Digital First Sale: A U.S. District Court Tackles Used MP3 Sales

As many of us clear out our CD collections and move to digital music, more and more used CDs are making their way to garage sales, used music stores, eBay, Goodwill, and more. We don't worry about being sued for copyright infringement, because the first sale doctrine protects this resale. Should the sale of used mp3s be treated any differently? In other words, should the medium matter?

The U.S. District Court for the Southern District of New York recently decided just that, holding that the first sale doctrine does not extend to the sale of used mp3s. In this case, Capitol Records, LLC v. ReDigi Inc., No. 12 Civ. 95 (RJS), Vivendi (parent of Capitol Records) sued ReDigi for copyright infringement, alleging that ReDigi makes and assists in making unauthorized reproductions and distributions of copyrighted works. This holding comes at an interesting time - just a month after the USPTO granted Amazon.com a patent for a system supporting a "secondary market for digital objects."

In describing its service, ReDigi's site explains, "ReDigi is a free cloud service that allows you to sell your legally purchased digital music. An online marketplace where you can buy pre-owned digital music for as low as $0.49. Keep your music collection fresh and light by storing your unused music in your cloud and streaming it to any device. Discover a new way to enjoy your digital music today."

To simplify ReDigi's process: Users who sign up for ReDigi download their "Media Manager," complete with a Verification Engine which analyzes the user's computer and identifies music files purchased on iTunes as eligible for sale. The user may then upload any of these eligible files to ReDigi's Cloud Locker (ReDigi's server) and ReDigi deletes all copies from the user's computer and connected devices. If the file is purchased, the user's access to the file is terminated, and the ownership and access is transferred to the purchaser. ReDigi cannot check for or otherwise control any copies that may have been made and saved on unconnected external devices.

In an order from March 30th, Judge Sullivan found that in the process of transferring the music file from the user's computer to ReDigi's Cloud Locker, an unauthorized reproduction occurs, and the online database and sales infringe Capitol Record's distribution rights. Judge Sullivan further rejected ReDigi's first sale defense, writing, "Put another way, the first sale defense is limited to material items, like records, that the copyright owner put into the stream of commerce." Focusing on the language of Section 109(a) of the Copyright Act, which permits an owner of a lawfully obtained copy "to sell or otherwise dispose of the possession of that copy or phonorecord," the Court held that the first sale doctrine only protects the sale of that particular, singular copy of the work and does not extend to the digital copies available on ReDigi's site. On the site, the user is not selling their particular phonorecord, and in this way, the court distinguishes digital goods from traditionally tangible goods.

Judge Sullivan's order appears to misunderstand digital resale as a process, stating that 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." Drawing this analogy, Judge Sullivan fails to recognize that the work in question neither changes medium nor results in two copies. ReDigi's users are not changing the form of their copy of Taylor Swift's latest single, or duplicating it in order to have an original and a copy. Rather, a single copy of the mp3 is transferred from the user's computer to ReDigi's server. While the file is copied in order to facilitate the transfer from one storage base to another, its ultimate form stays the same and the process contemplates that only one complete, playable copy of the work exists at any time