Capitol Records LLC v. ReDigi Inc, U.S. District Court,
Southern District of New York, No. 12-00095
On 30 March 2013, a New York Federal Court ruled that the resale
of digital music files on a web-based service owned and operated by
ReDigi Inc (ReDigi), which created a secondary
market for digital music, constituted an infringement by ReDigi of
the copyright of Capitol Records, LLC
ReDigi created a website to facilitate the sale and purchase of
legally acquired digital music files. This included software
designed to ensure that users would not retain copies of songs they
had sold. Capitol filed legal proceedings alleging that ReDigi
reproduced and distributed sound recordings owned by Capitol and
others, without consent, which constituted an infringement of
In the U.S., owners of copyrighted work have certain exclusive
rights, including the right to reproduce and distribute copies of
On the issue of unauthorised reproduction, ReDigi submitted to
the court that it "migrates" digital files from the
user's computer to the ReDigi server and no reproduction of
files occurs. However, the court held that the movement of a file
from one material object to another (that is, from the user's
computer to the ReDigi server) results in a reproduction,
regardless of whether the original file still exists.
ReDigi did not contest that the distribution of digital files
occurred on its website, however it asserted that the distribution
was protected by the "fair use" and "first
sale" defences under U.S. law.
The U.S. "fair use" defence permits unauthorised
reproduction of copyrighted work for purposes such as criticism,
comment, news reporting, teaching, scholarship or research. The
Court ruled out the fair use defence on the basis that ReDigi
facilitates and profits from the resale of copyrighted commercial
recordings, with a likely detrimental impact to the primary market
for those goods.
ReDigi asserted that the "first sale" doctrine
protected its service. The first sale doctrine provides that an
individual who knowingly purchases a copy of a copyrighted work
from the copyright holder receives the right to sell, display or
otherwise dispose of that particular copy. So when you purchase a
lawfully produced music CD, you are entitled to sell it without
seeking permission from the copyright holder. The doctrine has
statutory recognition under U.S. copyright law. There is no
equivalent legislation in Australia.
The first sale doctrine does not, however, protect an individual
who makes unlawful reproductions of a copyrighted work. As the
court found that ReDigi had reproduced the digital files, rather
than there being a resale of the same "particular"
digital file, the court held that the first use doctrine could not
provide a defence to ReDigi.
The court held that ReDigi's service infringed Capitol's
exclusive right of reproduction as well as its exclusive right of
distribution. The court noted that while ReDigi made a number of
policy arguments about why its service should be considered lawful,
these were not straightforward or un-contested and "the
Court cannot of its own accord condone the wholesale application of
the first sale defence to the digital sphere, particularly when
Congress itself has declined to take that step."
Implications for Australia
Although this is a U.S. case, given the novelty of the questions
considered by the court, the global structure of the music industry
and the similarities between U.S. and Australian copyright law, the
case is likely to have a significant influence on the legal
interpretation of digital resales in Australia.
However, the case is not likely to be fatal to the creation of a
digital resale market. ReDigi has announced its intention to appeal
the decision, and to continue to operate an updated version of its
service which incorporates new technology which was not considered
by the court.
Apple and Amazon will be watching with interest. Both have taken
steps to secure digital resale patents and we can expect that they
will find solutions to enable the emergence of lawful digital
resale markets. This may include ensuring that a single digital
sale doesn't turn into multiple digital copies in the secondary
market, creating mechanisms for content creators to consent to
digital resales and share in the proceeds, and creating
"loans" of digital file copies.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This decision will give guidance, particularly to foreign brand owners seeking to protect their rights in Australia.
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