Capitol Records LLC v. ReDigi Inc., the applicability of the first sale doctrine to digital music 3

The start-up ReDigi is judicially battling music giant Capitol Records (EMI) over whether digital music can be resold after it has been lawfully purchased. Launched in October 2011, ReDigi bills itself as an online marketplace for second-hand digital material. When users sign up to its service, they are required to download proprietary software which verifies if a file was bought legally. If the song checks out, it is then erased from their hard drive and uploaded to ReDigi’s computer servers where it is sold to someone else. ReDigi says its software is designed to prevent sellers from reinstalling a sold song to their computer and offers users the chance to check their libraries for illegal music.

PROCEDURE

EMI has sued RDigi’s for copyright infringement. EMI’s demands ReDigi to pay a penalty of $150,000 for each song in EMI’s catalogue that was sold via the service since its launch. In February 2012 EMI failed to get summary judgment. Therefore the case has proceeded to a full court hearing, which started on October 5, 2012. A judge at the district court in Manhattan, New York, heard last Friday opening arguments of both parties in the present case.

Plaintiff Claim (EMI)

Inapplicability of the first sales doctrine to digital files

EMI claims that the first sale doctrine does not apply to digital files as the only way to move those files is to make duplicates, and there is no guarantee that the original file has been deleted on resale.

EMI says that it owns the “exclusive rights” to manufacture, reproduce, distribute and sell digital versions of the copyright protected works of its artists, and refers to agreements signed with authorized services such as Apple’s iTunes and Amazon’s MP3 in support of its argument.

EMI also contends that given the widespread piracy of sound recordings it is questionable whether ReDigi can effectively determine that digital files have been legally obtained in the first place.

Finally, EMI notes that ReDigi has acknowledged that there is no way to ensure that users do not retain copies of the files they upload. Even though ReDigi’s software is designed to run “continuously” in the background to detect songs on any device attached to the user’s computers at a later date, users could presumably back content up on an external hard drive or other device.

 Preview songs constitutes another act of copyright infringement

A secondary claim by EMI is that 30 second clips/preview of songs offered by ReDigi and stored on users’ hard drives constitute another act of unauthorized copying.

ReDigi defense

First sale doctrine authorizes resales of digital content

ReDigi says that its software is designed to comply with existing United States copyright laws, claiming that EMI’s distribution rights are limited to material objects, and if digital files are judged to be material objects it can invoke the first sale doctrine which authorizes resales.

No copy involved

ReDigi argues that there is no copy involved, i.e. that it makes no unauthorized copies of songs but instead provides digital music storage and a marketplace for tracks legitimately bought from Apple’s iTunes store.”

IMPACT OF CAPITOL RECORDS LLC v. ReDIGI INC. CASE ON THE MEDIA INDUSTRY

US digital music sales are set to surpass CD and vinyl sales for the first time ever this year, according to research firm Strategy Analytics. It estimates that digital sales will rise to $3.4bn (£2.1bn), compared to $3.38bn for physical sales.”Most lawful users of music and books have hundreds of dollars of lawfully obtained things on their computers and right now the value of that is zero dollars,” said ReDigi’s chief executive John Ossenmacher.” Legal experts note that the financial impact of ReDigi’s business model could be larger if it is judged to be legal.”What this case points out is that the copyright statutes were written in an era when works of authorship were only available in tangible form,” said Jonathan Handel, an entertainment attorney at TroyGould lawfirm.

The EMI v. ReDigi lawsuit will in fact be closely watched by the media industry as it could set a precedent. For instance, Google has written a letter to the judge arguing that the company had a “specific and vital interest” in the outcome.

ADAPTABILITY OF THE FIRST USE DOCTRINE TO THE DIGITAL WORD

As Billy Barnes points out, the durability of the first sale doctrine is increasingly being tested in a world where entertainment products (such as books and movies) are delivered not as a physical product but as a digital stream.  I used to be able to take my CDs to any CD store and sell them once I was no longer interested in listening to them – to what extent, if any, do or should I have the same right if what I purchased was not a physical disc but a downloaded track (or book, or movie, etc.)?

COMPARATIVE LAW: EUROPE & CANADA

Europe:

Europe has already issued a ruling on a related case. Indeed, in July 2012, the Court of Justice of the European Union sided in favour of UsedSoft, a German company that resold Oracle software (Case C-128/11 Press and Information UsedSoft GmbH v Oracle International Corp.), arguing that “an author of a software cannot oppose the resale of his ‘used’ licences”.

Canada

Concerning the 1st claim, the ability to apply the first sales doctrine to digital sales are even more relevant in Canada because, unlike in the United States, Canadian copyright law does not have a clearly defined “first sale” doctrine, particularly with respect to copyright law.  in Canada and in most of the commonwealth countries, the “first sale” doctrine is referred to as the concept of “exhaustion” (for the sale of the relevant product has “exhausted” the owner’s rights in it). This doctrine of exhaustion is fundamental to the balance between author’s rights and users’ rights. Indeed, the Supreme Court of Canada in Théberge v. Galerie d’Art du Petit Champlain inc., 2002 SCC 34 stated the following at paras. 31-32,

The proper balance among these and other public policy objectives lies not only in recognizing the creator’s rights but in giving due weight to their limited nature. In crassly economic terms it would be as inefficient to overcompensate artists and authors for the right of reproduction as it would be self-defeating to undercompensate them. Once an authorized copy of a work is sold to a member of the public, it is generally for the purchaser, not the author, to determine what happens to it.

Some years ago, Macklin and Leger wrote a report for the International Association for the Protection of Intellectual Property which observes the lack of an exhaustion doctrine in Canada.  More recently, Jeremy de Beer and Robert Tomkowicz have written “Exhaustion of Intellectual Property Rights in Canada“.  De Beer and Tomkowicz examine recent Supreme Court of Canada cases to tease out the contours of Canada’s “exhaustion” doctrine, and encourage the courts to more precisely define its limits.

In light of the ill-defined doctrine of exhaustion, one may wonder what would be the outcome of EMI v. ReDigi case in Canada?

Concerning the second claim i.e. that that 30 second clips/preview of songs offered by ReDigi and stored on users’ hard drives constitute another act of unauthorized copying, it could be interesting to see what impact the Supreme Court of Canada’s ruling in Society of Composers, Authors and Music Publishers of Canada v. Bell Canada, 2012 SCC 36 will have on this claim. One may remember that in this case the Canadian Supreme Court ruled that 30 to 90 second music clips offered by online music stores such as Apple constituted fair dealing.

A POTENTIAL JUDICIAL BATTLE BETWEEN ReDIGI & THE DIGITAL BOOK INDUSTRY?

Redigi has already announced plans to expand its business into the ebook market. This decision may ipso facto have tremendous repercussions on the digital book industry. This could lead to another judicial battle between ReDigi and digital book companies (such as Amazon) over whether digital book can be resold after it has been lawfully purchased.

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