Capitol Records, LLC v. ReDigi Inc.
Not available (2013)
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Rule of Law:
The first sale doctrine does not protect the resale of a digital music file because the transfer of the file from one material object to another necessarily involves the creation of a new phonorecord, which constitutes an unauthorized reproduction in violation of the Copyright Act.
Facts:
- ReDigi Inc. created and operated an online marketplace for 'used' digital music files.
- To sell music, users downloaded ReDigi's 'Media Manager' software, which verified that music files were legally purchased from iTunes.
- A seller would upload an eligible music file from their computer to ReDigi’s remote server, known as the 'Cloud Locker'.
- ReDigi's system was designed to ensure that after the upload was complete, the original file was deleted from the seller's computer.
- After a sale on the marketplace, the new owner could download the file from the Cloud Locker to their own computer or device.
- ReDigi earned a fee from every transaction, retaining 60% of the sale price, which was conducted using site-specific credits.
- Capitol Records, LLC owns the copyrights for numerous sound recordings that were sold on ReDigi's platform without its authorization.
Procedural Posture:
- Capitol Records, LLC sued ReDigi Inc. in the U.S. District Court for the Southern District of New York for direct and secondary copyright infringement.
- The trial court denied Capitol's initial motion for a preliminary injunction.
- Capitol then moved for partial summary judgment on its claims of infringement of its reproduction and distribution rights.
- ReDigi filed a cross-motion for summary judgment, seeking a ruling of non-liability on all grounds.
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Issue:
Does the resale of a lawfully purchased digital music file on a secondary online marketplace, which requires transferring the file from a user's computer to a remote server and subsequently to a buyer's computer, constitute copyright infringement not protected by the first sale doctrine?
Opinions:
Majority - Sullivan, J.
Yes, the resale constitutes copyright infringement not protected by the first sale doctrine. The Copyright Act is violated because the transfer of a digital music file from one storage medium to another (e.g., from a user's hard drive to ReDigi's server) creates a new material object, or 'phonorecord,' which is an act of reproduction reserved exclusively for the copyright holder. The court reasoned that reproduction occurs when a copyrighted work is fixed in a new material object, and it is irrelevant whether the original object is simultaneously deleted. Because an unlawful reproduction occurs, the first sale defense, which is codified at 17 U.S.C. § 109(a), cannot apply. The first sale defense is explicitly limited to distribution rights, not reproduction rights. Furthermore, the defense only protects the owner's right to sell or dispose of their 'particular copy or phonorecord.' Since the file sold on ReDigi is a new reproduction on a different server, it is not the 'particular' phonorecord the user originally purchased and downloaded from iTunes. The court also rejected ReDigi's fair use defense, finding the use was commercial, non-transformative, used the entirety of the work, and harmed the primary market for Capitol's music.
Analysis:
This decision significantly clarifies the boundary of the first sale doctrine in the digital age, establishing that it does not extend to the resale of digital files that require copying for their transfer. The court's holding reinforces the strength of a copyright holder's reproduction right, making it a powerful tool to prevent the emergence of unlicensed secondary markets for digital goods like music, e-books, and software. The ruling places the onus on Congress to amend the Copyright Act if a digital first sale doctrine is to be created, as courts are unwilling to expand the doctrine's judge-made or statutory scope to accommodate new technology. This case sets a major precedent limiting the 'ownership' rights of consumers over their legally purchased digital media.
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