed. Five years later, it finally has a decision in hand, but not the one it wanted. Eriq Gardner of The Hollywood Reporter has more details.

Writing for the panel of Second Circuit judges, Pierre Leval doesn't buy ReDigi's defense that there is no unauthorized reproduction at play when consumers use ReDigi to resell their digital files.

ReDigi argued that from a technical standpoint, its process of transfer shouldn't be seen as making a reproduction because its system simultaneously causes packets of data to be removed from a consumer's computer as those packets are transferred.

Leval responds, though, that during the transfer, a new copy of the digital file is "fixed...for a period of more than transitory duration," and as such, the fixing creates a new phonorecord, i.e., a reproduction.

So much for the Right of First Sale, at least in this context. Copyright law is a "patchwork" (as Judge Leval calls It), a polite, appellate-level way of calling it a twisted mess of pre-digital-era artifacts that have resisted modernization thanks to legacy industry interference. There may be a path towards something more coherent, but those who can do something about it aren't really doing anything about it. From the decision [PDF]:

The copyright statute is a patchwork, sometimes varying from clause to clause, as between provisions for which Congress has taken control, dictating both policy and the details of its execution, and provisions in which Congress approximately summarized common law developments, implicitly leaving further such development to the courts.

[...]

Notwithstanding the purported breadth of the first sale doctrine as originally articulated by the courts, see Bobbs‐Merrill Co., 210 U.S. at 350 (“[T]he copyright statutes, while protecting the owner of the copyright in his right to multiply and sell his production, do not create the right to impose . . . a limitation at which the book shall be sold at retail by future purchasers . . . .”); Bureau of Nat’l Literature v. Sells, 211 F. 379, 381‐82 (W.D. Wash. 1914) (finding no infringement, in light of first sale doctrine, where reseller re‐bound used books and held them out as new books),

Congress, in promulgating § 109(a), adopted a narrower conception, which negates a claim of unauthorized distribution in violation of the author’s exclusive right under § 106(3), but not a claim of unauthorized reproduction in violation of the exclusive right provided by § 106(1). If ReDigi and its champions have persuasive arguments in support of the change of law they advocate, it is Congress they should persuade. We reject the invitation to substitute our judgment for that of Congress.

This is about as unhelpful as the laws being discussed. Congress left it to the courts "for further development." The court is saying, "Take it up with Congress." That leaves the Right of First Sale ripe for further development but both Congress and the courts feel the other party should handle it.

ReDigi's case was never going to be the standard bearer for First Sale rights in the digital age. But it could have paved a path forward for better protections for consumers, allowing them to at least recoup some of what they've spent should a third party or rightsholder decide the stuff you paid for is no longer yours. Until that happens, digital media is worth less than the hardware storing it in terms of resale value.

Filed Under: copyright, first sale, resale, used mp3s
Companies: redigi

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

Secondhand MP3 Dealer Redigi Expanding Into Europe... And Tangling With A Whole New Set Of IP Laws

from the used-'licenses,'-anyone? dept

Redigi, the 'used' mp3 dealer, is now sending out invites for its expansion into Europe. While many may question how big the market is for secondhand mp3s, Redigi obviously feels there's more money to made overseas.

In the US, Redigi is operating in the shadow of a lawsuit filed by the RIAA (with EMI/Capitol Records taking the lead). The RIAA wanted the company shut down, but the presiding judge refused to grant the injunction, citing concerns about the right of first sale, as well as a lack of "irreparable harm," as claimed by EMI. However, he did note that EMI's arguments were "compelling," which likely means that sooner or later, the RIAA will get its way. (The outcome of Kirtsaeng vs. Wiley will also have some impact this lawsuit, should it reach its conclusion first.)

Over in Europe, Redigi is relying on a ruling against Oracle (who was taking on UsedSoft, a software reseller), which claimed its software couldn't be resold. "Copyright exhaustion" is the key here -- a concept related to the right of first sale -- meaning the copyright holder's control ends once the sale is made. More importantly, the European court declared that the software could be sold even if Oracle's contract with the end user prohibits resale.

Obviously, this doesn't sit well with many rights holders. As we're all too aware, when we buy a digital good, we're usually exchanging our money for a license, rather than something we can resell or transfer or even move from computer to computer. These licenses allow the control to remain with the copyright holder (or the retailer/distributor) for long after the famous "first sale." As Redigi's CEO points out, if you block the customers' right of first sale, then they have vastly overpaid for these licenses.

[M]ost lawful users of music and books have hundreds of dollars of lawfully obtained things on their computers and right now the value of that is zero dollars.

Whether or not Redigi will be successful in Europe remains to be seen, but its business model is applying pressure to rights holders and their representatives to define more clearly what they feel customers are entitled to when they purchase a license disguised as a digital download.

Oh, and Redigi's CEO mentions books for a reason. The company is hoping to expand its current offerings from mp3s to ebooks... and video games. Rolling up on Amazon and re-triggering the AAA game developers' distaste for the secondhand market means things could get interesting in a hurry.

Filed Under: copyright, europe, first sale, mp3s, secondhand sales, used mp3s
Companies: redigi

A Market For Used MP3s... Or A Parody To Prove A Point?

from the this-can't-be-serious dept

ChurchHatesTucker was the first of a few readers to send in the news about a new website claiming to have set up an online system for selling "used" or secondhand MP3s. The whole idea, of course, is fairly ridiculous, which leads me (and CHT) to believe that this is more making a statement to show just how silly it is whenever recording industry types try to treat digital copies as if they were physical objects, or declare that "downloading an MP3 is no different than walking out of a shop with a CD you haven't paid for." If so, bravo for the satire. If, however, this actually is real, I imagine it will survive all of about a day, before it gets shut down.

Filed Under: mp3s, used mp3s