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Federal Court Rules that First Sale Doctrine Does Not Apply to Digital Music Resale

Earlier this week, the U.S. District Court for the Southern District of New York ruled in favor of record label Capitol Records LLC in its dispute against Redigi Inc., a facilitator of online music resale.  The Court held that Redigi violated the Copyright Act when it facilitated the sale of used digital music files, even though Redigi’s program ensured that seller’s copies are deleted upon sale.

This program was designed to avoid the legal problems associated with “traditional” digital transfers — “selling” a digital file means making and transferring a copy of that file onto the buyer’s computer, which has long been viewed as “reproduction” of a protected work within the meaning of the Copyright Act.  “Reproduction” is prohibited by the Act because it yields more copies of the work than existed prior, and only the copyright holder has the right to create such new copies.

This is where the “First Sale Doctrine” comes in, or should come in, as Redigi argued.  This doctrine states that once a copy of a work is sold, that copy can be resold to another buyer without infringing on copyright.  This doctrine is what allows used bookstores or record stores to operate freely.  Because such a transaction does not create an additional copy of the work, the copyright holder’s rights are not infringed.

At first glance, Redigi’s service seems to comply with the First Sale Doctrine because it requires the seller to delete the file after selling.  Thus, the number of copies in existence remains the same both before and after the transaction.  However, the Court in Capitol Records LLC v. Redigi, Inc. held that it was the “creation of a new material object and not an additional material object that defines the reproduction right.”  Even though the file was eventually deleted from the seller’s computer, the buyer’s file was still, technically, a copy of that original file and therefore a new “reproduction” within the meaning of the Copyright Act.

This ruling seems to comply with the “letter” of the Copyright Act, though perhaps not the “spirit” of the Act or the First Sale Doctrine.  If the ruling stands, it may have consequences for online streaming services, which briefly place copies of streamed files on a user’s computer before playing and deleting them.  However, the real problem here might be that the long-recognized First Sale Doctrine was created, according to the Court in this case, “in a world where the ease and speed of data transfer could not have been imagined.”  So, in the Court’s view, it is up to Congress to bring the Doctrine into the 21st Century and, for now, its hands are tied. 

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