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US judge rules against ReDigi in resale case

By | Published on Tuesday 2 April 2013

ReDigi

US District Judge Richard Sullivan has ruled against ReDigi in its copyright infringement battle with Capitol Records, now a Universal Music subsidiary of course.

As previously reported, ReDigi is a US-based digital start-up that enables users to resell their MP3 collections for profit. The service was controversial within record industry circles from its launch in 2011, with Capitol going legal in January 2012.

The record industry claimed that ReDigi’s platform enabled users to make copies of copyright material without licence, which constitutes infringement, and in doing so opened up the digital company itself for liability for that infringing activity.

ReDigi countered that the resale of MP3s was no different to the resale of CDs, which is allowed in the US under a specific bit of law known as the ‘first sale’ doctrine. It added that ReDigi technology verified the authenticity of the MP3 for sale, and ensured that the original copy was deleted on the seller’s devices, so that the sale of any one MP3 could only happen one time, and only one copy of the digital file would exist at the end of the transaction.

Many record label insiders questioned the ability of the ReDigi platform to really ensure the original MP3 file was deleted after any sale, while Capitol’s lawyers argued that was irrelevant anyway, because for the transaction to occur at all a mechanical copy of the original file would be made, and that required a licence under US copyright law. The first sale doctrine, they said, did not apply.

And this weekend Sullivan concurred with that interpretation of American copyright law. The judge had initially denied Capitol’s bid to secure a summary judgement on this case last year, saying that the intricacies of copyright law at play were too complicated to rule without a full hearing. The case properly reached court last October, with both sides presenting detailed arguments on which this weekend’s ruling was based.

In his judgement Sullivan specifically states that the fact that the original MP3 file is deleted in the ReDigi resale process is irrelevant, because unlicensed copying still takes place. He also specifically states that the first sale doctrine is not relevant (as well as noting that another recent headline-grabbing court case on that doctrine, Kirtsaeng v Wiley, which confirmed that it applied to products originally sold outside the US, made no difference here, because of the undeniable copying).

According to Reuters, the judge writes: “ReDigi facilitates and profits from the sale of copyrighted commercial recordings, transferred in their entirety, with a likely detrimental impact on the primary market for these goods. It is beside the point that the original phonorecord no longer exists. It matters only that a new phonorecord has been created”.

Responding to the ruling last night, ReDigi confirmed its intent to appeal, while also stating that the judgement only applies to the first version of its technology, which has since been superseded by what the company calls ReDigi 2.0, which, it says, Sullivan specifically excluded from his judgement, adding that consideration of that software would require a second round of legal action.

A spokesman told CMU: “We are disappointed in Judge Sullivan’s ruling regarding ReDigi’s 1.0 service technology. For those who are unaware, ReDigi 1.0 was the original beta launch technology, which has been superseded by ReDigi 2.0. The updated service incorporates patent pending ‘Direct To Cloud Technology’ and ‘Atomic Transfer Technology’ that the court stated are not affected by its recent ruling”. It remains to be seen if Capitol launches new litigation regards the new technology in addition to fighting any appeal efforts by ReDigi.

Noting the Kirtsaeng v Wiley case, ReDigi added: “The case has wide-ranging, disturbing implications that affect how we as a society will be able to use digital goods. The order is surprising in light of last month’s United States Supreme Court decision in Kirtsaeng v Wiley, which reaffirmed the importance and applicability of the First Sale Doctrine in the United States Of America”.

Meanwhile, noting concurrent debate on this issue in the European Union, where ReDigi has plans to properly launch, the statement concluded: “Within the past year the European Court Of Justice has also favourably underscored the importance of the ‘first sale’ or the ‘copyright exhaustion’ doctrine and its direct application to digital transactions”.

As well as not commenting on ReDigi 2.0, Sullivan’s statement did not rule on Capitol’s separate claims of performance and display right infringement, nor offer any opinion on damages. Both sides were asked to respond to the ruling by 12 Apr. Capitol is expected to push for both damages and an injunction to force ReDigi to cease operating its resale website.

As previously reported, the ReDigi ruling has impact beyond one digital start up, with Amazon known to have interests in joining the digital product resale market, and Apple also thought to be dabbling in this space. Both will have been reading Sullivan’s ruling closely yesterday.



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