by Dennis Crouch
Capitol Records v. ReDigi (2nd Cir. 2018) [16-2321_opn]
ReDigi designed its business to take advantage of the first sale doctrine of copyright law — particularly creating a market for resale of lawfully purchased digital music files. In the system, ReDigi first verifies that a song was lawfully purchased (e.g., via iTunes) and then migrates the digital file from the user to ReDigi servers. In the process, ReDigi first locks the song from use on the user’s system; then breaks the song into packets; deletes the song on the user’s computer; transfers the packets to the ReDigi system (copy + delete); and finally reassemble the packets on the ReDigi server. Each packet is deleted immediately upon transfer — and so results in an unrecoverable failure if some of the packets don’t arrive at the destination. (In that case ReDigi compensates the seller). The seller can keep using the song until it is sold — at that point the system effectively transfers possession to the new party. Note here, that this is how the system is designed. Some folks have hacked around these precautions and so some duplicates are getting through — allowing the seller to keep listening to the music.
Recording companies sued and won. On appeal now, the 2nd Circuit has sided with the copyright owners — holding that the first sale doctrine does not apply here because DeRigi is making copies (first sale only applies to the actual copy sold).
In the course of transferring a digital music file from an original purchaser’s computer, through ReDigi, to a new purchaser, the digital file is first received and stored on ReDigi’s server . . . At each of these steps, the digital file is fixed in a new material object “for a period of more than transitory duration.” Cartoon Network. The fixing of the digital file in ReDigi’s server, as well as in the new purchaser’s device, creates a new phonorecord, which is a reproduction. ReDigi version 1.0’s process for enabling the resale of digital files thus inevitably involves the creation of new phonorecords by reproduction. . . .
We conclude that the operation of ReDigi version 1.0 in effectuating a resale results in the making of at least one unauthorized reproduction. Unauthorized reproduction is not protected by § 109(a).
The court then went on to hold that the use is also not a “fair use.” In the analysis, the court correctly concluded that the ReDigi secondary market is likely to undermine the marketplace for new digital files from the Record Company. However, I believe the court used the wrong baseline — the focus here should have been on whether the copy+move resale is a fair-use extension of the first-sale doctrine.