Southern District Not Buying Digital Music Marketplace

ounding executive editor of Wired Magazine Kevin Kelly once observed that, at its core, the Internet is the world’s largest copying machine and that the digital economy has been built on a stream of copies. Unfortunately for the hopes of digital music reseller ReDigi, Judge Sullivan of New York’s Southern District agreed, granting Capitol Records’ motion for summary judgment late last month.

Through its Media Manager software and Cloud Locker service, ReDigi purported to “transport” tracks that its users had purchased legitimately on iTunes to third parties seeking to buy “used digital music” at reduced prices. After verifying a track had been purchased from iTunes, ReDigi users uploaded their files, packet-by-packet, to “lockers” on ReDigi’s remote server, so that the data never existed in two locations simultaneously. While ReDigi took the position that the files had been migrated, and therefore the activity was protected under the defense of “first sale” (which applies to the distribution right under section 106(3) of the copyright statute), Capitol argued that this process necessarily involved making copies, thereby involving the reproduction right under section 106(1).

Looking beyond whether the original file was legitimately purchased or whether the original file was deleted, the court held that whenever digital music is embodied in a new material object, such as a hard drive, the reproduction right is necessarily implicated. This initial holding set the tone for the entire opinion. The court included an analysis under the fair use defense, but Judge Sullivan found each factor weighing against ReDigi. Included in the court’s findings on fair use was that the reproduction and distribution of full creative works by a commercial, non-transformative service plainly undercutCapitol’s primary market.

In its analysis of whether to apply the first sale doctrine, which allows for copies of a work to be freely distributed without authorization following an initial sale, the court first noted that to the extent that such a defense was available, it would be restricted by its own terms to distributions and not the reproductions held earlier to be occurring incident to resales through the ReDigi platform. Moreover, because such reproductions were not held to be fair use, even the distributions of music stored in the Cloud Locker services would not be permissible, as the files would not be considered “lawfully made” under the Copyright Act. Additionally, the mechanics of the service would prevent users from claiming that they were owners of a particular copy, as ReDigi distributes reproductions of the original files, and the users are not selling material objects – in other words, “copies” as defined under the copyright statute.

Taken in conjunction with the Supreme Court’s recent Kirtstaeng ruling, the ReDigi opinion may provoke additional pressure to reconsider the scope of the first sale doctrine. As noted by Judge Sullivan, technological change may have outpaced § 109(a), but the court’s role is only to decide what the law is. Unless the appeals court disagrees with the district court’s finding, ReDigi may need to look to Congress to change the law.

If you have any questions about this article, please contact an attorney in the CDAS Copyright Practice Group.