Copyright law’s First Sale Doctrine is the foundation of the music resale business. This doctrine mandates that a copyright holder’s control over the distribution of any particular, lawfully-made copy or “phonorecord” effectively ends when that particular copy is distributed or sold to its first recipient. Thus, a lawful purchaser of a copy of a copyrighted work is free to resell that particular copy without infringing the copyright holder’s distribution rights (e.g., a consumer or business is free to resell a collection of lawfully obtained CDs).
The digital music resale business, however, was recently presented with a serious obstacle by a Second Circuit decision in Capitol Records, LLC v. ReDigi Inc., 910 F.3d 649 (2d Cir. Dec. 12, 2018). In the decision, written by Judge Pierre Leval, the Second Circuit found that version 1.0 of ReDigi’s online “used” digital music platform infringed Capitol Records’ copyrights.
ReDigi’s platform version 1.0 allowed the owner of a lawfully-purchased digital file of a song to upload that song file to the cloud one block at a time in a “migration” process. During the migration process, ReDigi’s platform deleted each block of the song file from the original owner’s computer. Thus, at the end of the process, only a single copy of the digital file remains, according to ReDigi. After the migration, the “used” digital file was made available so that a purchaser could buy the “used” digital file and download it from ReDigi’s platform using the same migration process.
The Second Circuit concluded, however, that version 1.0 of ReDigi’s platform was not protected by the First Sale Doctrine. The Court found that ReDigi’s “migration” of the digital file to the cloud and, eventually, to the purchaser, created new copies of the digital files (i.e., new “phonorecords”) and, thus, violated Capitol Records’ reproduction rights. Because the First Sale Doctrine only serves as a defense to violations of the distribution right, ReDigi could not assert the doctrine as a defense to making new copies of the digital files.
Still, hope is not completely lost for those in the digital file resale business. The Second Circuit explicitly stated that its rejection of the First Sale defense was limited to version 1.0 of ReDigi’s platform and not to the concept of digital file resale in general. If future versions of a digital resale platform undergo technological enhancements to comply with the First Sale Doctrine, ReDigi or other similar companies may be able to continue operating a used digital file business. Alternatively, the Court noted that digital files may be resold via transfers of physical hard disks containing the files in order to avoid making copies of the files during the transfer (e.g., selling a thumb drive that contains lawfully made digital music files). The Court did not expressly consider whether transfer of digital files via a “virtual hard disk” would comply with the First Sale Doctrine, but this concept raises intriguing questions that merit further consideration.
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